[Page 1542]
BEFORE THE INTERNATIONAL CENTRE FOR THE SETTLEMENT
OF INVESTMENT DISPUTES
- - - - - - - - - - - - - - - - - - - - x
In the Matter of Arbitration between: :
:
FREEPORT-MCMORAN INC., :
:
Claimant, : Case No.
: ARB/20/8
v. :
:
REPUBLIC of PERÚ, :
:
Respondent. :
:
- - - - - - - - - - - - - - - - - - - - x Volume 6
HEARING ON JURISDICTION, MERITS, AND QUANTUM
Monday, May 8, 2023
The World Bank Group
1225 Connecticut Avenue, N.W.
Conference Room C1-450
Washington, D.C. 20003
The Hearing in the above-entitled matter
came on at 9:28 a.m. before:
MS. INKA HANEFELD
President of the Tribunal
MR. GUIDO SANTIAGO TAWIL
Co-Arbitrator
MR. BERNARDO M. CREMADES
Co-Arbitrator
[Page 1543]
ALSO PRESENT:
On behalf of ICSID:
MS. MARISA PLANELLS VALERO
ICSID Secretariat
MS. CHARLOTTE MATTHEWS
Assistant to the Tribunal
Realtime Stenographers:
MS. DAWN K. LARSON
Registered Diplomate Reporters (RDR)
Certified Realtime Reporters (CRR)
B&B Reporters/Worldwide Reporting, LLP
529 14th Street, S.E.
Washington, D.C. 20003
United States of America
SR. LEANDRO IEZZI
D.R. Esteno
Colombres 566
Buenos Aires 1218ABE
Argentina
(5411) 4957-0083
Interpreters:
MR. CHARLES ROBERTS
MS. SILVIA COLLA
MR. DANIEL GIGLIO
[Page 1544]
APPEARANCES:
On behalf of the Claimant:
MR. DIETMAR W. PRAGER
MS. LAURA SINISTERRA
MR. NAWI UKABIALA
MR. JULIO RIVERA RIOS
MR. SEBASTIAN DUTZ
MR. FEDERICO FRAGACHÁN
MS. MICHELLE HUANG
MS. ASTRID MEDIANERO BOTTGER
MS. LUCIA RODRIGO
MR. PEDRO FERRO
MS. MARY GRACE MCEVOY
MR. REGGIE CEDENO
MR. THOMAS MCINTYRE
MR. ORRIN CASE
MR. GREGORY A. SENN
MR. CHRISTOPHER V. TRAN
Debevoise & Plimpton LLP
66 Hudson Boulevard
New York, New York 10001
United States of America
MR. LUIS CARLOS RODRIGO PRADO
MR. FRANCISCO CARDENAS PANTOJA
MR. LOURDES CASTILLO CRISOSTOMO
MR. JOSÉ GOVEA
MR. ALEJANDRO TAFUR
Rodrigo, Elias & Medrano
Av. Pardo y Aliaga 652
San Isidro 15073
Perú
Party Representatives:
MR. DAN KRAVETS
MR. SCOTT STATHAM
Freeport-McMoRan Inc.
MS. PATRICIA B. QUIROZ PACHECO
Socied Minera Cerro Verde S.A.A.
[Page 1545]
APPEARANCES: (Continued)
On behalf of the Respondent:
MR. STANIMIR A. ALEXANDROV
Stanimir A. Alexandrov, PLLC
1501 K Street, N.W.
Suite C-072
Washington, D.C. 20005
United States of America
MS. JENNIFER HAWORTH MCCANDLESS
MS. MARINN CARLSON
MS. MARÍA CAROLINA DURÁN
MS. COURTNEY HIKAWA
MS. ANA MARTÍNEZ VALLS
MS. VERONICA RESTREPO
MS. ANGELA TING
MR. NICK WIGGINS
MS. NATALIA ZULETA
MR. GAVIN CUNNINGHAM
MR. KEVIN DUGAN
MS. ARA LEE
MS. SADIE CLAFLIN
MR. NOAH GOLDBERG
Sidley Austin LLP
1501 K Street, N.W.
Washington, D.C. 20005
United States of America
MR. RICARDO PUCCIO
MR. OSWALDO LOZANO
MS. SHARON FERNANDEZ TORRES
MS. ANDREA NAVEA SÁNCHEZ
MR. RENZO ESTEBAN LAVADO
Navarro & Pazos Abogados SAC
Av del Parque 195
San Isidro 15047
Lima
Perú
[Page 1546]
APPEARANCES (Continued)
Party Representatives:
MS. VANESSA DEL CARMEN RIVAS PLATA
SALDARRIAGA
MR. MIJAIL FELICIANO CIENFUEGOS FALCON
Ministry of Economy and Finance
MR. EDMÓSTINES MONTOYA JARA
SUNAT, Republic of Perú
[Page 1547]
C O N T E N T S
PAGE
PRELIMINARY MATTERS..................................1548
WITNESSES:
CÉSAR OSWALDO TOVAR JUMPA (Continuing)
Cross-examination by Mr. Prager...................1550
Questions from the Tribunal......................1560
GABRIELA BEDOYA
Direct examination by Ms. Durán...................1613
Cross-examination by Ms. Sinisterra...............1626
Questions from the Tribunal.......................1750
Recross-exam. by Ms. Sinisterra...................1761
COLÓN HARALDO CRUZ NEGRÓN
Direct examination by Ms. Durán...................1781
[Page 1548]
1 PROCEEDINGS
2 CÉSAR OSWALDO TOVAR JUMPA,
3 RESPONDENT'S WITNESS, CALLED (continued)
4 PRESIDENT HANEFELD: Good morning and
5 welcome to Day 6 of this Hearing.
6 Before we start, we just want to share. We
7 took note of the news that in the Arequipa region
8 there was this mining accident and all the workers
9 died. Very tragic event. We wanted to express our
10 deep sorrow and we thought we would start with one
11 moment of silence before we start the day.
12 (Pause.)
13 PRESIDENT HANEFELD: Then before we start,
14 are there any issues the Parties would wish to
15 address?
16 We, from our side, we would just remind us
17 of our timing, so to say, for the week. Our
18 expectation is that we will be done with all Experts
19 by Thursday evening. If there is a need for the
20 Parties, or a preference, that we start earlier on one
21 day or end later on the other, just share it with us,
22 and we are at your disposal.
[Page 1549]
1 But just for timing purposes, this is our
2 expectation, that the Friday is really limited to the
3 Closing Statements.
4 MR. PRAGER: Madam President, that's also
5 our understanding.
6 I propose that we first confer with Counsel
7 for the other side, whether we see a need for longer
8 sessions on one or two of those days.
9 Certainly, from a preliminary calculation,
10 we have done--in order for the Parties to use the
11 allotted time, it would probably be necessary to have
12 on one or two days, like, an additional hour or two,
13 but let us first confer and then maybe get back with a
14 joint position. And, if not, we will come to you.
15 MS. DURÁN: Madam President, that is also
16 our understanding, and we will confer with the other
17 side to see if we need one hour or more in the next
18 few days so that we can accomplish that.
19 PRESIDENT HANEFELD: Perfect.
20 Then it seems that we can start. We will
21 now continue with the cross-examination of Mr. Tovar.
22 Welcome back to the Hearing, and I hand over
[Page 1550]
1 to Claimant's Counsel.
2 CROSS-EXAMINATION (continuing)
3 BY MR. PRAGER:
4 Q. Good morning, Mr. Tovar.
5 A. Good morning. Mr. Dietmar, good morning.
6 Q. I hope you enjoyed a nice weekend here in
7 Washington.
8 Let's travel in time to March 2005, so
9 March 2005.
10 In March 2005, you traveled to Toronto;
11 right?
12 A. Yes. Yes, sir.
13 Q. And the occasion for your trip was attending
14 the PDAC conference, which is the Prospectors and
15 Developers Association of Canada conference; correct?
16 A. Yes, sir.
17 Q. And the PDAC conference is one of the most
18 significant annual mining conferences; right?
19 A. Yes, sir.
20 Q. And you traveled as part of a MINEM
21 delegation; right?
22 A. Yes, sir.
[Page 1551]
1 Q. And the main--you traveled to a number of
2 meetings with mining companies, but the main event was
3 a panel discussion at the PDAC conference that MINEM
4 organized for March 9; right?
5 A. That's right, yes.
6 Q. And the purpose of the presentation at the
7 PDAC conference was to promote Perú as a destination
8 for mining investment; right?
9 A. That is right, yes.
10 Q. And there were representatives of Xstrata,
11 Barrick, and Phelps Dodge who agreed to give a
12 presentation at that event; right?
13 A. Yes, that is right.
14 (Interruption.)
15 (Stenographer clarification.)
16 (Comments off microphone.)
17 Q. And the speaker for Phelps Dodge at that
18 event was Mr. Red Conger; right?
19 A. Yes, that is right.
20 Q. And at that time he was Vice President of
21 Phelps Dodge Corporation and a Board member of
22 Sociedad Minera Cerro Verde; right?
[Page 1552]
1 A. I understand he was Chairman of the Board of
2 Cerro Verde.
3 Q. So, before you traveled to Toronto, MINEM
4 was preparing a legal aide-mémoire for the
5 conversations that you would have in Toronto; right?
6 A. That's right.
7 Q. And that legal aide-mémoire was prepared by
8 César Zegarra?
9 A. That's correct.
10 Q. And César Zegarra was the number two in
11 the--in MINEM's General Office of Legal Affairs;
12 right?
13 A. That is right, yes.
14 Q. And the number one was Mr. Isasi at that
15 time; right?
16 A. That is right, yes.
17 Q. And you testified at the last Hearing that
18 Mr. Zegarra prepared that memo and then Mr. Isasi
19 reviewed it.
20 Is that still your recollection?
21 A. Yes. That was always the way it was done.
22 Q. And Mr. Zegarra then sent you and Mr. Polo
[Page 1553]
1 the memo to Toronto; right?
2 A. The aide-mémoire, yes.
3 Q. And the topic of that aide-mémoire was the
4 impact of Mining Royalty on Tax Stability Agreements;
5 right?
6 A. That's right.
7 Q. And that was a topic at the time because--if
8 we just put ourselves in the chronology because, in
9 June 2004, the Mining Law had been passed; right?
10 A. The Mining Royalties Law had been approved
11 at the beginning of June and officially enacted in
12 late June.
13 Q. Yes, and let me correct myself. I meant to
14 say the Royalty Law had been passed in June 2004, not
15 the Mining Law.
16 A. That is right, yes.
17 Q. And at that point in time, there was still a
18 case pending before the Constitutional Tribunal with
19 regard to the Royalty Law which was resolved in a
20 decision in April 2005; right?
21 A. I recall that the decision was in
22 late--unless my memory is wrong, it was in late 2004.
[Page 1554]
1 And in 2005 there was a specification, a specification
2 because there were certain terms that were not written
3 adequately in 2004. This is what I recall.
4 Q. Okay. So, let's take a look at the
5 aide-mémoire. The aide-mémoire is Respondent
6 Exhibit 5, Tab 11.
7 Do you see it?
8 Just to confirm, when you received that
9 aide-mémoire, you reviewed it, I imagine?
10 A. Indeed. I reviewed it even before it was
11 sent to me, because we still were maintaining
12 communication with Lima while we were in Toronto.
13 Q. So, is it fair to say that Mr. Zegarra,
14 Mr. Isasi, and you, all three of you, worked on the
15 memo, or at least reviewed it?
16 A. That is correct, completely right. The
17 concepts that were written there merely formalized
18 what we already knew through oral discussion, but it
19 was always best to have a document to back things up.
20 Q. So, let's take a look at that aide-mémoire.
21 It says in the last two bullet
22 points: "There are mining concessionaires that have
[Page 1555]
1 signed administrative and Tax Stability Agreements
2 with the State regarding specific Mining Projects,
3 entered into under the Single Unified Text of the
4 Mining Royalty law, the model agreement for which was
5 approved by Supreme Decree Number 04-94-EM. In this
6 respect, for purposes of enforcing the guarantees
7 agreed to by the Peruvian State for Mining Royalties,
8 it is the mining companies' responsibility to inform
9 the entity tasked with managing and collecting the
10 royalty about the Mining Projects and Concessions that
11 would be covered by such guarantees."
