Yearly Archives: 2019

CorralRosales > 2019

A Christmas Smile

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Last Saturday, December 21, some members of the CorralRosales team volunteered at a Christmas party at San Vicente de Paúl Children’s Home. This state institution, managed by the Daughters of Charity of St. Vincent de Paúl Company, is responsible for the care and protection of up to 300 children between zero and twelve years of age.

CorralRosales firmly believes in corporate social responsibility; that is why we are always willing to be part of any humanitarian event or activity.

On this occasion, we decided to share our time, which is the most valuable thing we have. The volunteers of the CorralRosales team spent a day sharing activities, playing games and listening to these little children who need so much attention and love.

65 boys and girls from newborns to adolescents attended the event. They were able to enjoy an afternoon full of fun with a clown, magic tricks and live music. Together the CorralRosales team and the children sang the traditional Christmas carols, played with friends, and ate hamburgers and cotton candy; small pleasures the children thanked with smiles that lit up their faces as well as ours. And as it is to be expected at a Christmas celebration, Santa, Mrs. Clause and their helpers handed out gifts that included toys and clothes.

Without a doubt, it was an unforgettable and very emotional experience, not only for the little ones but also for the entire CorralRosales volunteer team. Having the opportunity to share time with these children reminded us of how fortunate we are and that we can find happiness in small things such as a smile, a hug or a laugh in the company of our friends.

Happy Holidays from the CorralRosales Team!

Public-Private Partnerships in Ecuador

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DATE: 11-12-19

CORRALROSALES IN THE NEWS: 

-Jimmy Rodríguez

MEDIA: Gestión Digital

Ecuador is committed to accelerate the construction of infrastructure and the provision of public services through Public-Private Partnerships (“PPP”). For this purpose, it is essential to plan and prioritize strategic projects by sector; a transparent and predictable legal framework; and, above all, an inter-institutional structure with defined competencies and with the capacity to coordinate, monitor, and control.

The State and the private sector can be complementary agents in the provision of goods, jobs, and services to citizens. One of the fundamental responsibilities of the central and regional governments is to provide high-quality infrastructure and public services in a timely manner. By associating with the State, the private sector contributes with capital, as well as experience and specific knowledge. This figure is known as Public-Private Partnerships.

Chile, Colombia and Peru have had PPP regulations and experiences for at least a decade. In Ecuador, the Law of Incentives for Public Private Partnerships and Foreign Investments was enacted on December 18, 2015. So far, several APP contracts have been signed between the Central Government and private[1] partners. As part of the National Development Plan, The Ministry of Transport has 5 road projects in public tender and 9 other projects on the agenda[2]. On the other hand, although there are some initiatives promoted by the private sector, it is still a pending task of the regional governments to crystallize projects through this instrument.

The PPP scheme ensures the legal stability of the contract and grants access to tax benefits for the private partner, such as income tax 10 year´s exemption, tax outflow (ISD) exemption on imports, financing and payment of dividends, and the reduction of tariffs and VAT applicable to imports related to the project. The applicable law provides the possibility to submit any dispute that may arise between public entities and private partners to a national or international arbitration process.

The timely execution of the projects and the absence of conflicts derives from the capacity of the State to coordinate and monitor the execution of the projects, and cooperation between institutions. For this purpose, the State should have adequate material and human resources to ensure the success of the projects.

Given that the State has limited and scarce economic resources, it is decisive that Ecuador maintains the incentives contained in the Law of Incentives for Public-Private Associations and Foreign Investments, and that it applies a modern and transparent system of PPP which will contribute positively to the development of the country.

If you want to read this article in Spanish, click here

[1] The relevant infrastructure projects are: Posorja Port, Bolívar Port ; Río 7 – Huaquillas Highway; Guayaquil viaduct; and, Chongón – Santa Elena road system.

[2] Ver: https://www.obraspublicas.gob.ec/asociacion-publico-privada-2013-2017_esp/ (2019-11-22)

Solidarity Bike Race

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Last Sunday, the CorralRosales team participated in the Niños de María foundation solidarity bicycle race.

