Yearly Archives: 2021

CorralRosales > 2021

Legal analysis of how to do business in Ecuador

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DATE: 23-02-2021

CORRALROSALES IN THE NEWS:

-Andrea Moya

-Rafael Serrano

-Marta Villagómez

MEDIA: Idealex

“ExpoMembers,” the virtual fair organized by the Ecuadorian-German Chamber of Industries and Commerce (AHK), took place in February. Some of our lawyers have been able to participate in the event, and Idealex has echoed the news.

Andrea Moya- partner of the firm and specialist in International Tax Law, Rafael Serrano- senior associate and director of the Data Protection area, and Marta Villagómez- an associate specialist in the Labor Law area, spoke from different perspectives of Law at the opening of the event on “How to do business in Ecuador? A legal analysis from the corporate, labor, tax and customs perspective.”

Each of the lawyers presented their point of view from the area of ​​specialization that they lead. So, Rafael Serrano stated that “the main benefits of investing are the low inflation rate concerning the US dollar; and a good transport infrastructure, which facilitates the mobility of goods and services. There is also a network of commercial and double taxation agreements ”.

He also added the legal regime in Ecuador as another of the main advantages due to laws that “facilitate, promote, and protect investment.”

From another angle and referring to the corporate area, he added that there is a company law that admits that foreign investment does not need express authorization from the control body and the appearance of Simplified Corporations.

Marta Villagómez analyzed some novelties related to the implementation of new employment contracts that are less rigid than the permanent one, such as that of entrepreneurs, work or service, and productive sectors. With these, it will be possible to “establish deadlines, analyze conditions” and thus “use the one that suits the needs of each company.”

She affirmed that companies must grant job stability to their employees and comply with the minimum wage and the corresponding working hours.

Finally, Villagómez included that there must be a mutual agreement between both signing parties; wait for the expiration term or notify the worker 15 days in advance; the Ministry of Labor must authorize it, and the employee has to be compensated after dismissal to finalize a labor contract ”.

Andrea Moya explained that companies are subject to three taxes: “income, which is equivalent to 25 to 28% of the investment; added value, which corresponds to 12%; and exit of currencies, which is 5% of the total amount”.

However, and in conclusion, there are some incentives that help those who want to invest in Ecuador, such as the general incentive, by economic sector, by tourist area, by ZEDE (Special Economic Development Zone), and by APP (Public Associations- Private and Foreign Investment).

If you want to see the article, click here.

New technologies and the transformation of the legal sector

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The application of technologies in the field of law is increasing in the world. The legal technology landscape (legaltech) comprises different categories of technology solutions. This article describes the various technologies that are expected to generate significant changes in legal services in the coming years: (i) Big Data Analytics; (ii) Artificial Intelligence; and (iii) Blockchain.

Big Data Analytics is a technology that allows you to analyze large amounts of data. It applies particularly to judicial activity since time and resources are saved in processing and analyzing information. For example, in a trial in which it is necessary to review several years’ emails, these can be analyzed with programmed software, in much less time and at a reduced cost. Big Data Analytics significantly reduces legal processes document analysis.

Besides, this technology can locate patterns of behavior of judges, courts, and other lawyers allowing to establish the probabilities of success in a judicial process more efficiently, the arguments of the claim, the value of damages that can be claimed, among other aspects. Therefore, the implementation of legal analytics is expected to make judges, arbitrators, and lawyers more efficient. 

 Artificial Intelligence is a technology aimed to replicate the human thought process/analysis, allowing machines to delegate tasks or make decisions. Artificial intelligence algorithms feed on a massive amount of data, which is why they use other technologies, such as the Internet of Things and Big Data, to obtain the expected results. The automation and application of Artificial Intelligence systems mainly replace more routine, repetitive, or mechanized tasks.

Some services offered by companies that use Artificial Intelligence are (i) solutions that automate the drafting and comparison of contracts and other legal documents; (ii) analysis and prediction of trial results; (iii) automation of legal investigation processes.

Blockchain is a technology that allows the shared recording of information. This registry has specific characteristics such as immutability, transparency, traceability, decentralization, publicity, distribution. It allows to carry out transactions of any type transparently, reliably, and securely without the need for an intermediary.