12 Do you see that?
13 A. Yes, sir.
14 Q. So, let me ask you a couple of questions
15 about that.
16 This memo doesn't talk about Investment
17 Projects that are set forth in the Feasibility Study,
18 does it?
19 A. That's what "specific Mining Projects"
20 refers to. This is a file that I found among my
21 emails, and this is precisely one of the files that I
22 sent the lawyers as an original attachment, not in
[Page 1556]
1 Word, but the original file, and what is in boldface
2 is from that time. "Specific Mining Projects" refers
3 specifically to investment projects.
4 Q. Mr. Tovar, "Mining Project" refers to
5 "Mining Units," doesn't it?
6 A. No. I don't agree. I don't agree.
7 Q. When you describe the scope of Stability
8 Agreement in your two Witness Statements, Mr. Tovar,
9 you use the term "Investment Project set forth in the
10 Feasibility Study." You don't talk about Mining
11 Projects, do you?
12 A. "Mining Projects" is a term that's an
13 equivalent to "investment project." "Project" is
14 something I'm planning to do. I'm planning to do
15 something related to industry, fisheries. "Mining
16 Project," it is an investment project in mining.
17 Q. Let's look at the Spanish version. Let's
18 look at the last paragraph.
19 It says: "The Mining Projects and
20 Concessions that would be covered by them." The
21 Spanish term "cubiertas" refers to the Concessions;
22 right?
[Page 1557]
1 A. To the Projects. Actually, the scope of
2 Stability Agreements is not for the Concession. The
3 Concession is not what is stabilized, and that has
4 even been written by the Constitutional Court. In one
5 way or another, it explains that what is stabilized is
6 not the Concession, which is governed by its own
7 rules. What is stabilized is the project that gives
8 rise to the Contract and which is set out in the
9 Feasibility Study.
10 It is what is said in the Mining Law and the
11 Regulation, and when the Company in 1998 submitted its
12 Feasibility Study, it described--it delimited in time,
13 in tons, in type of ore to be processed, in type of
14 waste.
15 Indeed, there is a paragraph in that
16 Feasibility Study in 1998 that describes what waste
17 would never be generated, and this does--is a project
18 that will not produce tailings. That's what the 1998
19 Feasibility Study says.
20 (Overlapping interpretation and speakers.)
21 Q. We're not at the 1998 Feasibility Study now.
22 We are at this aide-mémoire.
[Page 1558]
1 Mr. Tovar, "cubiertas" is in feminine and
2 refers to Concessions and not to Projects, doesn't it?
3 A. I don't agree, Mr. Dietmar. When one drafts
4 in the Spanish language, one can use a neuter article
5 or make reference to the last word when there's two
6 words. It's simply a way of drafting in the Spanish
7 language.
8 Q. So, in your reading, the Concessions are not
9 covered by the Guarantees? Is that what, in your
10 reading, that sentence says?
11 A. What is stabilized by the law, and one has
12 to review the drafting of the Mining Law and several
13 articles of Supreme Decree 024 of the Regulation,
14 which does not in just one way, but in more than one
15 way, the subject matter of or purpose of the
16 Application for the Stability Agreement, and that is a
17 criteria--
18 (Overlapping interpretation and speakers.)
19 Q. Mr. Tovar, we're not talking about the
20 Mining Regulations which refer to the Mining Units and
21 concessions. We are talking about this paragraph.
22 Are you telling me that, under your interpretation of
[Page 1559]
1 the word "estarían cubiertas," the Concessions are not
2 included in the cubiertas? Is that your reading?
3 A. Mr. Dietmar, the mention of Concessions in
4 the Agreement is to give it--give a geographic
5 location to the Project. That is the purpose of
6 mentioning the Concessions.
7 Q. Mr. Tovar, it doesn't say "the Project in
8 the Concessions." It says "the Projects"--meaning the
9 Mining Projects from the previous paragraph--"and
10 Concessions"--mining concessions--"that are covered"
11 by the guarantees.
12 Would you agree it doesn't say "the Project
13 in the Concessions"?
14 A. But that is what the document refers to,
15 Mr. Dietmar. That's what it refers to.
16 Q. Mr. Tovar, you would agree the Project
17 doesn't mention anywhere Cerro Verde--the aide-mémoire
18 doesn't mention anywhere Cerro Verde?
19 A. No, it's not specific. The application of
20 the law is not for a particular company or project.
21 It's of general application.
22 Q. So, the memo does not specifically address
[Page 1560]
1 whether the new Concentrator of Cerro Verde would be
2 covered or not by the Royalties?
3 A. Mr. Dietmar, these aide-mémoires were for
4 across the board application. They were for general
5 application to all projects in Peru, not for a
6 particular case.
7 Q. Mr. Tovar, you had on the 8th of March lunch
8 with Mr. Conger and with Mr. Luis Carlos Rodrigo;
9 correct?
10 A. Yes.
11 Q. And in your First Witness Statement at
12 Paragraph 55, you said that you and a group of
13 unidentified MINEM officials had traveled to Toronto,
14 and "we had lunch." Okay?
15 In your Second Witness Statement, at
16 Paragraph 81, you said that: "I had lunch," and "I
17 made certain explanations at the lunch."
18 At the SMM Hearing, you said that Mr. Polo
19 and you were at the lunch.
20 So, my question is: Do you have for us
21 today a fourth version of who attended the lunch, or
22 can you pick for us one of the three previous ones?
[Page 1561]
1 A. Mr. Dietmar, the version of--there's only
2 one version of the situations where I was present.
3 Perhaps what we are seeing is that the First Statement
4 that I gave in March or April of 2022 did not have so
5 much so as to be able to refresh my memory, and for
6 the Second Witness Statement in November, I looked and
7 I looked thoroughly into my files so as to have
8 greater clarity as to--even as to the name of the
9 restaurant where we had met, because it's humanly
10 impossible to remember the name of a restaurant where
11 one had lunch after so many years, and I found that
12 among my emails.
13 So, in reviewing these emails, I found the
14 original presentation by Phelps Dodge made by Harry
15 Conger, and on reviewing and remembering those
16 documents, then one begins to remember
17 additional--particular additional details.
18 Q. So, you're telling us today that when you
19 wrote the First Witness Statement, you couldn't recall
20 who else on behalf of MINEM attended the lunch?
21 A. I vaguely remembered that it was César Polo,
22 but when I looked at the documents more extensively, I
[Page 1562]
1 clearly remembered that it was him.
2 And that's when I found the agenda, the
3 schedule of meetings, and that's where I remembered
4 that we had a prior meeting at Barrick's offices which
5 were a block away, and we got to the lunch with Phelps
6 and Mr. Rodrigo and Mr. Harry Conger late.
7 So, one begins to remember those things once
8 you review documents more.
9 Q. So, when you wrote the Second Witness
10 Statement that's in the agenda, you recalled that you
11 had the lunch with Mr. Polo?
12 A. Yes.
13 Q. Yet in your Second Witness Statement you say
14 "I had the lunch" and "I said" and "I"--you do not
15 mention Mr. Polo in your Second Witness Statement,
16 Mr. Tovar.
17 MS. DURÁN: Madam President, I object
18 because he's misquoting the Second Witness Statement.
19 In Paragraph 81 of his Second Witness
20 Statement, he says "during this visit"--I am making my
21 own translation because I'm looking at the
22 Spanish--"we had lunch," (in Spanish).
[Page 1563]
1 BY MR. PRAGER:
2 Q. Well, let's look at the Second Witness
3 Statement, Paragraph 81. It says: "During that visit
4 I had lunch in the Far Niente restaurant with Phelps
5 Dodge President."
6 A. It's a translation mistake in the
7 Spanish-language version, which is what I actually
8 wrote. It said: "During this visit we had lunch."
9 So, there's a mistake in the translation.
10 Q. Well, you don't mention Mr. Polo in the
11 Spanish version, either, do you?
12 There was a cross-mistranslation mistake in
13 the Spanish, but not in the English. So, you do not
14 mention Mr. Polo in either the Spanish version or the
15 English version of the Witness Statement, do you?
16 A. Yes, you're right. But that doesn't give
17 rise to any contradiction. I wasn't at the meeting
18 alone. Indeed, I remember where I was seated at the
19 table. It was a table where there were just four
20 people there of all those who were invited, Mr. Harry
21 Conger, Mr. Ricardo--Mr. Luis Carlos Rodrigo, and I
22 was seated here, and César Polo was seated here.
[Page 1564]
1 Q. Mr. Tovar, you testified on Friday that you
2 reviewed Mr. Polo's Witness Statements before you
3 signed your Witness Statements.
4 Did it strike you as odd that Mr. Polo did
5 not mention a lunch in his Witness Statement, although
6 he talked about the application of Stability
7 Guarantees to Cerro Verde?
8 A. To be more specific, Mr. Dietmar, while I
9 have had the PDF when doing the final review of my
10 First Statement, I did not study Mr. Polo's Statement
11 in detail, just some paragraphs that the lawyers found
12 were in agreement. They had noted that, well, these
13 coincide. So, both remember the same.
14 But it's only normal, it's only natural, for
15 someone to have a clearer memory than someone else
16 regarding an event that took place many years ago,
17 especially in my case because I was the one who was in
18 charge of the schedule. I was the one who organized
19 the schedules. I would put the schedules and the
20 distance and the times together to make sure we would
21 go from meeting to meeting and be on time.
22 Q. And when you wrote your Second Witness
[Page 1565]
1 Statement, it didn't strike you as odd that Mr. Polo
2 didn't mention a lunch in Toronto?
3 A. I can swear to you that I have never seen
4 that detail because I did not study César Polo's
5 Statement. If you ask me how many pages does it have,
6 I don't know. I haven't studied it. I took a look,
7 but I did not review in detail what Mr. César Polo
8 said.
9 Q. So, you mentioned that the lunch--that at
10 the lunch--well, let's start with the Second Witness
11 Statement, since we have it up.
12 You said: "I explained to Mr. Conger and
13 the attorney that, because the Leaching Project was
14 covered by the Stability Agreement, it would be exempt
15 from royalty payments, but the Concentrator Project
16 would not be."
17 And at the SMM Hearing, you said that, well,
18 actually it was Mr. Polo who made that statement, and
19 you may have helped a bit with the translation.
20 What's your recollection today about who
21 made that statement?
22 A. I remember having said it, it's possible
[Page 1566]
1 that in--as a reply to or to support what César Polo
2 had said at that time, but we'll understand that in a
3 lunch, unlike a formal working meeting, one is a bit
4 distracted eating, more than focusing exclusively on
5 talking or discussing things with pen and paper on the
6 Table.
7 So, it was a very friendly, cordial, and
8 transparent meeting or lunch, but I think that I must
9 recognize we got to the lunch late, I think more than
10 half an hour late. So, we were a bit rushed. I do
11 remember that.
12 But the lunch meeting, we did not ask for.
13 We asked--and I say this because I organized those
14 meetings at the PDAC meeting. We asked for the
15 presentation in the ballroom at the Intercontinental.
16 And, in exchange, the Company says, "Well, after that
17 presentation, now that we're there, let's get together
18 on a more social basis." That happened with Barrick.
19 There was coordination with--and with Phelps, we got
20 there late.
21 Q. Mr. Tovar, who gave the message? Was it
22 Mr. Polo or you?
[Page 1567]
1 A. I would say it was both of us. But I do
2 remember having said it.
3 Q. So, in today's version, both Mr. Polo and
4 you gave the message, at the same time, or he first
5 and afterwards you?
6 A. It's quite possible that César Polo may have
7 made the first comments, and then I would have
8 repeated it in English.
9 Q. And, Mr. Tovar, did you have at that point
10 in time a legal opinion from the Legal Office or from
11 the DGM that determined that the stability benefits
12 would not apply to the Concentrator?
13 We saw that the aide-mémoire didn't mention
14 Cerro Verde, so did you have any other document at
15 that time that stated that the stability benefits, the
16 Stability Guarantees, did not apply to Cerro Verde's
17 Concentrator?
18 What did you base that statement on?
19 A. At that time, in March of 2005, the reading
20 and knowledge of the scope of the application was
21 quite clear, and I'll be honest with you, I did not
22 have reports for each article or as to how each
[Page 1568]
1 article of the law would be interpreted. The reading
2 of the Law and the Regulation, a direct reading of it,
3 led to an understanding of the scope of coverage.