As it has already become a tradition, on November 24 the Niños de María foundation organized its eleventh cycling race. Under the name “Record Niños de María, pedaleando por la educación de 300 niños”, hundreds of participants gathered to raise funds to pay for food and education of 300 children.

The Niños de María foundation, created in 1994 as a non-profit Catholic foundation, welcomes the most vulnerable children in our society into their schools and programs such as: the sewing project “Hilando Futuro”, choir, symphonic orchestra or folkloric dance.

CorralRosales is very committed to social causes. Therefore, we wanted to support this great solidarity initiative taking part in it, since all the money raised from the race registration will be used to support the Niños de María foundation school and projects.

“We decided to participate in this event not only because it allows us to put in our grain of sand and contribute to a better society, but also because it helps us strengthen ties between coworkers in a healthy environment,” says Verónica Fernández, Director of Human Resources of the firm.

The CorralRosales team, who wore a specially designed shirt for the occasion and competed under the business category of the race, was made up of both partners and administrative staff of the firm, and their families. The race route was 21-kilometer long and took place in the Chaquiñán de Cumbayá.

After the race, the team met again and was able to share some of the experiences and anecdotes of the day. Despite the fatigue from the race, everyone agreed with the words of one of the Partners of the firm, Francisco Gallegos: “It has been a pleasure to be able to enjoy an activity with family along with coworkers. Without a doubt an incredible experience that we recommend and that, of course, we are looking forward to repeating”.

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Idealex – Technological Tools in the Workplace

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FECHA: 24-11-19

PROFESIONALES EN LA NOTICIA: 

-Edmundo Ramos
-Rafael Serrano

MEDIA: Idealex

Most companies provide their employees with technological tools (“ICTs”) such as corporate email, mobile phone, and computers in order for them to fulfill their tasks. It is common for the worker to use them for personal purposes, resulting in situations of unauthorized use of work ICTs, or the incorrect handling of information owned by the employer.

Since the employer is the owner of the ICTs, he may establish limits for the proper use of them. Article 46 of the Ecuadorian Labor Code does not establish any laws regarding the treatment of information and the consequent right of the employer to access and control it. Nevertheless, the employer must respect constitutional rights granted for the protection of data, correspondence and privacy. 

The right to inviolability and secrecy protects the communications made by the worker. For this reason, the employer will not be able to access email or information contained in the company’s computer or cell phone without the worker’s consent.

Communications can also be protected by the constitutional right to personal data protection: “The right to personal data protection, which includes access to and decision on information and data of this nature, as well as their corresponding protection. The collection, archiving, processing, distribution, or transferring of this data or information will require the authorization of the holder or the mandate of the law.”

Personal data is all the data or information that makes a person identifiable. In general, corporate emails refer to names, surnames, or positions of the person to whom the email is assigned, just as the cell phone number is linked to a specific person. The definition of personal data would include both the email and the cell phone number. Therefore, since this information can be considered as personal data, the authorization of the holder is required to access and review this information. 

Finally, the right to privacy also protects the use and access to ICTs. The American Convention on Human Rights recognizes this right, which provides the following: “No one can be subjected to arbitrary or abusive interference in his private life, his family, his home or his correspondence, nor of illegal attacks on his honor or reputation.”

The Inter-American Court of Human Rights has indicated, “… The scope of privacy is characterized by being exempted and immune from abusive or arbitrary invasions or attacks by third parties or the public authority.” The right to privacy would apply to personal communications made by the worker using work ICTs.

The rules that define the use and control of technological tools must be in writing in the different legal documents of each company, in order to have the necessary support to sanction their misuse:

Employment Contract: the employer must establish in the employment contract the delivery of technological tools and the use of them. The contract shall also recognize the rights of the employer to recover the ICTs and obtain a backup of the information contained therein.

Internal Work Regulations: It is essential to incorporate in this document, rules that regulate the use of technological tools. Employers may establish sanctions in their Internal Labor Regulations for their misuse or the inclusion of employee’s data and personal information. The internal regulation must establish the ownership of the information contained in these tools, as well as the periodicity for monitoring or supervision.