This technology is being implemented to register information. Some areas that will experiment significant change are real estate titles, apostilles, and other documents that require registration and/or certification. Blockchain will most likely replace some of the work that notaries and registrars do.

Another application of this technology is smart contracts, which are blockchain technology-based agreements automatically executed when they meet the stipulated conditions. These contracts are not yet used on a large scale, but their implementation will transform business transactions.

Adopting these technologies will bring benefits such as reducing time, costs, and risks in providing legal services improving access to justice. Similarly, suppose these technologies are used for data analysis, along with artificial intelligence. In that case, it could lead to obtaining more consistent sentences in judicial processes, reducing the chances of bias and corruption, providing greater legal certainty.

Lawyers must be prepared to use these technologies, as their adoption implies a transformation in the way services are provided. It is difficult to visualize all the changes coming with the implementation of Big Data Analytics, Artificial Intelligence, and Blockchain. Law firms must reaffirm that their objective is to provide services efficiently and transparently to benefit all citizens.

María Isabel Torres
Associate at CorralRosales
mtorres@corralrosales.com

New deadlines for filing the personal expenses annex

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Regulation NAC-DGERCGC21-00000009 issued on February 4, 2021 and published in the third supplement to the Official Registry 386 of February 5, 2021, the General Director of the Internal Revenue Service established that the personal expenses annex of the fiscal year 2020 may be filed, for this time, until the following dates:

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DISCLAIMER: The previous text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm.

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Special labor regime for private higher education institutions academic staff

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The Labor Ministry by Ministerial Agreement MDT-2020-286 regulated the special labor agreement for private Higher Education Institutions academic staff:

– Scope: Mandatory implementation to hire academic staff on private Higher Education Institutions.

– Term for Regular Staff:  Up to 1 year (continuous or discontinuously) renewable up to 2 years. A 90-day trial period may be agreed.

– Term for Non-Regular Staff: Up to 1 year (continuous or discontinuously). The agreement may be renewed as many times as necessary. A 90-day trial period may be agreed.

– Weekly working day: Up to 40 hours per week, that may be distributed in no more than 6 days a week. A noninterrupted rest of 24 hours per week is guaranteed.

– Special leave regime: The Higher Education Institutions may grant, at the employee´s request, a special leave with or without payment.

If the leave is without payment, the employee is not entitled to labor and social benefits. The employment relationship is suspended; therefore, no seniority will be generated during it.

– Termination of the agreement: The employment relationship ends once the term has concluded, without any other formality.

– Termination for cause: Under Labor Code provisions to terminate an employment relationship with cause, prior Labor Ministry authorization (“Visto Bueno”), the following definitions shall be included:

  • Indiscipline: Breach of terms to return in cases of licenses or mobility.
  • Ineptitude: If employee obtains results below the minimum for 2 consecutive times or 3 times throughout his/her career. The term for request the Labor Ministry authorization will run from the date on the employer’s decision to separate the employee.

– SUT´s registration: Within a period of 15 days upon its execution.

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Amendments to the tax regime for small businesses

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Executive Decree 1240 issued on February 3, 2021 by the President of the Republic amended the Internal Tax Regime Regulations regarding the Tax Regime for Small Businesses.

It establishes that, in order to calculate the income tax, taxpayers subject to such regime must apply a 2% rate over the net sales derived from the business activity subject to this regime and subtract: (i) the income tax withholdings made in the same period with respect to the activities subject to the regime; and, (ii) the income tax credit.

It is also stated that taxpayers subject to the regime, that in the fiscal year 2020 did not obtain any profit (calculated before paying the income tax) from the economic activities subject to the regime, may:

1. Pay the applicable income tax for the fiscal year 2020 until November 2021; and,
2. Pay the applicable income tax for the fiscal year 2021 until March 2022.

Those taxpayers who have paid the tax with interest and penalties will not be entitled to request a reimbursement.

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Case highlight: CorralRosales´s Brand Protection Team has made history once again in the fight against counterfeiting

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Great news for Ecuador

The National Service of Intellectual Property Rights (SENADI) confirmed the adoption of border measures on the import of a container with more than 600,000 counterfeit goods of different marks, especially cell phone accessories and packaging, which would have been ready to be assembled and distributed across our country.