4 And my oldest memory in terms of
5 understanding the scope of application of the
6 Stability Agreement is from March or April of 2004,
7 March or April of 2004, and I came into the MINEM in
8 January. And by March, one already heard, it was
9 already known, that there was this debate about the
10 Royalties Law internally. We had to know how it would
11 be applied once promulgated.
12 Q. So, Mr. Tovar, you were basing your alleged
13 statements on your understanding of what the
14 application of the Stability Guarantees would be on
15 Cerro Verde's Concentrator, and not on a legal
16 memorandum; is that correct?
17 A. Let's recall that every Monday at 10:00 a.m.
18 we had a general meeting with engineers, lawyers,
19 sociologists, and so on, and there all the opinions
20 were shared. If you're suggesting that the opinion on
21 coverage is my own personal one, I can confirm for you
22 that that's not the case. It was institutional.
[Page 1569]
1 Q. Mr. Tovar, you had a special legal
2 aide-mémoire prepared for your meetings to address the
3 question of whether Stability Guarantees applied
4 to--or what the scope of Stability Guarantees was with
5 regard to the application of the Royalty Law.
6 That Legal Opinion did not address Cerro
7 Verde, and yet you felt authorized without a Legal
8 Opinion to make that alleged statement?
9 A. You're mistaken, Mr. Dietmar, with all due
10 respect. The fact that this aide-mémoire existed in
11 March doesn't mean that previously there hadn't been
12 discussions and knowledge of an official institutional
13 position on this matter.
14 Q. Mr. Tovar, you testified in your Second
15 Witness Statement that MINEM officials cannot provide
16 any oral opinions, that they can only provide opinions
17 in writing and that it will be outside of their duties
18 to provide any oral opinions.
19 Did that rule not apply to you and to
20 Mr. Polo, only to Ms. Chappuis?
21 A. Mr. Dietmar, your question is extremely
22 important, relevant in this general case, not just in
[Page 1570]
1 terms of the questions you are putting to me, because
2 what I have done is to explain to all regulated
3 Parties how the Law is read. What is totally
4 prohibited is to suggest to the regulated Party how
5 they should do a filing that one is going evaluate.
6 This is very important because, in the
7 Witness Statements that I've read by the Claimant, it
8 is written that someone in the Ministry made that
9 suggestion as to how to establish a legal strategy for
10 the regulated Party. And I believe that that is
11 something that should not happen.
12 It's one of the first things that the
13 lawyers explained to me and taught me: "Don't give
14 ahead of time an opinion on some filing that is about
15 to be made."
16 QUESTIONS FROM THE TRIBUNAL
17 ARBITRATOR TAWIL: You're referring to
18 Ms. Chappuis; is that correct?
19 THE WITNESS: Yes, sir.
20 ARBITRATOR TAWIL: When you found out that
21 Ms. Chappuis had said that one must follow this line,
22 what did you do?
[Page 1571]
1 THE WITNESS: Mr. Santiago, during the time
2 that Ms. Chappuis and I worked together at the
3 Ministry of Energy and Mines, I never heard or
4 received any sort of instruction like that from her,
5 not orally or in writing.
6 ARBITRATOR TAWIL: So, how did you find that
7 out and when? Because we have heard statements that it
8 was already known that there was a different position
9 in the Ministry.
10
11 THE WITNESS: When I read these Witness Statements
12 written, and that was in January or February of 2022,
13 when I began to be a Witness in this case and once I
14 had access to these documents, these documents and
15 PDFs, that is where I saw that there was a version
16 that was not shared with us.
17 In all the documents, in all of the memos,
18 in all of the emails even, this position of
19 Ms. Chappuis is not reflected.
20 ARBITRATOR TAWIL: You did not know that she
21 had a different position?
22 THE WITNESS: No, sir. No, not orally or in
[Page 1572]
1 any meetings.
2 Moreover, there's a trace of a presentation
3 by Cerro Verde from August of 2004 where, in the
4 meeting, I mentioned that among the existing
5 procedures of the Ministry is the possibility of them
6 signing a new Stability Agreement. That was and could
7 have been the moment when any of those at the table
8 could have told me: "Why are we going to sign a new
9 Stability Agreement if this is already stabilized?"
10 ARBITRATOR TAWIL: And you worked with the
11 Ms. Chappuis; right? She was your direct boss?
12 THE WITNESS: Yes, she hired me.
13 ARBITRATOR TAWIL: Some Witnesses said that
14 the disagreements were well-known in connection with
15 Ms. Chappuis, but you said that they were not known
16 within the Ministry. You refute those Witnesses;
17 specifically, for example, this was indicated by
18 Mr. Isasi. He said that the disagreements of
19 Ms. Chappuis were well-known. But you say that they
20 weren't.
21 THE WITNESS: I can give you an example.
22 ARBITRATOR TAWIL: No. Please answer my
[Page 1573]
1 question.
2 They were not known? It is not true that
3 there were no differences--meaning that Ms. Chappuis
4 opined, like you all did?
5 THE WITNESS: No. In certain cases, there
6 were disagreements, and I had to present the case to
7 my boss, Ms. Chappuis, and provide support for it.
8 ARBITRATOR TAWIL: No. In connection with
9 this issue specifically, the position of Ms. Chappuis
10 was not known?
11 THE WITNESS: No, no, no. Otherwise, there
12 would have been a record. And in connection with the
13 Royalties Law specifically, once the law was passed at
14 the end of June and we had the Monday coordination
15 meetings with the Vice Minister, she sent an email in
16 connection with the Royalties. She said, "Well, I
17 will not participate in the meeting in connection
18 with the Royalties."
19 ARBITRATOR TAWIL: Thank you.
20 ARBITRATOR CREMADES: Let me ask you:
21 Claimants asked in writing that the Ministry respond
22 in writing that the Concentrator was covered by the
[Page 1574]
1 Stabilization Agreement. No answer was provided, and
2 this lack of Reply by the Ministry, was that done on
3 purpose? Was that dealt with on the Monday meeting,
4 that there was no response? That silence, is it
5 interpreted as a negative from the Ministry?
6 THE WITNESS: I'm sorry. I don't--I can't
7 see your last name.
8 ARBITRATOR CREMADES: You can call me
9 "Mr. Arbitrator."
10 THE WITNESS: Okay. Mr. Arbitrator, it is
11 correct that Cerro Verde made presentations. I do
12 clearly recall one in August. I don't remember the
13 one that was mentioned in June or July. In these
14 presentations, they said that they were going to apply
15 for the inclusion of this Project within the
16 Stabilization Regime. But that application I never
17 got to know. It never came to me.
18 ARBITRATOR CREMADES: Thank you very much.
19 PRESIDENT HANEFELD: I would also ask about
20 these presentations that Cerro Verde made in July and
21 August 2004. As the other arbitrator has asked, they
22 had specifically asked in the presentation for an
[Page 1575]
1 addendum of the Stability Agreement.
2 Do you remember that this presentation was
3 held and that they showed the slide and asked for this
4 addendum of the Stability Agreement?
5 THE WITNESS: Counsel showed me two
6 presentations: One from June-July or--the other one
7 from August. I remember the one from August.
8 Apologies, Madam President, I remember where
9 I was sitting at the table in some cases, and I do
10 remember the August presentation. The first one, the
11 first presentation, June-July presentation, I don't
12 recall that one. I do not recall that because when I
13 reviewed it, there were so many issues where I would
14 have interrupted the meeting and issued my opinion
15 that I would remember that I would have been told to
16 wait or to not say anything. You know, memories are
17 reconstructed after many, many years, not only on
18 based on a piece of paper but based on the events. If
19 we look at the August presentation, we can see that
20 in fact the Company has asked for the signature of an
21 addendum and the incorporation of the Concentrator.
22 So, the text and the spirit of the August
[Page 1576]
1 presentation matches the email that Chappuis sent to
2 the Directors in June, asking whether the
3 incorporation of the Primary Sulfides Project is
4 legal, incorporating that into the Contract or the
5 Agreement.
6 So, the reading that I had in June of that
7 email by Ms. Chappuis and the one in August, well, the
8 presentation in August, makes me think that the
9 Primary Sulfides Project was clearly not included in
10 the 1998 Stabilization Agreement.
11 Now, if we go back in time and we look at
12 the documents, the perception is clear: Ms. Chappuis
13 and the Company were asking for the incorporation of
14 Primary Sulfides in the Stability Agreement. There
15 was an email that Chappuis, on 11 June, and there was
16 also a presentation by the Company.
17 PRESIDENT HANEFELD: And do you remember
18 that this addendum to include the Concentrator was
19 then discussed in this meeting, and that a response
20 was given by Ms. Chappuis or yourself or anyone else
21 of the Ministry?
22 THE WITNESS: I do not have any personal
[Page 1577]
1 knowledge of the fact that the Company has submitted
2 that Addendum Application. If that had come to my
3 office, the office would have acted, because my office
4 was the one in charge of preparing reports in that
5 connection. More importantly, is that the work route
6 for an application of this kind does not end at the
7 DGM. The DGM does not sign contracts, 10-year
8 contracts or 15-year contracts. No. That is done by
9 the Minister and the Vice Minister.
10 If that Application had come to the office,
11 I would have seen it as it should be done, and it
12 would have ended up at Legal, because of the signature
13 by the Vice Minister and by the General Secretary's
14 office, if it's signed by the Minister.
15 PRESIDENT HANEFELD: According to my
16 understanding of the organization, now, there was a
17 Legal Advisor to Ms. Chappuis, and I understood you
18 were advising on Promotion of Investment, which was
19 more technical.
20 So, why would this Application, if it
21 existed, have come to your attention?
22 THE WITNESS: Because the Regulations for
[Page 1578]
1 organization functions so states.
2 PRESIDENT HANEFELD: Thank you.
3 BY MR. PRAGER:
4 Q. Just a couple of follow-up questions.
5 Mr. Tovar, the suggestion in the August
6 presentation of an addendum assumed that the
7 Concentrator would have a separate Beneficiation
8 Concession, didn't it?
9 A. At that time, the Company had not submitted
10 its request for the modification of the Beneficiation
11 Concession. So, no definition was given at that date
12 during the Cerro Verde presentation in August.
13 Q. Mr. Tovar, Cerro Verde never requested that
14 the Concentrator be included--that the Concentrator
15 gets a separate beneficiation concession, did it?
16 A. That's correct.
17 Q. Cerro Verde requested that the Concentrator
18 be included in the existing Beneficiation Concession;
19 correct?
20 A. That's correct.
21 Q. And you approved that it be included in the
22 existing Beneficiation Concession; correct?
[Page 1579]
1 A. It's legal. Its correct.
2 Q. The August suggestion in the PowerPoint
3 presentation, about an addendum, assumed that the
4 Concentrator would get its own Beneficiation
5 Concession, a separate beneficiation concession, and
6 that then the Stability Agreement be extended to
7 include it, didn't it?
8 A. Can we look at that slide, in particular?
9 Q. Yes. Can you see here? Separate
10 Beneficiation Concession.
11 (Overlapping interpretation and speakers.)
12 THE WITNESS: Where is it?
13 BY MR. PRAGER:
14 Q. I don't think we have it. We don't have it
15 in the binder, but you can see it on the screen.
16 You see it's a separate beneficiation
17 concession?
18 A. There are a number of slides here, and you
19 have to look at things in context. You have to look
20 at the other slides and not only this one.
21 Q. It is Tab 34 in your binder.
22 You said this one, the proposal--would you
[Page 1580]
1 agree with me, that you see here, assumed that the
2 Concentrator would get its separate beneficiation
3 concession.
4 Isn't that the case, if you look at the
5 slide?
6 Mr. Tovar, I don't want to lose all the time
7 for you going through all the presentation. Your
8 Counsel for Perú can ask you some follow-up questions
9 on that. I want you to look at that proposal here on
10 the Slide.
11 A. Excuse me for the delay.
12 Q. (in Spanish) "Concesión de Beneficio: Planta
13 Concentradora de Sulfuros Primarios." That would have
14 been a separate beneficiation concession from the
15 existing Beneficiation Concession; correct?
16 A. I had a doubt when I heard your question.
17 That's why I looked at this Slide, but at 40, at
18 Slide 40, the Company asks the question: "Is it
19 necessary for the Plant to have a beneficiation
20 concession when including the Addendum?" They did not
21 have a position taken. Their position was not set.