Internal Policy of the Company: these documents must explain the rights and obligations that the workers have regarding the ICTs. The policies shall establish the right of the employer to access and obtain copies of all the information within these technological tools. Workers must be notified and informed to the worker.  

Delivery / Receipt certificate: At the time the technological tools are delivered, the employer must establish the limitations and conditions under which the tools are delivered. It is important to detail the physical state and the data content of the tools so that, at the time of their return, the worker is responsible for any deterioration not attributable to their normal use.

Training: The employer shall conduct training for workers regarding the importance and limitations of the use of technological tools.

In conclusion, technological tools facilitate the execution of the functions performed by the workers, but their use must be regulated in detail so that both the employer and the worker know the limits and the sheer work-related purpose that must be given to them. The adequate protection of the company’s ICTs and information that they contain will be possible only if there is clarity in the rights and obligations regarding the use of such tools.

Edmundo Ramos’s Bio:

Edmundo Ramos is a partner at CorralRosales. He has more than twenty-five years of expertise representing local and international clients in labor and social security matters. Edmundo leads the CorralRosales Labor Department and participates actively in the area of ​​Dispute Resolution in the management of labor disputes.

Rafael Serrano’s Bio:

Rafael Serrano is an associate at CorralRosales. He has more than five years of expertise in the TMT industry. He leads the Data Protection Department with an emphasis on personal data protection, electronic commerce, and emerging technologies.

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Should filing a claim and not the summon interrupt the statute of limitation?

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The amendment to the General Organic Code of Processes (COGEP), which entered into force on June 26, 2019, modified article 64(4) substantially modifying the interruption of the statute of limitations. Thus, before the reform, COGEP established that: “The effects of citations are… 4. Interruption the statute of limitations.” While after the amendment, it establishes that: “The effects of citations are… 4. Interruption of the statute limitations. If the lawsuit is summoned within six months of being filed, the interruption of the statute of limitations will be rolled back to the date in which the lawsuit was filed.”[1] Due to the amendment in reference, ¿is the right to legal certainty compromised?

Historically, the regulations governing civil procedures in Ecuador contemplated that the statute of limitations was interrupted only through citation. Since the first Civil Code enacted in 1869, until the last amendment to the COGEP entered into force, the citation of the lawsuit had been a concrete and verifiable date, that interrupted the statute of limitations. With the amendment, the interruption is rolled back to the date the lawsuit was filed, which is an unknown fact until the citation is made-, solely if the citation occurs within 6 months after the filing of the lawsuit. Keep in mind that the citation of the lawsuit is a fundamental factor, since only once it is achieved the litigation between the parties in conflict is locked and any legal terms begin to apply.

The Civil Code defines the statute of limitations as a way of acquiring goods or extinguishing rights for not having exercising those rights within the period determined by law[2]. Thus, a legal proceeding may be initiated within the time frame established in the law. If there were no statute of limitations, the right to legal certainty would be violated. It is the responsibility of citizens to initiate proceedings in due time and form or, to plead statute of limitation when having been sued and summoned once the legal term is exceeded.

Legal certainty implies, among other things, that the parties shall know the applicable rules when a process starts. The Constitutional Court has determined that “…the right to legal certainty is understood as the certainty in the application of the law that derives from the obligation of public authorities to respect the Constitution as a supreme law, and the rest of the legal system.” This right to know with certainty the enforcement of the existing norms in the legal system is violated the amendment since, rolling back the date for interrupting the statute of limitation to the moment the lawsuit was filed exclusively if the citation took place within six months, causes the defendant uncertainty.

For example, before the amendment, in a moral damage proceeding, were the statute of limitations ends 4 years after the perpetration of the act, the law allowed the defendant to know the legal framework for his defense. That is, the plaintiff was certain of the time frame stated in the law to exercise his right and initiate a proceeding. The amendment to the COGEP allows the interruption of the statute of limitation to take place not on the date the lawsuit is summoned, but on the date on which it was filed, undermining the defendant´s right to legal certainty.