Customs in Manzanillo, Mexico, warned about the existence of a container in transit, with Guayaquil as its final destination, which contained suspicious goods corresponding to counterfeit goods of the best-known cell phone marks. CorralRosales followed the container’s route, which included previous transit through Cartagena de Indias-Colombia and the Port of Callao-Peru, constantly making sure that the cargo was not released at these ports or that it returned to its origin, which would have prevented the border measure.

Prior to the arrival of the container at the Port Terminal of Guayaquil, CorralRosales requested the National Customs Service of Ecuador to allow them to carry out an inspection in order to determine its origin and, especially, whether or not it contained counterfeit goods. Once the verification was completed, the local IP office (SENADI) was asked to adopt a border measure to prevent the nationalization of the container, as it contained counterfeit products, which was accepted by the IP authority. The process continues through an ongoing Administrative Action. Infringers may face a fine of up to US$ 56,800 once the Administrative Action is concluded, as well as the definitive seizure of the goods.

The historic decision made by IP authorities and the actions of CorralRosales guaranteed the intellectual property rights of the owners of the affected marks, as well as the rights of potential consumers of the counterfeit goods, as possible damage to electronic equipment was prevented and even catastrophes were avoided, such as fires and more*.

This action was possible thanks to the international cooperation of our partners and the coordination between the public and private sectors, which allowed the most important border measure in the history of Ecuador.

CORRALROSALES

Foreign shareholders information

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Regulation NAC-DGERCGC21-00000005 issued on January 21, 2021 by the General Director of the Internal Revenue Service establishes the transitory regime applicable in 2021 for filing information of foreign shareholders.

Prior to the enactment of the Law of Modernization of the Companies Law, on December 10, 2020, limited liability companies and corporations were required to submit to the Superintendence of Companies, in the month of January of each year, the list of foreign shareholders.

The aforementioned Modernization Law established that this information had to be filed before the Internal Revenue Service, in accordance with the terms and conditions established for such purpose.

However, Regulation NAC-DGERCGC21-00000005 issued by the Internal Revenue Service establishes that, for this one time only, companies must file this information through the web portal of the Superintendence of Companies (www.supercias.gob.ec) until January 31, 2021.

Compliance with this obligation does not exempt taxpayers from filing the Shareholders’ Annex (APS).

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Regulations issued by the superintendency for the control of market power

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Three regulations were issued by the Antitrust Authority (“SCPM”) and published in the Supplement of Official Gazette No. 374.
1. Reform of the Guidelines for Administrative Procedures:
(i) Regulates the process of meetings that precede the mandatory filing for antitrust clearance of economic concentration operations, determining that the meetings will be recorded and do not exempt the applicant from submitting the notification within 8 calendar days after the conclusion of the agreement leading to the economic concentration operation.
(ii) It establishes specific times for analysis by the National Intendancy for Control of Economic Concentrations (in the investigation stage) and in the Resolution Board (in the resolution stage), both in Phase 1 (resolution within 25 business days following the declaration of completeness of the filing) or Phase 2 processes (resolution within 60 business days following the declaration of completeness of the filing).
(iii) Determines the criteria to be considered by the National Intendancy for Control of Economic Concentrations to evaluate the innocuousness of an economic concentration operation and based on this, the determination of a resolution in Phase 1 or Phase 2.
(iv) Regulates information requests and the sanctioning procedure applicable for infractions of the Organic Law for Regulation and Control of Market Power that do not constitute anticompetitive practices (for example: breach of duty to collaborate, non-delivery of information required in the times and form determined by the Antitrust Authority, or failure to comply with corrective measures).
(v) Modifies the disposition and evaluation of corrective measures regime. The most relevant change being that the implementation of corrective measures is not mandatory every time a sanction is imposed, but that these measures will be imposed only when they are deemed necessary to restore the market.
2. Guidelines for the identification and review of regulatory barriers
Regulates the procedure to be applied by the National Competition Advocacy Office for the identification and review of regulations that impose illegitimate or disproportionate restrictions/entry barriers. This procedure, which can only be initiated by the SCPM´s own decision, has a maximum duration of 90 days from the date when the start of the analysis is resolved.
The legal review is composed of two stages: (i) a legality analysis by which the authority´s competence to issue the regulation under review, and (ii) a review of the consistency of said regulation with the existing regulation considering the hierarchy of norms.
If the reviewed regulation passes the legal analysis, the reasonableness and proportionality of the restriction it imposes will be analyzed in the second stage, weighed against the protected legal asset: the public interest. For this analysis, its suitability, necessity, and proportionality in the strict sense must be determined.
If it is determined after these analyses that the reviewed regulation is illegal or that it imposes an unreasonable barrier to entry, the Antitrust Authority will propose to the issuing Authority its elimination or modifications aimed to correct the undesirable effects.
3. Comprehensive modification of the guidelines for the filing fee for review of economic concentration operations
Prior to this modification, the fee to be paid for the analysis of economic concentration operations was determined based on the financial statements of the immediately preceding fiscal year of the entity over which the change of control that gives rise to the economic concentration operation falls. It corresponded to the highest resulting value of the following alternatives:
  • 0.25% of income tax
  • 0.005% of total revenue
  • 0.01% of the asset value
  • 0.05% of equity
With the modification (i) the calculation method is simplified with the determination of a base fee that will be defined on a yearly basis by the SCPM, based on the real costs of the analysis of economic concentration operations and (ii) solves the inconvenience for operations submitted from January to April of each year, period in which there are no audited financial statements, by expanding the possibility of calculating the fee based on the financial statements of the second immediately preceding year.
The simplification of the calculation occurs as follows:
(i) Considers a scale for applying the base fee, which is applied only based on the income of the entity that bears the change of control that gives rise to the economic concentration operation:

(ii) Determines that the rate applicable to the analysis of economic concentration operations notified for information purposes (not mandatory filing) is half the base fee, regardless of the value of the total revenue.

(iii) Allows payment via wire transfer.

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World Trademark Review – Stricter requirements for proving use of a trademark through invoices

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DATE: 21-01-2021

CORRALROSALES IN THE NEWS:

-Katherine González

MEDIA: World Trademark Review

Our associate Katherine González is publishing an article in the specialized media World Trademark Review in which she explains the new criterion of the SENADI (National Services for Intellectual Rights of Ecuador) regarding proving the use of a registered trademark through invoices.

The article begins by detailing some aspects of Decision 486 of the Andean Community, which establishes that a trademark may be canceled if it has not been used during the last three years by its owner or by an authorized third party or a licensee in any country of the Andean Community (Ecuador – Colombia – Peru – Bolivia), for the products or services for which it was granted.

González indicates that SENADI, when examining the evidence filed as a defense in this type of actions, usually had valued the invoices as evidence of use, provided that the final recipient was in one of the countries of the Andean Community, regardless of the country of origin of the invoice. However, this criterion has been modified.

Recently, SENADI has stated that additional evidence will be required to demonstrate that the goods have been commercialized in the Andean market. In this regard, SENADI will consider “if the protected products or services were actually available in the Andean market in the form and quantities that correspond to the nature of the goods or services.”

González states that “the basis for this decision is that, although an invoice indicates that a good or service has been commercialized, it does not confirm that the goods have entered the Ecuadorian market. Therefore, any invoice issued in a country that is not part of the Andean Community must be accompanied by proof that the good entered the country and, in some cases, even that it is offered in the local market. “

Our associate also reminds us of the high levels of formalities of the documents required when filed as a defense in cancellation proceedings.

If you want to see the article (under registration), click here.

Unified basic salary and minimum wages for economic sectors 2021

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The Ministry of Labor by Ministerial Agreements: MDT-2020-249 of November 30, 2020 and MDT-2020-282 of December 22, 2020, resolved to maintain for 2021, the same values of the unified basic salary (“SBU”) and the minimum wages for economic sectors of the year 2020.

The Authority underpins its decision considering that the registered inflation at the end of 2020 was negative (-0.73%), therefore, an increase in minimum wages for 2021 is not justified.

In this regard, the SBU for 2021 is $400.00.

Current regulations provide that in no case will a SBU be set lower than that of the previous year.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.

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