Yearly Archives: 2021

By Executive Decree 1190 issued on November 17, 2020, the President of the Republic published the Regulations for Public-Private Associations (“Regulations“).

Delegated management contract: agreement by which the rights and obligations of the delegating entity and a private company are determinate in relation to the execution of a public project whose management is delegated. The Public-Private Partnership (“PPP“) is a form of indirect management of public activities whereby, through a long-term delegated management contract, a private manager is entrusted with the development or management of infrastructure or public services.  The private manager assumes the risk and responsibility during the term of the contract, its consideration is linked to the performance of the project.

Inter-institutional Committee of Public-Private Partnerships (“Committee“). It is responsible for issuing policies, technical regulation and direction in the delegated management of public projects and will be presided over the head of the Ministry of Economy and Finance. The Committee, among other competencies, shall: define the sectors in which the creation of a PPP will be promoted through the approval of the PPP Project Program; determine the policies and guidelines for the application of the benefits provided in the PPP Law; regulate technical aspects of a project through the issuance of technical guides; keep public information regarding PPP projects; award all or part of the tax benefits provided in the PPP Law; promote the participation of the financial sector, national and international, in the financial structuring of the projects.

Other competences of the Committee: to approve projects proposed by a delegating entity; to establish the projects that can be delegated to a private manager for the use of the existing infrastructure; to establish institutional coordination mechanisms.

Regime of delegated management contracts and PPP projects

Regarding public projects, it defines services of general interest as public services related to strategic sectors and the provision of goods under the jurisdiction of a public administration. A public project managed through a PPP may consist of planning and design, construction, equipment, operation and maintenance of a new infrastructure work for the provision of a service of general interest; planning and design, rehabilitation or improvement, equipment, operation and maintenance of an existing infrastructure work for the provision of a service of general interest; a combination of the two previous ones; all kinds of productive activities, research and development.

Self-financed projects: those whose income comes from the price paid by the final users; and Projects with public financing, those that require the participation of public investment. The projects will distribute the risks between the public and private sectors; preferably they will be integral, trying to make the private manager in charge of the execution of the project. The results of the projects will be evaluated through specific indicators.

Public projects of private initiative: By public invitation or by their own initiative, private companies may propose to the Administration the execution by delegated project management. The delegating entities will determine the public interest of the project within a maximum term of six months. Once the private initiative project has been incorporated into the PPP Project Program, the private proponent will have a term of six months to prepare the feasibility study. The private proponent will intervene on equal terms with the other interested parties, with the only exception of a bonus of up to ten percentage points in the evaluation of its offer.  He will not have the right to match or improve the offer of the best qualified bidder.

Participants in a PPP project: the delegating entities will be the public administrations that own the competence that will be delegated, public companies are not considered delegating entities; the private manager may be a corporation constituted according to Ecuadorian legislation, with a specific purpose to attend the public project. The private manager may adopt another authorized figure in the legal system according to the specifications of the application.

Economic-financial terms: the private manager, as consideration for the activities assumed, may receive contributions from the public budget, payments made by the final users, or a combination of both. The income of the PPP project will be used to cover the investment and operating costs and expenses of the PPP project and the remuneration of the private manager. When the private manager does not have a direct relationship with the users or beneficiaries of the PPP project, the public administrations may constitute a trust business to guarantee the respective payments. In its relationship with third parties that finance the PPP project, the private manager will have the necessary autonomy and sufficiency to provide the guarantees required on the estate and rights of the delegated management contract that are their exclusive property, without the need for prior authorization of the entity, except in cases where their acts or contracts may imply that the third party is able to suspend public service or affect service levels.

PPP project cycle and administrative procedure

The objectives to be achieved must be established in the planning and project selection stage. It is up to the delegating entity to establish problems, effects, causes and objectives to identify the needs to be satisfied.  Preliminary evaluation of sustainability and fiscal risks: it oversees the Sustainability and Fiscal Risks Unit of the Ministry of Economy and Finance. The Committee should determine the convenience of the PPP modality. With the opinion of sustainability, the delegating entity will submit to the Committee’s consideration its request for the granting of tax benefits and incentives in accordance with the PPP Law. As part of the project cycle, public bidding and contracting are regulated. Any legal entity, national or foreign, may participate in the contests for the selection of the private manager. The offers will be evaluated by a contracting committee.

The Regulatory Reform of the Regulation for the Application of the Organic Law for the Regulation and Control of Market Power, issued by Executive Decree 1193 by President of the Republic on November 17th, was published in the Suplement to the Official Registry No. 341 on December 1st. (The “RALORCPM” and the “Reform to the RALORCPM”, as applicable).

Through this Reform to the RALORCPM, improvements and corrections are introduced that were necessary for the proper application of the Organic Law of Regulation and Control of Market Power (the “LORCPM”). The most relevant changes refer to the following:

– The restoration of the regulatory authority of the Superintendency of Market Power Control (the “SCPM”) to issue regulations of general application, authority which had been eliminated in 2016, limiting it to the issuance of regulations exclusively of an administrative and internal control field. The Reform to the RALORCPM includes an obligation of the SCPM to issue technical regulations -of general application- to regulate:

– Replacement of the analysis process prior to the authorization of merger operations subject to mandatory notification by a process in two phases:

1. In those cases which the SCPM determines that the operation is harmless, based on the information provided, it will issue its authorization within 25 days in Phase 1.

2. In those cases where further analysis or information is required from the parties or other economic operators to determine the possible implications of an economic concentration operation, or where concerns are raised from a competition point of view, the SCPM will resolve on the authorization in Phase 2, observing the terms established in the LORCPM; that is, within a maximum period of 60 days, the course of which may be suspended in the investigation stage to collect information for up to 45 days, or extended for up to 60 days by motivated reasons.

– Definition of restrictive competition agreements and conducts by object: The provision was improved to clearly determine which of the agreements and restrictive practices determined in article 11 of the LORCPM constitute restrictive practices by object – those that imply serious restrictions on competition, even in the event that they have not achieved the desired effect – and its exclusion from the application of the sanctions exemption regime and the de minimis rule provided for in the LORCPM.

The other reforms constitute improvements that allow a more adequate and clear application / interpretation of the law, in relation to:

00000433 regarding the threshold and conditions in order to apply the benefits established in double tax treaties.

Generally, in order to apply automatically the benefits established in double tax treaties it is necessary to: (i) have the tax residence certificate of the beneficiary of the payment issued by the competent authority of the country of residence and properly apostilled; and, (ii) to comply with one of the following conditions:

1. Payment of dividends;

2. Payment of costs or expenses that, at the time of the withholding, are considered non-deductible for calculating the withholding agent’s income tax;

3. The contract which the payment is made is duly qualified; or

4. The sum of all payments made in favor of the same supplier in the same fiscal year, does not exceed the maximum threshold (US$565,750.00 for the year 2020).

Under this reform, from March 11, 2020 and up to 18 months later, if the withholding agent do not have the tax residence certificate of the beneficiary, at the time of withholding, it may apply the benefits established in the double tax treaty as long as they comply with one of the 4 conditions detailed above.

However, the withholding agent must obtain the tax residence certificate until March 11, 2022. Otherwise, the withholding agent must file a new tax return and pay the applicable tax plus interests.