To a greater extent, in the previous example, before the amendment, if the plaintiff filed a lawsuit for moral damage on the last day, that is, 3 years and 365 days, the statute of limitation would have ended. While with the amendment, if the lawsuit is filed on that same day, the statute of limitation would not have ended as long as the defendant is summoned within the following 6 months. That is to say, in the proceeding for moral damage, the plaintiff would have 4 years and six months for the lawsuit to be summoned and still rightfully exercise the respective proceeding, while before the amendment there were exactly 4 years to summon the defendant.

With the amendment of the article 64(4) of the COGEP, the legislator has allowed the lawsuit citation to interrupt the statute of limitation of the proceeding as long as the defendant is summoned within the following 6 months after the lawsuit is filed, which, in our criterion violates the constitutional right of the defendants for legal certainty.

Mateo Zavala
Associate at CorralRosales
mzavala@corralrosales.com

[1] COGEP, art. 64: “Art. 64.- Effects. The effects of the citation are: […]
4.” Interrupt the statute of limitations. If the lawsuit is summoned within six months of filing, the interruption of the statute of limitations will be rolled back to the date when the lawsuit was filed.”
[2] Art. 2392.- Statute of limitations is a way of acquiring things of others, or of extinguishing the actions and rights of others, for having possessed the things, or not having exercised said actions and rights, for a certain time, and concurring with the other legal requirements.

Counterfeiting and contraband

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The National Customs Service of Ecuador has recently created the Specific Task Force and the Customs Surveillance Corps to combat counterfeiting and smuggling, which seriously affect legitimate business activities as well as the Treasury.

A large majority of the counterfeit goods in Ecuador and in other countries of the region are imported, so those who introduce such items in the marketplace are in the majority of cases are committing the offence of dealing in contraband.

The local production of counterfeits in Ecuador, especially luxury brands and electronic products, is low. Therefore, most of the counterfeit products of recognized or luxury brands (wallets, watches, clothing, electronics, cell phone accessories, etc.) are manufactured outside Ecuador and their entry into the country is almost always illegal.

The illicit entry into the country of counterfeit products prompts the direct action of special Customs groups responsible for control and seizure, and destruction when appropriate. All this is done in order to remove from the market those products that, in addition to being illegal due to their origin, defraud the Treasury of tariffs and other taxes corresponding to imports.

Article 301 of the Criminal Code classifies the crime of contraband punishable by imprisonment for three to five years, and a fine of up to three times the customs value of seized products if said value is equal to or exceeds ten basic unified wages. (Currently US $ 3,940.00)

The same code establishes counterfeiting as an aggravating circumstance of the offence, in which case the maximum penalty will be imposed.

In an astute move, the National Customs Service of Ecuador created the “Specific Task Force”, made up of inspectors of the highest rank and proven reputation inside and outside the institution. This task force was also assigned auxiliary personnel that share the same characteristics and have demonstrated absolute honesty and dedication to their job.

A personal experience confirms what was stated above. On one occasion when the group had to wait approximately two hours to proceed with a seizure, members of the mentioned group decided to make good use of that time carrying out a fieldwork in the surrounding areas; this allowed them to seize more than 15,000 smuggled cigarettes that had entered the country. Having done that, they proceeded with the scheduled seizure.

In each counterfeiting case that we have worked on, we collaborated with Customs authorities providing information and identifying possible seizure targets. Also, when appropriate, the formal complaint was filed, and to prevent the counterfeit products from returning to the market, their condition was corroborated.

With our presence in the operations, offenders see their options to hinder the seizure procedure limited, because when the representatives of the brand owner certify that the seized products are counterfeit, there is no doubt or speculation about their origin.

Local industry and formal commerce in general have made a great effort to comply with mandatory technical regulations, especially labeling. This aspect is very helpful in prosecuting these offences because if the products do not meet the mandatory labeling requirements, they can be considered contraband. Therefore, their seizure is ordered, regardless of whether or not they are counterfeit.

We have decided to continue supporting Customs’ work in the fight against counterfeiting and smuggling, providing the tools to make their work more and more efficient. The constant training of personnel carrying out legitimate activities affected by these offences is another way of supporting the authorities in this work.