22 They were looking at possibilities.
[Page 1581]
1 Q. I think that's presentation way of
2 saying--and then it provides the answer right beneath.
3 I focus here on Page 11. That is the
4 proposal that you mentioned about the expansion, and
5 this proposal assumed that the Concentrator would have
6 a separate beneficiation concession?
7 Yes or no.
8 A. On this slide, yes. But if you look at
9 Slide 40 in the same presentation of the same meeting,
10 they pose the question. They are exploring
11 alternatives. They are presenting an inquiry. If you
12 look at the presentation in full, the Company has gone
13 there to explore the alternatives that would be more
14 convenient to it.
15 Q. Mr. Tovar, can a Beneficiation Plant
16 function without a beneficiation concession?
17 A. Formally, no.
18 Q. Okay. So, you either include it in the
19 existing beneficiation concession or you ask for a
20 separate beneficiation concession; correct?
21 A. Well, an extension, an amendment.
22 Q. And this proposal assumed a separate
[Page 1582]
beneficiation concession? You still haven't answered
my question. Take a look at the slide, it says
"Concesión de Beneficio: Planta Concentradora de
Sulfuros Primarios."
A. I answered that this slide is written that
way. I have answered, but the spirit of the
presentation is to ask questions and explore
alternatives.
Q. And you, then, approved the inclusion of the
Concentrator in the already-existing Beneficiation
Concession, Mr. Tovar?
A. Because that's legal. We spoke about that
on Friday. It is one of the two legal alternatives
that we had. But I also said that these are different
procedures, that are independent, and this was
corroborated by one of Claimant's Witnesses. I
remember a phrase that I read. These are not my
words, of course. They are the Witness's words. Of
course, these are independent procedures, and we can
look at it if you want.
Q. Mr. Tovar? You also--sorry.
PRESIDENT HANEFELD: You just referred to
[Page 1583]
another slide on Page 40 to support your
understanding.
Can we just have a quick look to the Slide
Number 40? So, if you explain your understanding of
this slide.
THE WITNESS: This presentation has been
prepared by the Company, not by the Ministry. It
says: "is it necessary for a Primary Sulfide Plant to
have a Beneficiation Concession when including the
addendum?" And this matches what we saw at Slide 11.
The answer is no. This type of Agreement--and this is
what the Company says--is signed before or during the
accomplishment of the investment, and the
beneficiation concessions are granted when completing
the construction.
PRESIDENT HANEFELD: Thank you.
THE WITNESS: I insist: Stability
Agreements do not stabilize Concessions, but
investment projects, mining investment projects.
BY MR. PRAGER:
Q. Mr.--
MR. PRAGER: Sorry, Madam President.
[Page 1584]
BY MR. PRAGER:
Q. Mr. Tovar, you mentioned the consistent
position of the MINEM at the time.
Let me just ask you, you testified on Friday
that you copied the entire hard drive of the--that you
had from MINEM. You have not presented a single email
that would show what position the DGM or MINEM had
with regard to Cerro Verde's Stability Agreement, did
you?
A. That's correct. That's a recurring
question. I answered the question when the arbitrator
posed the question to me, because, as far as I'm
concerned, as I am personally concerned, there was
never a contrary opinion to what we understood,
institutionally, as the coverage of the Stabilization
Agreement. My earliest recollection in connection
with the position of MINEM was March or April 2004.
Q. Mr. Tovar you also have not found any email
describing what was being discussed at the lunch in
Toronto with Phelps Dodge?
A. You're right. There was no aide-mémoire
drawn up for that meeting, or for any of the other
[Page 1585]
meetings held in Toronto.
Q. So, there's not a single email that you
could find that would anywhere state that Cerro
Verde's Concentrator would not be covered by Stability
Guarantees?
A. I haven't found any, but also there weren't
any. I insist; this was an issue that was well known
already. This was cross-cutting, it was that MINEM
had a cross-cutting position already on it.
Q. So, you are telling us here today that you
explained in Toronto, to Phelps Dodge, that the
Concentrator would not be covered, that Cerro Verde
would have to pay hundreds of millions of dollars in
Royalties, that there is not a single document that
you could find in your electronic records that would
support that?
A. Sir, to be more precise, I never said
hundreds of millions of dollars. I just focused on
the concept and explained it. The investment project
that gives rise to the Contract is stabilized. If
that Project is not included in the request for the
Contract, no stabilization exists.
[Page 1586]
Q. You also said in your First Witness
Statement that the discussion was triggered by
Mr. Conger showing a letter he received from SUNAT,
asking mining companies to declare which Concessions
they had in order to pay Royalties; is that right?
A. To be precise, he did not show me the
letter. He mentioned that that letter existed. He
mentioned that to me.
To be doubly precise, this was not done
during the Tuesday lunch, but at the end of the
presentation in the board room of the Intercontinental
Hotel where I was standing close to the door, the
presentations were shown in the atrium and the
PowerPoint was shown there, and I was standing right
there. And Mr. Conger stood up, and he asked the
question while standing up.
And that's where I found out--and he
mentioned to me the existence of this SUNAT letter.
Q. Mr. Tovar, in your First Witness Statement,
you didn't mention a second meeting, did you?
A. I clarified that during my February
testimony, the recollections I had during the
[Page 1587]
signature of my First Witness Statement in April were
supplemented with additional information that I found,
because I looked for information again, and for my
Second Witness Statement in November I found more
information. I found schedules, agendas, emails, an
email where Cerro Verde asked for a meeting, the
original presentations, I did not recall that I had
those.
Q. So, you found all these emails--we're going
to come to that, to the second meeting in a moment.
But with regard to the first lunch, you found all
these emails about where the meeting is going to take
place, what restaurant is going to take place, agenda,
et cetera, but not a single email, not a single email
about what you would tell--you say that you told Cerro
Verde at that meeting; is that correct?
A. That's correct. I report to my boss. If my
boss was with me at the meeting--and I'm trying to
understand your question and look at it from different
angles--what sense would it make to send me, to send
my boss an email on the meeting because the--my boss
was with me at the meeting.
[Page 1588]
(Overlapping interpretation and speakers.)
BY MR. PRAGER:
Q. Repeating the question, your boss is the
Director General of Mining; right?
A. Yes. My boss was the person that occupied
the position at the DGM. Ms. Chappuis occupied the
position until December 2004. In Toronto,
Ms. Chappuis was no longer there. This was
December 2005. So, the Director was Mr. César
Rodriguez Villanueva.
Q. Mr. Tovar, what was Mr. Conger's reaction,
after he was supposedly told that the Concentrator
would not be covered by Royalties?
A. He was very calm, fully calm. He was not
surprised at all. I was with him, and we were a meter
apart. No, there was no confusion.
Q. So, your testimony is that he--you were
telling him that the Concentrator would not be covered
by Stability Guarantees--
A. That's what I told him.
Q. --and that as a result, Cerro Verde would
have to pay hundreds of millions of dollars in
[Page 1589]
Royalties, and he was completely "tranquilo"?
A. I never used that phrase. It had to pay
hundreds of millions of dollars. 1 dollar, $100,
the--you know, the application is conceptual.
Mr. Conger, let's recall, is an engineer. As
engineers, we look at the numbers before we take a
position as to the viability of projects.
Q. Well, Mr. Tovar, at the SMM Hearing,
he--Mr. Conger was, in your recollection, at least,
surprised, and pushed you to have a clear answer.
A. Let me tell you how that happened. I was
sitting right there on that side of the room, looking
at the presentation, and when I turned around
Mr. Conger was--
Q. I'm talking at about the lunch.
A. My apologies.
Q. So, your testimony today is that he was
completely quiet. Okay.
So, let's look at the next day.
Do you recall Mr. Conger having given a
presentation at the Royalty Forum?
A. I do.
[Page 1590]
Q. And you--
(Overlapping interpretation and speakers.)
Q. --at that presentation, were you?
(Interruption.)
BY MR. PRAGER:
Q. And you were present at that presentation;
right?
A. I was.
Q. And so, let's take a look at the
presentation.
We have it in--it is Tab 14, CE-945.
You--you recognize that's the presentation?
A. I do.
Q. Let's go to Slide 9.
So, on Slide 9 of that presentation,
Mr. Conger explains that Cerro Verde had a
Pre-Feasibility Study.
You see that?
A. 2002, yes. That shows us that it was
impossible for it to have been included in the 1998
Contract.
Q. Let me first ask the question. Okay. I
[Page 1591]
asked you whether you see it, and my question was, do
you see that it said here that Cerro Verde initiated
preliminary discussions with the Government on a
number of issues, such as reinvestment of profit
benefit, but also on Stability Contract assurance.
Do you see that?
A. Discussions that started in 2002, and of
which there are records also in 2003. At that those
dates, there was no discussion of the Royalties Law.
When it talks about Stability Contract assurance, no
reference could have been made to the Royalties Law
because it simply did not exist at that time.
Q. Well, here he's talking about the
preliminary discussions that started in the year 2002;
right?
A. It is in the records. There are Reports
signed by the DGM in October and September 2003.
Q. Well, let's go to Slide 12. Here,
he--Mr. Conger explains at the PDAC conference, at the
MINEM event that, to make an Investment Decision,
Cerro Verde and Phelps Dodge were having--do you see
that third bullet point?--extensive interaction with
[Page 1592]
the Government, and they said "requirements to
proceed," "certainty of Stability Contract."
Do you see that?
A. I see that.
Q. And then let me get you to the last slide
that I wanted to discuss, which is Slide 16, in which
Mr. Conger made his conclusions. And in the
conclusions on March 9, 2005, Mr. Conger tells the
PDAC conference at the MINEM event: "The Stability
Contract provides certainty to make $850 million
Investment Decision."
Do you see that?
A. Of course. In both cases, the reading of
this, and that anyone could have of this at that point
in time is that, how is it that one can use the
Stability Agreement to reinvest profits from a
component that was previously stabilized under the
Contract.
(Overlapping interpretation and speakers.)
Q. I was talking about Mr. Polo being present,
too. But...
BY MR. PRAGER:
[Page 1593]
Q. Mr. Polo--sorry, Mr. Tovar.
No, Mr. Tovar, the reinvestment of profit
incentive is a separate bullet point. Here, in the
bullet point above the reinvestment of profit
incentive, he refers specifically to the Stability
Contract that provides certainty--and I say
certainty--to make $850 million Investment Decision.
That was what Mr. Conger said--or presented to the
audience at the PDAC conference, at an event promoting
Perú. Isn't that the case?
A. Mr. Dietmar, nowhere Harry Conger, Phelps
Dodge, or anyone in this presentation said that Cerro
Verde--or felt had the certainty that they were not
going to pay Royalties. So, much so that, if we look
at Slide 2 of this presentation, Harry Conger invites
the participants to look at the 10-K Report that was
just published.
It had been published two days before and
sent to the SEC, and, there, Phelps Dodge says in
writing two days before that Phelps Dodge did not know
how the Royalties Law was going to be applied to this
Project.
[Page 1594]
Q. Mr. Tovar, you're reading the boilerplate
from the first page.
On Page 16, in concluding his presentation,
Mr. Conger showed the audience "Stability Contract
provides certainty to make $850 million Investment
Decision."
Mr. Tovar, are you testifying here today
that you or Mr. Polo told Mr. Conger the day
before: "Hey, the Concentrator is not covered by the
Stability Agreement," and Mr. Conger the next day goes
at an event promoting Perú, in front of an audience of
mining investors, and tells them "Stability Contract
provides certainty to make $850 million Investment
Decision."
Is that your testimony?
A. Yes, but there is no contradiction, and I
can explain.
The day before and after this presentation,
I told Mr. Conger the Sulfide Project is not covered
by the Stability Agreement, but it doesn't say here
that it is covered. It says that the Stability
Agreement provides certainty to make an
[Page 1595]
850 million investment. Why does it say so? Because
it was possible to reinvest profit so as to save
30 percent of the--of this value of 850 million that I
signed. I signed that Profit Reinvestment.
And what it implies, what the reinvestment
of profits implies, is that the Company saves
30 percent of the investment in the form of Income
Taxes. So, clearly, it was feasible. They used it,
but there--it doesn't say there in the presentation,
it doesn't say that it was for Royalties, and the
Royalty Law was in--existing at that point.
