August 2022 - CorralRosales

New Regulations to the Public Procurement law

Bulletin 24 August, 2022 22 November, 2022 admin Ecuador

Through Executive Decree No. 458 of June 18, 2022, published in Official Gazette Supplement 87 of June 20, 2022 (“RGLOSNCP“), the new Regulations to the Law of the National Public Procurement System were issued, effective as of August 20, 2022.

The main changes concerning the previous regulation are the following:

The National Public Procurement Service (“SERCOP“) must manage the data and information of the “COMPRASPÚBLICAS” Portal under open data and information concepts.
In addition to the physical procurement file, contracting entities shall maintain an electronic file.
Under no circumstances the electronically signed documents may be required to be printed. Once printed, they lose their legal validity.
To encourage and promote local and national participation, a margin of preference must be granted to local and national suppliers. Therefore, SERCOP should establish the margins for each public procurement procedure.
Disclosing the beneficial owners shall not be required in small-amount procedures.
The supplier selection procedures for electronic and inclusive dynamic catalogs do not require the Relevance Report by the Comptroller General of the State, which aims to determine the relevance and favorability of the procurement according to the law.
Suppliers interested in being included in the electronic and inclusive dynamic catalog may do so on a permanent and uninterrupted basis throughout the term of the respective framework agreement.
The reverse auction procedure is divided into electronic reverse auctions and simplified reverse auctions. In the first case, the economic bids must be qualified prior to bidding. In the second, the qualification will be done a posteriori.
Rules are established to apply the disqualifications set forth in Article 62 of the Organic Law of the National Public Procurement System (“Law“).
Subcontracting is defined as “…the contractual practice under which the contractor, entrusts to another, called subcontractor, the performance of a part of the contract, prior authorization of the contracting entity.”
Subcontracting shall not be considered as “…the acquisition or leasing of raw materials, inputs or indispensable means necessary for the development of the contractor’s activities to comply with the object of the contract…”
The application of the price adjustment system shall be based on the principle of the economic equilibrium of the contract. Such application shall only be for reasons beyond the parties’ control that were not foreseen when the contract was signed.
Rules are established to determine the commencement of contractual performance, depending on the type of contract or form of payment.
The procedure to be followed by contractors to request extensions of the contractual term is regulated.
The procedure for the termination of contracts by mutual agreement and the content that such agreement must contain are established.
In the acquisition of goods, the contractor, the receiving committee, and the warehouse keeper of the contracting entity must sign the receiving act referred to in Article 81 of the Law.
SERCOP shall implement technological tools in an open and easily accessible format on public procurement subject to the Law to facilitate subsequent control by the competent authorities.

Specialist in Corporate and Public Contracting Law
Mario Fernández, associate at CorralRosales
mfernandez@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Competition and antitrust: evaluation of regulatory barriers – Industria Legal

Media 24 August, 2022 19 May, 2023 admin Ana Samudio, antitrust, Competition, Ecuador

DETAILS

DATE: 24-08-2022

PROFESSIONALS IN THE NEWS:

-Ana Samudio

MEDIA:

– Industria Legal

“The Superintendence of Market Power Control (SCPM by its Spanish initials) has analyzed regulatory provisions that could constitute regulatory barriers to entry and permanence in the market.” This is how Ana Samudio begins her latest article published in Industria Legal magazine, in which she addresses the issue of “evaluation of regulatory barriers” from the competition and antitrust standpoint.

As Samudio analyses in her article, “the Constitution recognizes the right of people to develop economic activities, individually or collectively, in accordance with the principles of solidarity, social and environmental responsibility; and the power of State intervention in economic activities to promote forms of production that ensure good living for the population and discourage those that violate their rights or the rights of nature”.

Therefore, this intervention is legitimate in the extent that a balance of these guarantees is achieved. In this way, any regulation that imposes restrictions on the entry and permanence of economic operators in the different markets must also be useful and sufficient, with the aim of always guaranteeing the public interest. They will also have to be reasonable and proportional, thus the development of efficient markets will take place.

Samudio concludes with the recommendations issued by the SCPM for the different markets:

“Hemp: the reasonableness of: (i) the norm that prevents natural persons from obtaining development licenses for activities associated with the production and commercialization of hemp has not been justified; and (ii) the norm that determines a minimum area for hemp cultivation; and the recommendations to the Ministry of Agriculture to review said regulations, so that the entry of economic operators in this market is not unjustifiably restricted.
Commercialization of automotive fuel: it was determined that the norm that requires an established network of -at least- 10 service stations to continue operating as a fuel distributor, has no technical support, therefore it constitutes an unjustified restriction to the number of economic operators that serve the automotive industry which harms competition. Consequently, it recommended the Agency for the Regulation and Control of Energy and Non-Renewable Natural Resources to remove this requirement.”

If you want to see the full video, click here.