 

Eduardo Ríos
Senior Associate at CorralRosales
eduardo@corralrosales.com

Gestión Digital – Draft Law for Fiscal Transparency

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DATE: 7-11-19

CORRALROSALES IN THE NEWS: 

-Andrea Moya

MEDIA: Gestión Digital

The following is a summary of the main amendments proposed in the draft of the “Draft Law for Fiscal Transparency, Optimization of Tax Expenditure, Encouragement of Job Creation, Strengthening of the Monetary and Financial Systems and Responsible Management of Public Finance”

Income tax

Dividends:

  • The taxable income will be 40% of the dividend effectively distributed. The concept of global dividend is eliminated (dividend distributed plus taxes paid by the company) and consequently the tax credit for taxes paid by the company.
  • The exemption for dividends paid to companies and for individuals residing abroad is eliminated. The applicable withholding percentage will be 25%.
  • In the case of dividends distributed in favor of individuals residing in Ecuador, the Tax Authority will establish the withholding percentage.
  • If the company that distributes the dividends fails to report its corporate structure, the withholding percentage applicable to the dividend paid abroad will be 35%.
  • It is ratified that the capital increase with retained earnings (stock dividend) will not be taxed.

Deductions:

  • Interest paid on loans granted by related or independent parties may not exceed 20% of the entity’s profit. Interest paid in excess of this ratio will be considered non-deductible.
  • Indirect expenses allocated from abroad by related parties will be considered non-deductible expenses.
  • The following additional deductions are reduced from 100 to 50%: (i) net increase in employment, (ii) medical insurance and / or prepaid medicine expenses granted to employees; (iii) depreciation of assets that reduce the environmental impact; and, (iv) certain expenses incurred by micro, small and medium businesses, such as: research and development expenses, expenses to improve productivity, and travel and promotion expenses for accessing international markets.
  • The deductibility of advertising and promotion costs and expenses will not be limited.

Others:

  • Payment of the advance income tax is no longer mandatory.
  • The reduction of the income tax rate for exporting entities that reinvest their profits goes from 10 to 8 percentage points.
  • Income obtained abroad that has been subject to tax in the country of origin will no longer be exempted from paying income tax in Ecuador. The tax paid abroad will be considered as tax credit.

Value Added Tax (VAT)

  1. The following goods will be subject to 0%VAT:
    • Flowers.
    • Test strips for glucose.
    • Newsprint.
  1. Digital services:

Digital services will be subject to 12% VAT. Digital services are those provided and / or contracted through the Internet that are automated and require minimal human intervention.

In the case of import of digital services, VAT will be paid by the importer of the service. Credit card issuing entities will withhold the VAT when the digital service provider is not registered in Ecuador.

Excise Tax

  1. Taxable base: The presumptive minimum profit margin to be applied on the ex-customs or ex-factory price is increased from 25 to 30% based.
  2. Taxed goods: The following goods are taxed at the rates described below:
    • Liquids containing nicotine to be administered through nicotine administration systems (electronic cigarettes): 50%
    • Soft drinks with sugar content less than or equal to 25 grams per liter and energy drinks: 11%
    • Soft drinks with sugar content greater than 25 grams per liter: US$0.20 per 100 grams of sugar.
    • Vehicles: the calculation formula is modified according to the sale price of the vehicle to avoid leaps in the rates.
    • Post-paid mobile phone service provided to individuals: 10%
    • Craft beer: The rate is reduced from US $ 2.00 per liter to US $ 1.5 per liter.
    • Industrial beer: The rate is increased according to market share.
    • Plastic bags: US$ 0.10 per bag

Currency Exit Tax

Exemptions:

  • Loans granted abroad: (i) there is no longer required that term of the credit is at least 360 days, and, (ii) the loan may be used to invest in shares issued by Ecuadorian entites.
  • Dividends: Dividends paid to entities or individuals residing in tax havens is exempted.

The tax rate applicable to the import of raw materials and capital goods, is reduced from 5 to 2.5%; however, the right to tax credit for such imports is eliminated.