Q. Mr. Tovar, the reinvestment of profit
incentive is a separate bullet point. He says in the
first bullet, specifically, Stability Contract
provides certainty to make $850 million Investment
Decision.
You mentioned the Reinvestment of Profit
incentive that you signed. Let's take a look at it.
A. Mr. Dietmar, I apologize for the
interruption, but also Slide 2 invites to read 10-K to
present it to SEC. So, I am asking you to read that
10-K document and present it by Mr. Dodge where they
[Page 1596]
say that they do not know how the Royalty Law would be
applied to their investment, and the whole
presentation is given within that context.
Q. Mr. Tovar, this is the Reinvestment of
Benefit Profit decision that you signed. We have it
as Exhibit CE--479, which you can find in Tab 10.
That is from November; right? That is from
November 2004.
A. Yes, sir. Yes, sir.
Q. Do you see it? Do you see the sentence that
says: "Sociedad Minera Cerro Verde enjoys tax
stability, according to the Agreement signed on
February 13, and it includes a special system to
reinvest profits."
Do you see that?
A. Yes, sir.
Q. Among other benefits, it says.
You did not in that Resolution say anywhere
that it's the Leaching Project of Cerro Verde that
enjoyed benefits but not the Concentrator, did you?
You said Sociedad Minera Cerro Verde?
A. I thank you for the question, because that
[Page 1597]
is clarified in the Ministerial Resolution that's
signed by Mr. César Polo, Ms. Chappuis, and the
Ministry, if I'm not wrong--
(Overlapping interpretation and speakers.)
BY MR. PRAGER:
Q. Mr. Tovar, I'm now talking about what you
were writing.
We heard testimony from--about the other
Resolution already. I'm talking about this specific
Resolution. You did not say what you--you know, you
testified here today that it was the well-known view
that the stability benefits only apply to the Leaching
Project.
Here, you examine in quite some detail the
approval of the program for reinvestment. You did not
state, did you, that the stability benefits only
applied to the Leaching Plant here; right?
Mr. Tovar, can you answer my question? You
did not state here that the reinvestment--that the
Stability Agreement only applied to the leaching
project. You wrote it applied to Sociedad Minera
Cerro Verde, didn't you?
[Page 1598]
A. This is not the only Report that I sent for
signature. I also sent a draft of a Ministerial
Resolution.
(Overlapping interpretation and speakers.)
BY MR. PRAGER:
Q. I'm not talking about the Ministerial
Resolution. We heard testimony about that. You
signed this Report, and you--and, I presume you're
very careful, you were a very careful Ministry
official, weren't you?
A. Thank you.
Q. Yes or no?
A. I thank you for that compliment, because I
just found it here at the beginning of the document.
Q. Mr.--
A. At the beginning of the document it
says: "Subject matter, request the approval of
reinvestment for nondistributed profits of the years
2004, 2005, '06, and '07," the years in which the
Primary Sulfides was under construction. They were
not producing. They were not invoicing or generating
any profits.
[Page 1599]
Q. Mr. Tovar, you still have not answered my
question.
When you described the scope of the
Stability Agreement here, you did not--you did not say
that it applied to a particular project. You said it
applied to Sociedad Minera Cerro Verde; correct?
A. No. Sociedad Minera Cerro Verde is the
holder of the Concession. The holder of the Contract,
but the Contract defined the holder, the stabilized
Project, there is the tonnage of Reserves, the years,
the amounts invested. The Contract provides for many
things, it does not stabilize the Concession, rather,
the investment project.
MR. PRAGER: I don't have any further
questions. Thank you.
PRESIDENT HANEFELD: Do you have any
questions in redirect?
MS. DURÁN: Yes. Could I take
three minutes, please?
(Brief recess.)
MS. DURÁN: May I? Thank you.
[Page 1600]
BY MS. DURÁN:
Q. Good morning, Mr. Tovar.
A. Very good morning to you.
Q. On Friday, you were asked about the number
of hours used to prepare your Statement and to prepare
ahead of the Hearing.
Are you being paid for this Statement?
A. No, not at all. I was paid the ticket,
hotel. That's it.
Q. Now, if we can show on the screen RE-233.
On Friday, you were asked about the
Roundtable Discussions, June 23, 2006?
MR. PRAGER: We did not discuss the
Roundtable Discussions. We discussed a presentation
that he said would--that he claimed was being made by
Mr. Isasi.
MS. DURÁN: Yes--
MR. PRAGER: We didn't get to the Roundtable
Discussion. So, I think that question is, like, out
of scope for redirect.
MS. DURÁN: No. I will clarify.
BY MS. DURÁN:
[Page 1601]
Q. You were asked about a presentation done on
June 23, 2006; correct?
A. Yes.
Q. And you mentioned that you had seen the
printout of how you used to distribute this
presentation--sorry, I lost my page. We are going to
look at Page 4 of the document, 3.2. We are going to
zoom in for the Witness and also in English.
Would you read the first sentence of that
paragraph?
A. "Once the Roundtable was brought to
order"--I am sorry, but who's writing this? This is
not mine; correct?
Q. No, it's not.
A. "Once the Roundtable was brought to order,
we were then provided with an extensive defense,
referred to in the PowerPoint bound copy, attached to
the Minutes, regarding the reinvestment of profits and
Mining Royalties of Cerro Verde, on the first page of
which we can see in the second chart the timeline
explaining that from the time of signing the Legal
Protection Agreement on 2/13/98 until the issuance of
[Page 1602]
Ministerial Resolution Number 510-2004-of December 9,
Appendix to the Action 1-T, three legal rules were
issued that did not impact the 1998 Legal Protection
Agreement of '98. Attached to--or Appendix to the
Action 1-P, without considering that the same Legal
Protection Agreement expressly prohibited."
Q. And we now look at page--Appendix A-6, after
the end of the document, Page 20 of the PDF.
What do you think of when you see this?
A. Well, what we see to the left is the type of
presentation that Felipe Isasi did, not myself. My
style for presentations was different. I even recall
that this presentation that here is in black and
white, had a dark background, possibly dark blue.
And this chronology was the way in which
Felipe Isasi broke down the case to explain it in an
easy-to-understand manner. And even though there have
been claims by Mayors, Congress members, when
receiving the presentation, they were able to
understand it, and, therefore, not a single word was
changed from the Ministerial Resolution approving the
2004 Profit Reinvestment.
[Page 1603]
There had been claims and questions, but the
Ministry never changed a single letter because this
allowed them to easily understand this.
Q. Thank you.
Now, you were asked about the exchanges you
had with Harry Conger at the PDAC conference in
March 2005. Do you recall those questions?
A. Yes.
Q. Could we please look at the first
paragraph--or your First Witness Statement at
Paragraph 55. And halfway down the paragraph, this is
describing the lunch meeting you had, and halfway down
the paragraph you describe Mr. Conger's reaction--and
Mr. Rodrigo. Would you please explain what your
recollection is?
A. Certainly. I remember several things.
First, this was one block away from our previous
meeting, which was with Barrick, and we just rushed to
that meeting. We were almost half an hour--more than
half an hour late. At the outset, it was a lunch
where Cerro Verde was inviting other public
officials--the Minister Director General, members of
[Page 1604]
Centromín, Jorge Merino, Luis Moreno, et cetera. But
finally only César Polo and myself attended, and they
were a little bit hurried up at the table because we
arrived late. But silence is uncomfortable, and
someone usually takes the floor. César Polo is very
talkative, and that's when we precisely talked about
something that was up to date. What's going on with
Royalties at Cerro Verde. It was a current issue.
Q. And then you were asked about Harry Conger's
reaction as part of the second interaction on the
second day. Could you please explain what Harry
Conger's reaction was?
A. When all of the presentations at the
ballroom were over at the Intercontinental Hotel--this
was on the next day--Harry Conger approached me.
During lunch, nothing was said about the SUNAT letter.
And he approached me. Harry Conger is a very tall
person. He was very surprised. He was tall in
relation to me.
And even though he didn't show me the
letter, he told me that there was a letter. We had
heard about it, with Antamina, who had told us about
[Page 1605]
that letter. But since I knew that those letters from
SUNAT had already been sent, and they were quite
generic in nature, the spirit of that letter that
SUNAT sent to the companies was "hey, you know what?
The Ministry is telling me that you produce mineral.
Please let us know if you need to declare and pay."
So, at that point in time, March 2005, Cerro
Verde only produced Leaching Cathodes that was for a
Project that was stabilized. So, in March 2005,
April 2005, May, Cerro Verde was not going to pay
Royalties because their operations had been stabilized
up to date. But the Project that they had just
started building in November, December, January,
February, March, after five months of construction,
upon construction, they were going to pay Royalties.
I mentioned that to Mr. Harry Conger. I
said--I recall I said, clearly, leaching does not pay,
but Primary Sulfides, since it is not part of the
Contract, will have to pay Royalties in the future.
He said, well, but this is not what the letter says.
I said, do not worry. This is something that is being
implemented right now, and eventually there are some
[Page 1606]
documents sent by SUNAT that could be more specific.
And he said, okay. Thank you very much. And he left.
Q. Thank you.
MS. DURÁN: I have no further questions.
MR. PRAGER: Madam President, can I make a
very brief re-redirect?
PRESIDENT HANEFELD: Yes, please.
BY MR. PRAGER:
Q. Mr. Tovar, I'm showing you a Report from
El Heraldo about the June 23, 2006, meeting, that--at
which you claim that Mr. Isasi made a presentation.
MS. DURÁN: I'm sorry. I am going to
actually repeat the objection that Claimant made. I
wasn't asking specifically about the June meetings. I
was asking about the presentation, and that was the
scope of my redirect.
MR. PRAGER: And I am establishing--I'm
talking about the presentation here. So, no worries.
We are not talking about anything else.
BY MR. PRAGER:
Q. At the SMM meeting, we established that
[Page 1607]
El Heraldo is the official newspaper of Congress;
right?
A. Yes, sir.
Q. But we also established that this article
provides a description of the meeting that took place
at the Royalty Forum; right?
A. That is correct. Could you please tell me--
Q. Mr. Tovar, I'm the one who is asking the
questions.
You would agree with me that this detailed
summary of the meeting does not mention any
presentation by Mr. Isasi or anyone else from the
Ministry, does it?
A. I think, Mr. Dietmar, that we should read
these documents together. There are some minutes that
I would like to see on the screen too, because I think
that one complements the other one. The official
Minutes state that, in principle, it was at the
Bolognesi meeting room--it was not at the Bolognesi
meeting room, rather, at the Miguel Grau meeting room,
as it says here.
The other Minutes also show that there were
[Page 1608]
some interventions or participations. I do not think
that they contradict each other, but they supplement
each other. And by the way, this was not--this was
not the first time that we took to Congress a
presentation on the scope of the Royalties and the
Stability Agreement, and that was June 8, 2005.
And I recall because, by chance, I don't
know how the audio was obtained, and the Minutes of
that meeting of June 2005 that were by--they repeat
exactly the same concepts. The Stability Agreement
only stabilizes investment projects subject matter of
the agreement.
Q. Mr. Tovar, this is the first meeting in
which Cerro Verde participated, isn't it?
A. I wouldn't be able to assure that.
Q. My second follow-up question was, you did
not--going back to the 2005 Toronto meeting, you did
not mention a second meeting with Mr. Conger in the
aisle after the presentation, in your First Witness
Statement, did you?
A. That is in my Second Statement.
Q. And you mention in your First Witness
[Page 1609]
Statement that Mr. Polo--I'm confusing
everyone--Mr. Conger raised the issue of the SUNAT
letter at the March 8 lunch, which prompted your
comment. And you testify in your Second Witness
Statement that that's actually not correct, that he
raised the SUNAT letter at the second meeting, isn't
that the case?
A. That is correct. The recollection I had
during my First Witness Statement was that the issue
of the letter was something that came up at the table
during lunch, but when I started reviewing the agenda,
the invitation, email, and the presentation, when I
saw this color presentation that I had there, of which
I had the original copy, I recall that it was at the
end of this presentation when Mr. Conger approached me
and mentioned SUNAT'S letter.
Q. So, your testimony, Mr. Tovar, is that at
the first meeting, although you claim to have
discussed the scope of the stability benefits,
Mr. Conger did not even raise the letter that he had
received from SUNAT, and that it just occurred to him
after having given the PowerPoint presentation that we
[Page 1610]
looked so that he felt a need to run up to you and ask
you about it.