The settlement of differences, a fast-track tax assessment

BlogENG 18 August, 2022 18 August, 2022 admin Ecuador

The process for settling differences provided for in the Internal Tax Regime Law is a fast-track tax assessment that should only be activated when the conditions established in the law are met and, if activated, the principles that regulate administrative procedures and the taxpayer’s rights should be respected.

Article 68 of the Tax Code defines the assessment capability of the Tax Authority as the act or set of regulated acts carried out to establish the existence of the taxable event, the taxpayer, the taxable base, and the amount of the tax.

Articles 107-A and following of the Internal Tax Regime Law establish that the Internal Revenue Service (IRS) has the power to notify the taxpayer of any differences detected in its tax returns and which generate amounts payable to the Treasury. If the taxpayer does not make the payment or justify the differences within 20 days, the IRS issues a Payment Settlement for Differences in the Tax Return, which implies a collection order for the exercise of the coercive action.

The acts of notification and subsequent settlement of differences contemplated in the aforementioned articles are tax assessment acts, since the Tax Authority determines the existence of the taxable event, the taxable base and the amount of the tax. The process for settling differences is a fast-track assessment process; therefore, it is only applicable when the Tax Administration finds differences in the taxpayer’s returns.

According to the dictionary of the Royal Academy of the Spanish Language, difference is: “that quality or accident by which something is distinguished from something else”. Therefore, the Tax Authority can only apply the fast-track assessment process when it reaches the conclusion that there is a difference when comparing the data provided by the taxpayer in its tax returns or those declared by third parties in relation to the same taxpayer.

For example, the Tax Authority could identify a difference if the taxpayer has not applied a deductibility limit established by law in its income tax return; or, if the value declared and paid for withholding tax does not coincide with the values provided by third parties. And only if the evidence filed by the taxpayer is not sufficient to disprove such difference, the corresponding settlement may be issued.

However, there are cases in which the Tax Authority has exceeded its faculties. For example, when issuing settlements of differences based on presumptions, i.e., the Internal Revenue Service has presumed the existence of differences in the Value Added Tax rate applied to certain services, based on the activities registered by the taxpayer in the Single Taxpayer Registry.

The Internal Tax Regime Law does not allow the Tax Authority to establish differences by presumption and could not do so since it would be contrary to the nature of a direct and abbreviated assessment procedure. Therefore, the question arises, a settlement of differences issued based on presumptions made by the Tax Authority is valid? Does the Tax Authority have the power to issue a settlement of differences when the difference is presumed? The answer is no.

The initiation of a fast-track assessment procedure without having complied with the conditions set forth in the law, breaches the principle of prohibition of arbitrariness provided in the Administrative Code and violates the taxpayer’s rights to due process and defense, recognized in the Constitution and in the Tax Code.

Faced with this circumstance, the taxpayer may exercise its right to appeal the assessment procedure – the liquidation of differences – through an administrative claim or a judicial challenge. However, within these processes the taxpayer will be obliged to rebut the presumption of legitimacy applicable to the administrative tax acts.

In conclusion, although the legislator has provided that the Tax Authority may initiate fast-track assessment procedures against taxpayers, these procedures of liquidation of differences may only be initiated when the Authority effectively determines the existence of differences, otherwise the Authority would be acting arbitrarily and, consequently, violating the taxpayer’s rights, especially his right to defense.

Andrea Moya
Partner at CorralRosales
amoya@corralrosales.com

Reporting request declared unconstitutional

Bulletin 5 August, 2022 5 August, 2022 admin Ecuador

The Constitutional Court issued the ruling 44-16-IN/22 by which it declared the second paragraph of the Third Reformatory Provision of the Law of Solidarity and Citizen Co-responsibility for the Reconstruction and Reactivation of the Areas Affected by the Earthquake of April 16, 2016, as unconstitutional (hereinafter the “Solidarity Law”):

Such paragraph amended the Internal Tax Regime Law and provided that:

“Promoters, advisors, consultants, and law firms are required to report under oath to the Tax Authority -according to the forms and deadlines established by general resolution issued for such purpose-, a report on the incorporation, use and ownership of companies located in tax havens or lower taxation jurisdictions by Ecuadorian beneficial owners. Each failure to comply with this rule will be punished with a fine of up to 10 basic fractions of income tax, without prejudice to any criminal liability that may arise.”

The Constitutional Court considered that the rule did not comply with the principle of unity of law established in Article 136 of the Constitution of the Republic of Ecuador since:

It regulates a permanent obligation which purpose does not coincide with the purpose of the Solidarity Law, the reconstruction and reactivation of the areas affected by the earthquake of April 16, 2016.
Its inclusion implies an inadequate dispersion or the rules applicable to matters involving professional secrecy and client-attorney confidentiality.
The obligation did not allow in any way to immediately collect any economic resources to face the natural disaster. Therefore, it lacks thematic and teleological connection with the Solidarity Law.