Single and Temporary Tax

Who are obliged to pay? Companies whose gross income in fiscal year 2018 exceeded one million dollars.

How much should be paid? The amount to be paid is shown in the following table. The amount shall not exceed 25% of the generated, declared or determined income tax of fiscal year 2018.

Gross taxable income from (USD $) Gross taxable income up to (USD $) Rate 1,000,000 5,000,000 0.10% 5,000,001 10,000,000 0.15% 10,000,001 Onwards 0.20%

When should it be paid? Until March 31 of fiscal years 2020, 2021 and 2022.

Capital Repatriation Regime

The tax residents of Ecuador can benefit from this regime if as of December 31, 2018:

  • They have maintained abroad revenues subject to income tax in Ecuador or, have made monetary transactions subject to outflow tax (ISD), which have not been declared or if the tax has not been paid.
  • Have kept assets abroad which have been acquired with these revenues and, that have not been registered in the equity declaration.

If taxpayers decide to repatriate and invest the income in Ecuador, they will be subject to the following rules:

  • If the income is declared until March 31, 2020, it will be subject to pay a tax rate equal to 1%;
  • If the income is declared from April 1, 2020 until June 30, 2020, it will be subject to pay a tax rate equal to 2%; and
  • If the income is declared from July 1, 2020 until December 31, 2020, it will be subject to pay a tax rate equal to 4%
  • If taxpayers decide to declare their income, assets or investments abroad, but not repatriate and reinvest in Ecuador, it will be subject to pay a tax rate equal to 8%.

The income will be regarded as invested in Ecuador if it remains in Ecuador for a minimum period of 12 consecutive months counted from the date on which the investment is made and if it’s purpose is one of those established in the law, such as: investments and financial products provided by financial institutions, stock exchanges and stock brokerage houses, acquisition of real estate and other assets necessary to carry out economic activities in the country or, investments destined to research and development of technology.

If you want to read de article in Gestión Digital, click here

IPWatchdog – Ecuador May Soon Reap the Benefits of the Patent Prosecution Highway

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DATE: 2-11-19

TEAM MEMBERS IN THE NEWS:

-Francisco Gallegos

MEDIA: IPWatchDog

Ecuador has been participating in a pilot program of the Patent Prosecution Highway (PPH) since 2016 but has as of yet failed to implement the system for a number of reasons. However, with the announcement in July that Ecuador may join the Pacific Alliance next year under its new President, Lenin Moreno, and a general market-friendly shift in government, it is expected that the PPH could soon become effective.

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The suspension of the administrative act on Intellectual Property

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The suspension of the execution of an administrative act is an exceptional provision that can be issued by an administrative or judicial authority. It is a precautionary measure that proceeds only when the execution of the administrative act produces unrecoverable or very difficult remediation losses due to the violation of the rights of the entity being administered. The suspension means that the administrative act does not apply until there is a final resolution.

This figure has limited application in the area of ​​Intellectual Property, since to obtain the suspension of the administrative act in judicial headquarters; the entities being administered must demonstrate that, for example, the registration of a trademark or patent violates their rights; or, that the registration of a trademark was improperly canceled due to lack of use.

A more detailed analysis:

  1. An opposition to a trademark or patent application might be provided by law for the following reasons: lack of distinctiveness, risk of confusion or association, not meeting the requirements of patentability, etc.
  2. The Ecuadorian Intellectual Property Office denies the opposition and gives way to registration, so that the affected party can challenge that decision before the Contentious Administrative Court, requesting, in addition, the suspension of the act, because the affected party considers that its execution would violate its rights in an irreparable way.
  3. If the request is granted, registration of the trademark or patent is suspended. After the judicial process, which has a minimum duration of three years, the sentence is issued. For the purpose of this analysis, we assume that the administrative resolution is ratified, granting the registration and denying the opposition.

In this scenario, did leaving the applicant without the ownership of his registration for three years violate his rights?

This would be the main conflict that could cause the suspension of the execution of an administrative act in Intellectual Property.

What happens in practice?