Is that your testimony?
A. There are some things that I can't say
whether he felt the need. That I can't say.
Mr. Conger has to say that. But at the--did he raise
it at the lunch? No. The SUNAT letter was not
mentioned at the Far Niente--lunch. It was at the end
of the presentation at the ballroom at the
Intercontinental. That is where he approached me, he
looked surprised, and he said: "Mr. Tovar, how is it
possible that we received this letter from SUNAT?" And
I said: "Ah, yes, I remember Antamina has also
received it, but, don't worry, because, since the law
is just now being implemented, there surely are some
informational documents." I remember that I was very
calm. I knew the letter existed, even though I'd
never seen it. So, I explained to Harry Conger that
the Stability Agreement covered leaching but not
Primary Sulfides, and that they would have to pay in
the future, and his reaction was very friendly, very
calm. He said thank you very much and left.
[Page 1611]
Q. And you had none of these detailed and vivid
recollections of the second run-in of Mr. Conger when
you drafted your First Witness Statement, Mr. Tovar,
did you?
A. As of the response of the Claimant to my
First Statement, for example--I'll cite--I don't
recall having organized that meeting or it having
taken place. That's the Claimant responded to my
First Statement. Well, I don't make things up.
So, I reviewed the emails. I reviewed the
things, dates, and that's where I reviewed the Cerro
Verde email where they ask for the meeting and they
ask for more officials to attend, and they raised the
Agenda to the meeting.
MR. PRAGER: No further questions, Madam
President.
PRESIDENT HANEFELD: The Tribunal has no
questions, no additional questions. Thank you very
much, Mr. Tovar. You are released now as a Witness.
THE WITNESS: Thank you, everybody. Thank
you.
(Witness steps down.)
[Page 1612]
PRESIDENT HANEFELD: Shall we continue right
away with Ms. Bedoya? Or would the Court Reporters
prefer a break?
Okay. Then we have our 15-minute break now,
and then we continue afterwards.
(Brief recess.)
GABRIELA BEDOYA, RESPONDENT'S WITNESS, CALLED
PRESIDENT HANEFELD: We now continue with
the Witness, Ms. Bedoya.
Welcome to the Hearing. Just to introduce
ourselves, this is the Tribunal in this case:
Mr. Tawil, Mr. Cremades, and myself, Inka Hanefeld.
You have been called as Witness by the
Respondent, and so we need you to read out the
Declaration that you have in front of you.
THE WITNESS: Good morning.
I solemnly declare, upon my honor and
conscience, that I shall speak the truth, the whole
truth, and nothing but the truth.
PRESIDENT HANEFELD: Thank you very much.
Then we come to your Witness Statements. Do
you have your two Witness Statements, RWS-4 and 11, in
[Page 1613]
front of you?
THE WITNESS: Yes, I do.
PRESIDENT HANEFELD: Can you confirm that
these are your Witness Statements and that they
correspond to your recollection, or do you have any
wishes to amend or correct these Witness Statements?
THE WITNESS: They are correct.
PRESIDENT HANEFELD: Thank you.
Then we turn to the direct by the
Respondent.
MS. DURÁN: Thank you, Madam President.
With your permission, I will turn to Spanish.
BY MS. DURÁN:
Q. Good morning, Ms. Bedoya.
A. Good morning.
Q. You were just asked about your Witness
Statements. Are they based on your knowledge and
personal experience?
A. Yes, that's right.
Q. What is your academic background?
A. I am an attorney from the University of
[Page 1614]
Lima. I graduated in 1999.
Q. And what is your current position?
A. At this time I am a supervisor of
Division 4, of Background Analysis Management Office
of the National Intendency of Challenges of SUNAT.
Q. When did you begin working at SUNAT?
A. In June of 2000.
Q. What positions have you held in SUNAT?
A. I have been Adjudicating Auditor until 2014
at the Arequipa Regional Intendency in the Claims
Division. Then I was temporarily assigned to be
supervisor in the Intendency of Major National
Taxpayers, also in the Claims Division, and that was
up until 2015. And then from 2015 to 2017, I also had
the temporary assignment to serve as Head of the
Claims Division of the Regional Intendency of
Arequipa. After that I was Adjudicating Auditor once
again in the Intendency of Major National Taxpayers,
and in August of last year I was once again
temporarily assigned to serve as supervisor at the
National--at the National Intendency of Claims.
Q. At Paragraph 11 of your Second Witness
[Page 1615]
Statement, you refer to the drawing up of "the Report
on the Application of the Agreement Guarantees and
Measures for the Promotion of Investments in Mining
Royalty with respect to the Expansion of Cerro Verde's
Current Operations, Primary Sulfide Project," which
you call the 2006 internal report.
Why did you draw up this Report and what
were your conclusions?
A. In mid-2006, the intendant at the time,
Mr. Haraldo Cruz, he asked that investigation be taken
with respect to the Concentrator, whether the
Concentrator was covered by the Tax Stability
Agreement within this Guarantee of Stability that was
offered pursuant to the signing of that Agreement in
1998. At the time, the plant was not yet up and
running. It was going to start operations at the end
of that year, and so what was sought was to find out
whether this plant was or was not within the stability
guarantee.
Based on a Report that SUNAT has from 2002,
that Report analyzed what was covered by the Stability
Guarantee, and reviewing the investment project we
[Page 1616]
concluded that it was not covered by the Stabilization
Guarantee. Why? Because it was a new investment,
totally different, of a different amount from--which
did not exist at the time the Agreement was signed in
1998. Moreover, the 1998 Agreement regarding the
Leaching Project, the Contract only detailed the
investment related to the Leaching Project, and the
amount or what product would be obtained by leaching
the material, it was copper cathodes, and the purpose
of the Agreement was to increase the production
capacity from one given amount to another per year.
So, comparing the Contract with the
investment in the Concentrator, we realized that it
was a totally new investment, that it was different.
It produces a different type of ore, which is the
copper concentrate which, compared to the cathode,
is--has 26 percent purity compared to 99.9 percent
purity.
And so, the conclusion was reached that, in
effect, this plant was not covered by the Agreement,
because the Agreement covered only the Leaching
investment project.
[Page 1617]
Q. At Page 5 of the 2006 internal report--and
you just mentioned it, and you also mentioned it in
your Witness Statement--you cite Report 263 of 2002 of
SUNAT. What is the relevance of this 2002 Report?
A. The 2002 SUNAT Report has been issued by the
National Legal Intendency, which is the entity within
SUNAT that is in charge of elucidating any controversy
there may be with respect to the application and
general scope of the rules.
So, the National Legal Intendency issued
this Report, which is binding and which is published,
because the reports of the National Legal Intendency
are published on the website of SUNAT, and here there
was an analysis of the scope of stability. It was
actually in response to a consultation that was of a
different sort, having to do with contributions to the
FONAVI, but the important thing is that it was
elucidated what the guarantee covered.
And so, SUNAT on that occasion concluded
that all that was covered was the investment, the
investment project which is contained in the
Feasibility Study that is part of the Agreement, and
[Page 1618]
nothing more.
Q. What use did the Arequipa Intendency make of
the 2006 Report?
A. After the drawing up of the 2006 Report, in
2008 the Audit Orders for the Mining Royalties were
opened, for 2006-2007, and for 2008, and then later on
the other assessments.
that came later.
Q. What was your role in the assessments made
by SUNAT to Cerro Verde with regard to Royalties?
A. I was assigned the Request for
Reconsideration. After the culmination of the Audit
Orders, the assessment Resolutions were issued. The
taxpayer may, as it did, challenge them, and that is
called a Request for Reconsideration, and this is the
first administrative stage. So, I was assigned to,
once again, analyze these cases in this
reconsideration stage. That's what was done.
The taxpayers' arguments were reviewed that
they had presented in the audit and in the Request for
Reconsideration, as well as all the documentation
produced by the taxpayer. The matter was analyzed
[Page 1619]
once again, but this time it was a bit more in-depth,
because we reviewed the Adhesion Contracts and the
nature of these contracts. It was very important to
define what were the commitments undertaken by the
Parties by signing these Agreements.
In this case, the Company, Cerro Verde,
undertook to make an investment of approximately
$230 million for the Leaching Project to expand the
capacity for production of copper cathodes per year,
and then the Peruvian State agreed to not change the
rules of game for 15 years, which was the duration of
the stability.
Why? So that the investor could plan the
results that they had hoped to obtain over those
15 years with rules of the game that would not vary.
So, it's evident that what the State sought with the
signing of such agreements was to protect ...
What was to be protected? The investment.
Which one? The one that was totally detailed and
indicated in the agreement, which was the Leaching
Project. It could not be a carte blanche for the
taxpayer to continue making any other investment
[Page 1620]
subsequently and claim to have the Stability Guarantee
also cover that investment.
Q. What influence did the Ministry of Energy
and Mines' opinion have in SUNAT's position in
relation to these Assessments?
A. None whatsoever, because SUNAT reached the
conclusion that the Concentrator was outside the scope
of the Agreement.
As I explained, as from the 2002 Report and
when the investigation was undertaken in 2006, as you
can see in the Reports and the different Resolutions
issued in respect of Mining Royalties, mention is made
of the Ministry's reports, but at the end.
Why? Because it was important to know the
sector's opinion. And it caught our attention that
the sector had the same opinion that we had, and so
that was helpful for reinforcing our view, which is
that the Concentrator definitely could not enjoy the
guarantee of tax stability. Thank you.
MS. DURÁN: I have no further questions.
Thank you.
ARBITRATOR CREMADES: I have a question. It
[Page 1621]
is quite basic, and perhaps this would be a question
to be posed to any law student.
SUNAT also is the Superintendency of Tax
Administration. Are Royalties considered taxes and
SUNAT also deals with Royalties?
THE WITNESS: They are not considered taxes,
but there is a provision that was passed specifically
that gave SUNAT the powers to collect those Royalties,
and also to conduct audits and oversights in this
connection.
SUNAT does it based on a specific provision.
It can also impose penalties on the basis of what the
law established.
ARBITRATOR CREMADES: Thank you very much.
THE WITNESS: You're welcome.
PRESIDENT HANEFELD: Another, more basic,
question from my end regarding the rules of the
organization. Is it the regular course of action that
someone who has established a report like you did in
2006 on a specific question will later then be
assigned now to decide on a Request for
Reconsideration, or was this an exceptional
[Page 1622]
circumstance?
THE WITNESS: What happened is something that regularly happens. It is normal that the Tax Administration, before auditing a taxpayer, gets to know the taxpayer, specifically if this is an important company in the industry and in the region.
It was completely natural and normal for the Tax Administration, within its powers, to investigate this matter. Casually I was involved in that investigation, and a couple of years went by and the audit was conducted, and then the taxpayer challenged it. I was appointed again to look at the Request for Reconsideration, but there are no impediments. There are no limitations based on the fact that--well, since I was involved in the Report, I then could not be involved in the Request for Reconsideration. Just like I did in the following Request for Reconsideration
because one was in '06-'07, in the year 2010, and then for 2008, in year 2011. So, there was no limitation. What is the reason? There is no conflict of interest. For an official to have a
[Page 1623]
conflict of interest, there has to be two different overlapping interests. In the case of SUNAT officials, that is not the case, because we only have a single interest, which is to ensure that all tax obligations are established correctly and then to conduct audits.
For example, a SUNAT auditor is going to see to it that the taxpayer assess the tax accordingly, pay taxes, or Royalties in this case, as appropriate. As an adjudicating auditor in the Request for reconsideration files, you have to look for the material truth. You have to look at all of the arguments of the taxpayer, answer all of the questions posed by the taxpayer, and we look for the same truth--right?--for the taxpayer to pay his or her obligation. There is no conflict of interest.
Something else you have to take into account is that, in the 2006 Report, well, the Report is an internal report. It was an investigation conducted by the administration, and it was not communicated to the taxpayer. Why? Because this was part of its power to audit. There was no assessment, and, therefore, since
[Page 1624]
there is no assessment to the taxpayer, then the taxpayer doesn't have to defend itself from anything because nobody is demanding any payment from the taxpayer. This is how we work in SUNAT. It is common that a person in the request for reconsideration analyzes the matter and then in the following year, or the subsequent. It is also common for auditors to conduct audits to review a company during one fiscal year and then again, also because of specialty reasons.