Specialist in Tax
Andrea Moya, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Expiration applied to administrative lawsuits filed by the Office of the Comptroller General to determine liabilities

BlogENG 3 August, 2022 3 August, 2022 admin

In general terms, doctrine tends to define expiration as “(…) the period that produces the termination of a thing or a right,” or as “the loss of force and effect of a power upon expiration of the term for its execution.”

In the field of administrative law, an adequate doctrinal definition would be: “Expiration of a lawsuit constitutes an abnormal mode of termination thereof resulting from expiration of the maximum term established by law without the competent government body having issued any express resolution.”

Ecuadorian administrative law refers to expiration, particularly in the Law of the Office of the Comptroller General (hereinafter “LOCGE,” from its Spanish acronym), as analyzed in this article.

Article 71 of the LOCGE provides for the Office of the Comptroller General’s power to issue orders related to government activities and actions by persons subject to said law, also establishing its power to determine liabilities. This power expires seven years after the date in which such activities were carried out.

Other than the above, articles 26 and 56 of the LOCGE provide for two special types of expiration:

Article 26 provides that government audit reports, whatever their type or modality, must be conducted in a maximum and unextendible term of one hundred eighty days from the time the audit work order is issued until the final report is approved; this includes a 30-day period that the Comptroller General has to issue its approval.

The legal consequence of the report not being approved within said unextendible period is that the authority loses its power to continue with the audit process.

Article 56 of LOCGE provides that the resolution determining civil liability for negligence must be issued within a 180-day term counted from the business day following notification of the initial determination.

Failure to do so within the indicated period results in expiration of the Comptroller’s power on the matter. As a result, the Comptroller shall not issue a resolution confirming or eliminating the fines determined within the special audit.

The expiration set out in the LOCGE occurs ipso jure, by operation of law, and results in the Comptroller losing its power to issue a resolution, which must be formally ratified and certified by the Comptroller itself as required under article 72 of the LOCGE, in accordance with the rules of due process set out in the Constitution of the Republic of Ecuador (hereinafter, the “Constitution”) and the administrative principles of the Organic Administrative Code.

Consequently, the lack of competence of the Comptroller’s Office on the grounds of expiration of the term, leads to absolute and irremediable nullity of everything performed outside of the established term. This means that any actions, decisions, or issue of determinations or fines within the special audit must be subject to the deadlines and unextendible terms set out in articles 26, 56, and 71 of LOCGE.

Turning to the expiration provided for in articles 26 and 56 of the LOCGE, the Plenary Session of the National Court of Justice issued Resolutions Nos. 10-2021 and 12-2021, dated September 29 and October 25, 2021, respectively. Through these, and by virtue of a judicial ruling repeated on three occasions in reference to application of expiration set out in the abovementioned laws, mandatory jurisprudential precedents were established, as follows:

“… HEREBY RESOLVES: … Art.- 3. Declare the point of law that contains the following rule to become MANDATORY JURISPRUDENTIAL PRECEDENT: “Article 26 of the Organic Law of the Comptroller General of the State establishes a deadline or term, as appropriate, which is mandatory for the control entity. After said time period, said office’s power to exercise control expires, and the government audit report’s approval becomes completely null and void because the public official approving it loses all of its power due to the passage of time. As a result, the Office of the Comptroller General, whether through an administrative procedure, or Contentious Administrative Courts, as the case may be, are required to declare it to be as such, whether ex officio or at the request of one of the parties, applying the guarantee of expiration of a legal right and the principle of legal certainty.”

“… HEREBY RESOLVES: Art. 1.- Declare the following point of law to be mandatory jurisprudential precedent: The one hundred eighty-day term set out in Article 56 of the Organic Law of the Office of the Comptroller General is a mandatory deadline that establishes expiration of the Office of the Comptroller General’s power to make determinations regarding civil liability for negligence. As a result, if it issues resolutions after said deadline has passed, the procedure becomes null and void, as does the resulting administrative act. To this effect, once the abovementioned deadline has passed, the Office of the Comptroller General, whether through an administrative procedure or the Contentious Administrative courts, either ex officio or at the request of one of the parties, must declare expiration of the Office of the Comptroller General’s power to issue determinations. This is consistent with safeguarding the principles of legality and legal certainty set out in Articles 226 and 82 of Ecuador’s Constitution.”

In conclusion, the rules and principles that govern administrative procedures require that all public officials act with valid jurisdictional power, defined as the extent to which the Constitution and the law enable a government body to act and fulfill their mandate, whether based on the subject matter, territory, term, or level. Doing so without having the due jurisdictional power negatively affects the constitutional rights of due process and legal certainty, both set out in the Constitution.

Ricardo Mancheno
Associate at CorralRosales
rmancheno@corralrosales.com

International standars, local vanguard

Monthly Archives: August 2022