The judicial authority generally does not accept the request for suspension of the administrative act because, although the existence of irremediable loss caused by the execution of the act can be demonstrated, the rights of the person who obtained the registration of the trademark or the patent are also at risk.

It must be considered that most conflicts over Intellectual Property derive from trilateral administrative procedures, in which the administrative authority and two interested or administered parties intervene. Therefore, the suspension of the administrative act in this branch is especially controversial and unusual.

In summary, the substance of the dispute is that the contentious-administrative judge must assess whether or not the suspension of the decision of the administrative authority applies, taking into account the losses that could be suffered by both; the party that achieved the registration of the trademark or patent and the other party that considers their rights affected by that registration as well. There will always be an important degree of subjectivity, but the judge must receive comprehensive and true information from the parties in conflict to form his or her judgment.

Additionally, the judge that resolves the suspension of the administrative act, until there is a final decision on the conflict, should have the possibility of requiring sufficient guarantees to respond for the losses that may arise from the suspension if the final decision ratifies the resolution of the administrative authority. A reform to improve the application of the law would be to demand that enough guarantee´s be determined – the judge himself should set its amount – to grant the suspension of the administrative act.

Ruth Holguín
Asociada Senior en CorralRosales
ruth@corralrosales.com

Gestión Digital – Forms of associations in Ecuadorian Public Procurement

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DATE: 2-10-19

CORRALROSALES IN THE NEWS: 

-Ricardo Mancheno

MEDIA: Gestión Digital

Ecuadorian legislation regulates the use of the association or joint accounts and the consortium as forms of associations for public procurement, which facilitates the participation of the private sector in business with the State.

As part of the development of commercial activities, it is common for natural and legal persons to use forms of associations that allows them to jointly and efficiently conduct businesses in the private and public sectors. A summary of the legal framework applicable to these forms for public procurement is presented below.

The law establishes as forms of association: the association or joint accounts, the consortium or consortium agreement; and, joint venture.

In the area of public procurement, the legislation only admits the use of the association and the consortium. The latter is the most widely used in practice.

The association or joint accounts defines the Corporate Law as a contract whereby a merchant gives one or more persons participation in the results of one or more operations or of all their commercial activity, in exchange for a certain participation or contribution. The management and accountability of the business is the responsibility of the person in whose business third party participation occurs; the law grants the participants ample freedom to agree on the terms of the association.

The consortium or consortium agreement is a contract provided in the Commercial Code, whereby two or more people, natural or legal, are associated with the purpose of participating in a contest, project or contract, or in several at the same time. Associates do not lose their independence and autonomy. Participants in a consortium respond jointly and severally for the obligations acquired by the consortium. In other laws the consortium is usually called “temporary union.”

For contracting with public entities, the law provides that the consortium agreement must be constituted by public deed and that, therein, regardless of other provisions or regulations of the relations between the participants, the declaration of their joint and several liability for the fulfillment of its obligations derived from the contract with the public entity. In addition, you must obtain the Unique Registry of Suppliers, RUP.

To participate as an offeror in the pre-contractual stage of a public procurement procedure, the law allows the presentation of a partnership or consortium commitment, which must also meet specific requirements such as the declaration of the obligation to constitute the consortium previous to the subscription of the respective contract.

The association and the consortium have no legal status of their own. However, for tax purposes they are considered as independent subjects of their members. As such, they must obtain their own unique taxpayers registry or RUC and keep their accounts as if they were a company.

Each of the participants is jointly and indivisibly responsible for fulfilling the obligations arising from the contract. In this sense, public procurement regulations explicitly ratify that the participation in an association or a consortium does not make up for the loss of the legal status of each of the participating suppliers, since the association or consortium does not constitute a different legal entity. In this way, the same regulations provide that the responsibility for the execution of the contract is indivisible and complete for the associates. In order to determine the experience and compliance of the consortiums in previous contracts with the public sector, the contracting entities must consider the sum of the experiences of the participants when evaluating the offers.

The association or consortium cannot be dissolved or terminated by the will of the contracting parties, nor may it change its conformation until the end of the contract, unless expressly authorized by the contracting entity

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