Because this is a mining company. The mining sector is a different, new sector. It is not common in the Region of Arequipa, so it is important to become then specialized. To know their terminology. To know many issues that are very specific to the mining industry.
So, it is very common. It's not that this was specifically done for this Company at this point in time. This is the manner in which the Tax Administration conducts its duties.
ARBITRATOR CREMADES: Now, the SUNAT depends on whom?
[Page 1625]
Let me ask you: Do politicians have an influence in the oversight activity that SUNAT conducts?
THE WITNESS: SUNAT is an autonomous organization. It does not report to any other agency. It is connected to the Ministry of Economy and Finance, but it does not really report to any organization.
Under the power to conduct audits, we can conduct audits of any taxpayer. As the Tax Code says, we are there to make sure that legal provisions are complied with. Audits are not based on any kind of political pressure, in no way whatsoever.
ARBITRATOR CREMADES: Who appoints the highest authority at SUNAT, and that high authority at SUNAT, can it have an influence on your professional activity?
THE WITNESS: The Government appoints the Superintendent. The State, the central Government does that. The Superintendent doesn't have any kind of influence in connection with any kind of procedure.
The chief of the Claims Division is the one
[Page 1626]
that appoints me as an auditor, and he is the only one that looks at the draft that I prepare. If he is in agreement with this, or he modifies it, he can even change the criteria. That has to do with whatever the Chief of Division thinks, and in this case this Resolution was signed by the intendant.
So, there are a number of stages of review. First we have the request for consideration, then you go to the Intendant for him to look at things, and then, if he agrees, then the Intendant's Resolution is issued, but there is no kind of influence whatsoever.
ARBITRATOR CREMADES: Thank you.
PRESIDENT HANEFELD: Thank you very much.
Then we now turn to Claimant's Counsel.
MS. SINISTERRA: Thank you very much, Madam President. I will be conducting Ms. Bedoya's cross-examination, and with your indulgence, I will do so in Spanish.
BY MS. SINISTERRA:
Q. Good morning, Ms. Bedoya.
A. Hello.
[Page 1627]
Q. It's a pleasure to see you again. Thank you very much for being here.
Are you ready?
A. Yes, I am.
Q. Thank you for being here with us. You know the rules of the game very well. I'm going to ask you very specific questions, and I'm going to ask you to provide specific answers. And we are going to try to pace it up because of the translation. You know of these rules.
We are going to talk about the same issues, more or less, that we touched upon in February at the SMCV Cerro Verde Hearing, questions that the Tribunal had good reasons to ask to you back then, but we are going to talk about new topics as well. We are going to talk about the complaint that Dante Martínez placed against SUNAT in July 2006, just one month after your internal report was prepared.
So, we are going to talk about new issues, we are going to talk about issues we looked at before, and we have the Transcript in connection with those matters; right?
[Page 1628]
At the February meeting we spoke about the process that you followed to prepare your Witness Statements. To prepare your Witness Statements, you reviewed the Witness Statements of who else, what other Witnesses in Perú?
A. None.
Q. Nobody whatsoever?
A. Nobody whatsoever.
Q. For the First and the Second one?
A. No.
Q. None?
A. None.
Q. That's striking, because you are very categorical in your answer, because Mr. Cruz in February, and Mr. Polo for example and Mr. Tovar, all of them have indicated that they received a binder link or folder with all of the Witness Statements.
So, were things different in your case? You never received a folder, a link with the Statements of the other Witnesses?
A. Let me explain how I--
Q. No, no, no. Please answer my question.
[Page 1629]
Did you receive a folder or no?
A. No.
Q. So, things with you were different, then. The other Witnesses were given a folder with all of the Witness Statements, but you were not. Is that what you are saying?
A. The link I was given to come here and to read the documents only contained my Statement and the exhibits cited in that Statement--First Statement and Second Statement. That's all. That's what happened in both cases.
When I was about to come here, I was given a link and told, "Okay, these are the documents." And I saw there my Statement and my exhibits. I have had no contact with the Statements by other Witnesses.
Q. And that link, I imagine, had the Memorials that the Parties have submitted; right? The Claimant Memorial and the other Memorials.
A. Yes. Just portions of them that were translated for me to see what they said about my work.
Q. Now, the portions that they sent to you, did they contain descriptions of what the other Witnesses
[Page 1630]
who are in Perú said in this case?
A. No, no. Again, they only had to do with the portions related to me and in Spanish. The full document was not there. It was very long.
Q. How do you know it's very long?
A. Well, it said there that it was a bunch of pages.
Q. Where did it say that?
A. Well, there, you can see that--you can see the number of pages there. 300-odd pages, that's what I recall. I wouldn't be able to tell you more.
Q. Were you given the full Memorial or just part of the Memorial?
A. Just part of the Memorial.
Q. Again, the portions you were provided, you saw what we said in connection with the other Perú Witnesses or just a little paragraph where mention was made by us of you; that was the only thing that was given to you?
A. Well, we're not talking about short paragraphs. There were a number of paragraphs that talked about the Royalties Reports. That is what I
[Page 1631]
have reviewed. I have not reviewed anything with what you had to do in connection with what you said or statements by Mr. Polo, for example.
Q. Ok and just to confirm, because you cite 46 paragraphs, you cite first Paragraph 20 and then Paragraph 200 of our Reply. I just want to confirm that none of those paragraphs that you read, none of them whatsoever mentioned anything in connection with any other Witness. That is what you are confirming today?
A. Yes, because that is what I needed for me to make my Statement. I didn't need any other additional paragraphs.
Q. Very well. We know, because of other Witnesses, that there was a meeting in July 2022 in Lima in the Navarro offices. Navarro Counsel was present, Sidley Austin Counsel was present, and some Witnesses were present as well.
Were you at that meeting?
A. I went there in July, but I was the only one there. Counsel from the law firm were there, but just me; no other Witnesses.
[Page 1632]
Q. So, again they applied a different rule for you vis-à-vis other Witnesses?
A. You would have to ask them why.
Q. Well, I'm trying to understand whether you're following the narrative that was provided by other Witnesses or, in your case, it was different.
So, we know that in July 2022 there was a meeting in Lima at the Navarro offices with Sidley Counsel and a number of Witnesses participated in it. Some were there in person; others were there remotely via videoconference.
You did not attend that meeting?
A. No. No. I was told to go there one day at a given time, and it was just me and the lawyers. No other Witnesses were present.
Q. What materials did you read to prepare for this Hearing?
A. I read the Statements, the Reports that support the Resolutions, and the Reports that the Statement makes reference to.
Q. Did you read a new document, a different document, to prepare for this Hearing vis-à-vis the
[Page 1633]
Hearing in February?
A. The Transcript of my testimony at the Hearing.
Q. Just your Transcript, your portion of the Transcript?
A. Yes.
Q. Did you look at the video, the audio?
A. Well, no, it was printed out for--and it was given to me.
Q. When?
A. Now, in Washington.
Q. So, the first time that you read your Transcript was here in Washington?
A. Yeah.
Q. It was given to you in print form, nothing digital?
A. No, nothing digital.
Q. How many hours did you dedicate to the preparation of this Hearing?
A. Two hours a day. I looked at the Reports.
Well, this happened 20 years ago, almost, so I don't recall some of the specific points. So, these
[Page 1634]
things are long. You have to read. More or less--
Q. Yes. Yes. We all know.
SPANISH REALTIME STENOGRAPHER: Sorry for the interruption. You need to speak one at a time and, please, a little pause between question and answer.
BY MS. SINISTERRA:
Q. Okay. How many hours to review these long documents?
A. Well, maybe a couple of hours in the morning, while I have been here in Washington.
Q. Yes, but in total, how many hours did you devote to this?
A. Perhaps two hours without the weekend, I don't know, Tuesday to Friday, five, ten hours.
(Interruption.)
Q. In Lima, you did not prepare for this Hearing?
A. I've had almost no time for that.
Q. You didn't prepare?
A. I was able to read something, but very little. I've been very busy with work.
[Page 1635]
Q. In February, Ms. Bedoya, you told us, very clearly, that you had met three or four times, you said, with Mr. Cruz here in Washington, to review your Statements and to prepare for the Hearing.
Now, was that the case as well? Did you also meet with Dr. Cruz to prepare for the Hearing?
A. No, not to this time.
Q. So, you arrived in--this is public information, you arrived on May 1, here in DC. Mr. Cruz arrived May 3, so you've been here for about a week here in Washington, D.C.
But this time you did not meet?
A. We didn't.
Q. What changed? What--why is it that you met three or four times before the February Hearing to review together your Statements? What changed? What is it that you didn't meet this time?
A. Last time around, well, we did not meet. I was present when he was looking at the Statements, but we didn't do a review together. He has not looked at my Statements. I am trying to specify things, because your statement sounded as if we prepared together.
[Page 1636]
That is not true.
And here in Washington, we have had no other contact apart from, like, crossing paths and saying hello to each other. Why was it done that way? I don't know. You would have to ask Counsel for that. They were the ones who provided instructions and let us know where we have to go and what time we have to be there.
Q. Two follow-up questions. First, you said--and this is on the Transcript and the video and on--in the Transcript as well. What you said and did not say in February is very clear. You said, after I asked you, did you meet with the Sidley Counsel to prepare the Hearing, you and Mr. Cruz? You said, yes, we had meetings to speak about the issue three or four times.
And then I asked: "Did you coordinate your Statements during those meetings?"
Your answer: "Basically, we reviewed what we had written in the Statements. We were reviewing our Statements, the ones that we had presented to the Tribunal."
[Page 1637]
So, it is clear that you had three or four meetings where Counsel was present, you were present, and Mr. Cruz was present, and at those meetings, you spoke and reviewed your Statements.
Are you changing your testimony in February?
A. No, I'm not.
Q. Okay. Now that it's clear that those meetings did indeed take place, and you and Mr. Cruz--meeting with the lawyers, you reviewed your Statements, I will ask you something else, that I asked before, why is it that this time you didn't meet? Did you coordinate everything sufficiently in February, or why the change there were three or four meetings for one hearing and no meetings for this hearing?
A. There is no coordination. Each person has to read his or her own Statements. Last time around, we did it at the same room. But that does not change. But this time we did it separately. There is no change. You have to review what you wrote in your Statements and the events that you went through, and the things that you have to describe about what
[Page 1638]
happened back then. There was nothing wrong last time around. There was a review, but each person reviewed his or her portion.
Even based on what I remember, he did not listen to my Statement. It's not that I was involved at the meetings, he was looking at his own Statements.
Q. I'm not surprised that you're trying to put your Statements from February into context.
A. I feel that you were trying to say something that did not happen.
Q. The meaning that those meetings had, that's something that the Tribunal's going to have to assess. So, I have to show the Tribunal the facts so the Tribunal can reach the conclusion, the relevant conclusion, in connection with those events.
It makes no sense that you tell me that you were in the same room, and that in February you tell me that you reviewed your Statements, and then you are telling me today that you didn't hear anything in connection with Mr. Cruz. That makes, really, not a lot of sense, ma'am.
A. I didn't tell you that I didn't hear
[Page 1639]
anything. I'm just telling you what happened. This time around, that's the way things have been and it is the same as the last time, and, well, there would have been no changes, if he were present or not, it is the same.
Q. You said that you had heard nothing. You agree with me that that makes no sense.
Last question. You confirm your testimony that, in February, you met three or four times, and during those meetings you reviewed your Statement, and you reviewed the Statement of Mr. Cruz.
That's on the Transcript, your answer is there, confirming this, and also Mr. Cruz's answer is in there. You maintain what you said back then?
A. Yes, I do.
Q. Ms. Bedoya, let us now talk about your understanding in connection with the scope of the Stability Guarantees, in connection with the General Mining Law that was in force in 1996.
I'm going to ask you about your understanding and your position in June 2006. With all due respect, I don't want to know about your
[Page 1640]
position today after looking at our Reply, after three or four meetings with Mr. Cruz, after the July meeting with the Navarro law firm. I'm asking you about your understanding, in the year 2006, in June.
Agreed?
A. Yes.
Q. You worked in SUNAT as an adjudicating auditor from 2006 to 2014; right?
A. Yes.
Q. I think the Tribunal asked you questions, and they made this clear. In Arequipa, you have the Audit Division, which is the division that audits and provides Assessments, Assessment Resolutions, and also you have the Claims Division that looks at the requests for reconsideration that are submitted by taxpayers in--against those Assessments, and they said, okay, Mr. Taxpayer, you're right, you're not right. The Assessment will be maintained or not.
That was the Claims Division; and you were at that level, is that correct?
A. Yes, correct.
Q. As you confirmed to the Tribunal and to my
[Page 1641]
colleagues as well, you and an auditor from the Audit Division, César Guillén, César Guillén and yourself prepared an internal Report of June 2006. The conclusion there was that Cerro Verde had to pay Royalties for the Concentrator. We will go into the details about that Report afterwards. We're just confirming the facts.
So, you and Mr. Guillén prepared the internal Report; right?
A. Yes. But it was also a team that worked on it. I don't remember all of the people.
Q. How many people sign the Report?
A. Well, just two people.
Q. Okay. So, it was signed by you and Mr. Guillén; right?
A. Yes.
Q. So, you said clearly in your Statements and at the Hearing in February, that that internal Report shows that in June '06, SUNAT had taken its own position in connection with the tax situation of the Concentrator. You said that today, and you maintain your testimony; is that right?
[Page 1642]
A. Yes.
Q. Let us go step by step, then, to try to understand exactly what your position was and what Mr. Guillén's position was in June 2006, when you concluded that the Concentrator had to pay Royalties.
First question--please be very precise, Ms. Bedoya, because there has been much confusion in connection with this issue. We hope that you're going to shed some light on this.
Let us look at this folder at tab six. This is CE-12. And we are going to go to Annex 2, to the Stability Agreement. It should come up on the screen.
And let us look at Annex 2. When you find it, let me know, ma'am.
A. I haven't found it yet.
Q. You are going to go to the back. You will see Annex 1, and then you're going to see Annex 2.
A. I found it.
Q. It says here "Summary of the investment requirements of the Leaching Project of Cerro Verde."
This is the Investment Program, and it has a number of items.
[Page 1643]
Do you see those?
A. Yes.
Q. Okay. Specifically, answer, yes, or no.
A. Yes.
Q. No, no, no. I'm going to ask a question now and then you should answer yes or no.
A. Okay.
Q. Specifically, your position in '06 is that the scope of the Stability Agreement was limited to this Investment Program that we see here under Annex 2.
The only thing that the Stability Agreement covered was these items of the Investment Program?
Yes or no.
A. Yes.
The Investment Program, and well, those items say "Summary," but it is what's included in the Technical-Economic Feasibility Study
Q. I agree with you 100 percent, and thinking that you might respond that, at the next tab you're going to see the full investment program, but that does not change my question. I want to be more
[Page 1644]
specific. Here, we see a number of items, and your position in 2006 when you prepared this internal Report that established the position of SUNAT in connection with the Concentrator, well, your position was that the Contract covers only these specific investments, these items specifically. That was the position of SUNAT in 2006?
A. Yes, that's right. It is the Investment Program that is contained in the Agreement.
Q. This Investment Program is for a full investment of 237 million, as you know. So, what you are telling us is that only that 237 million investment is what the Contract covered?
That's what you're telling us?
A. Yes, that's right.
Q. Then, two questions about this. Well, maybe three. First, we see here the item "other costs." That's one of the items that we see here. How can we apply stability to "other costs"?
A. Stability protects this Project. Now, how is it that stability is going to be seen in practice?
Well, stability is a legal framework that is frozen at
[Page 1645]
a certain date. So, how do we analyze this? All the activities related to the investment project are the ones that are included within that Legal Framework during the 15 years it lasts. That is how this is put into practice. For example...
Q. Excuse me, ma'am. Concrete.
A. Well, I'm not a technical person. I don't know how other costs--
Q. But, yes, Madam, you set the definitive position of SUNAT. I want to know when SUNAT took this final position, what was the understanding at the time? SMCV after all these years...
A. I'm trying to explain this to you, Madam, that they are the activities that are executed within that Project.
SPANISH REALTIME STENOGRAPHER: Madam President, I'm sorry. We need to stop. I can only take one person at a time. If there is overlap, there is no way to follow the speakers.
BY MS. SINISTERRA:
Q. Okay. So, we're hearing the translation in the background, and then we're going to be able to,
[Page 1646]
perhaps, do this.
Let's be specific, ma'am. I asked you your position when you stated the position of SUNAT, when you wrote this internal Report, your position was that the Stability Agreement only covered the 236 million in the investment project, or did it cover something else? You just told me yes, only the Investment Program, you said.
But when you have explained your position--and I'm reading--you said "no, it covered all of the activities related to leaching," and that is contradictory.
Either we're talking about the 237 million and not a dollar more, or we're talking about all of the activities related to the leaching project.
Which one of the two positions was it?
A. I do not understand your question. What I understand is that the Project and this investment that is stabilized, as well as all of its stages from the exploitation of the ore, and until it goes throughout all the stages, and I end up with a Copper Cathode, and then it is sold. All of the effects of
[Page 1647]
that chain. For example, if there is a standard that says that I need to pay a tax or pay something to the workers, it is the workers of the Project.
If I have to pay a specific Income Tax that--which was of 30 at stabilization, and then it increased to 35, all of the profits will pay 30. That is the way I understand it.
I am an attorney, and I am not familiar with issues--technical issues. But I do understand that it is that investment and that there are disbursements by the Company that will not qualify as investments. And it is clear that a repair cost, for example, should not be questioned because I am repairing something that went wrong. So, if I do not repair it, I cannot continue. But what are those costs? I do not know. I could not answer that.
Q. I clearly see that you are not a technician or a technical person. It is clear in your answers, but I will continue to insist until I get an answer.
So, I'm asking you, if it is only 237 million, if it is only the Investment Program, and you are telling me that it is more. You are telling
[Page 1648]
me all of the activities, you also used the word "other investments." Your position in 2006 was, we have an Investment Program, but if there are additional investments related to the leaching project that we see in the Feasibility Study, they would be covered?
A. No, they wouldn't be covered.
Q. So, no investment, whether it is related or not to the leaching project, no investment different from the one here in the Investment Program would be covered; correct?
A. Yes, no investment. Only this one. I can be more specific. When one--when Cerro Verde negotiated with the State, and then they wanted to know the projection of the results, of the 237 million, that is what they do. It is a 15-year Project. That's why the game rules must not change, there shouldn't be any other additional investment, that would not be correct. The law at that time said that, and that is what the Contract also stated.
Q. We are going to refer to those projections in a minute, but let me insist, again, because this is
[Page 1649]
very important.
So, you just told us that no other investment, only the ones that we see here in the Contract that are for 237 million. That is the only portion that was stabilized when the Report was published; correct?
A. Correct. Yes.
Q. So, I have several questions. First, this does not seem to be what you say in your Statement, or what you said in the Internal Report, or what you said in the Intendency Resolutions rejecting SMCV's requests for reconsideration. That's not what you say.
So, let us look at what you say, and you are going clarify to us what is in the end your position.
If it is the 237 million or something else: the Leaching Project, according to the way it is stated in the Feasibility Study, and related investments as long as they are related to the leaching. So, we're going to clarify what the position is, because there is a contradiction.
Let us look at your Statement. Let us look
[Page 1650]
at your First Statement, Paragraph 31, for example.
I am going to read aloud what you write there.
A. Just a second. I need to get to the paragraph.
Q. It is Paragraph 31.
A. Ok
Q. "The Stability Agreement had a limited scope: the investment in the Leaching Project that had been defined in the Feasibility Study." Paragraph 31. You can also look at it on the screen, and I can repeat my question.
A. Number 31, it refers to the clauses in the Stability Contract?
Q. Correct. That is, the last phrase: "the Stability Agreement had a limited scope: the investment in the Leaching Project that had been clearly defined in the Feasibility Study."
On Friday, Mr. Polo, when we attempted very hard to understand what his position was, told us something similar. He said, no, it is not only the 237 million, it is the "Leaching Project as defined in
[Page 1651]
the Feasibility Study."
But here you seem to say the same, and in the internal report, you have a similar statement, and in the Intendency Resolutions you have a similar statement. So I repeat the question because here we need to be precise. We don't want vague answers. We really want to understand. What is it that you understood when you projected that Report?
Let me reiterate.
Is it the 237 million that were in the Investment Program and not a single dollar more? Or was it the "Leaching Project" which is broader in concept, "as established in the Feasibility Study." Which was it?
A. I understood...
Q. Which one?
A. Well, for me, they are the same. The Leaching Project for Cerro Verde, which is in the Technical-Economic Feasibility Study, ends up being the 237 million. I do not see the difference. That is what is stabilized, the Leaching Project. I do not know whether any other document has a different amount, but that is the amount, that is what is
[Page 1652]
included in the Contract that has been signed.
This does not encompass--the additional investments are something else. What you're asking me, that is different. The Leaching Project does not say that additional investments can be made.
Q. So, once again, step by step, it seems that you're reiterating, and you're saying: "What I meant, when I said the 'Leaching Project in the Feasibility Study', what I meant are the 237 million; not a single additional dollar," correct?
A. Yes. That is correct, here it says the investment in the Leaching Project.
Q. And the Leaching Project, is only 237 million, according to you?
A. That's what the Contract states. That's what they committed to do.
Q. So, we agree that according to your position anything above the 237 million, anything above that would be excluded?
A. Correct.
Q. Okay. That is a position that you are
[Page 1653]
saying you maintained; correct?
A. Yes.
Q. So, that is not, Ms. Bedoya, what SUNAT has done, or what you, yourself, said in the Intendency Resolutions, and we are going to see what you said.
A. You just told me that the Statement is not what I said, but if we just read 31. Where do I say the contrary, because I have said that in the last portion of 31, I am not saying what I just said a minute ago. That's the reason, and that's why I have a doubt.
Q. You're telling us that when you say that the "Leaching Project is the one protected, as stated under the Stability Agreement," you are referring to the 237 million and nothing else; correct?
A. Yes.
Q. That's why I'm saying we are on the same page, as to your understanding.
Mr. Polo told us something different, but it doesn't matter. I want to know what you understand, then.
So, no more--there's nothing else more than
[Page 1654]
this money. That is your position, and you knew, Ms. Bedoya, that, in 2002, Cerro Verde made additional investment for 15.5 million; right?
A. I only...
Q. Did you know or not?
A. No.
Q. But you mentioned them in your Intendency Resolution.
A. No. I referred to the expansion for the plant, the expansion. Well, in the request for reconsideration we only had the resolution approving the authorization for the expansion-that's it-I do not have more documents to detail the amount of the investment. I didn't know that.
Q. Let me show you step by step. I am going to make it very easy for you, step by step.
Number one, in 2002 Cerro Verde made additional investments for $15.5 million. We are going to show you the document confirming that, indeed, this is what happened. This is at Tab 10.
And, for the record, this is Exhibit CE-378. We are going to look at Page 3.
[Page 1655]
So, we are going to see an Executive Summary of the additional investments that Cerro Verde is reporting to the Ministry of Energy and Mines for an additional 15.5 million. It's very easy. I am just helping you follow this step by step. You are going to see $15.5 million. Done.
I am going to show you two Resolutions by SUNAT, referring to this new investment; correct? And I'd like to understand what your position is, so I am going to take you there and show you two Resolutions referring to the new investment, and then I am going to ask you some questions for you to have it clear in your mind.
First, we are going to look at Tab 12. So, when you are there, please let me know, and this would be Page 62.
MS. DURÁN: Madam President, I think she did not participate in this.
MS. SINISTERRA: That is correct, Madam President, but this is the Intendency Resolution.
This is the Resolution for the 2010-11 Royalty Case, which, in fact, Ms. Bedoya did not issue. But
[Page 1656]
Ms. Bedoya testified in the following words: "In the 22 years I've been in SUNAT, this has always been the position."
I am entitled to ask Ms. Bedoya about a Resolution in the 2010-2011 case showing the exact opposite. This is very fair question.
PRESIDENT HANEFELD: Please go ahead.
MS. SINISTERRA: Thank you, Madam President.
BY MS. SINISTERRA:
Q. Ms. Bedoya, this is the Intendency Resolution of the 2010-2011 Royalty Case. And, as I mentioned before, this Resolution speaks about the new investments by Cerro Verde.
We are going to look at Page 62, third paragraph, where it says: "Note." I will be reading it aloud for the record. "Note that the Assessment Department has not observed these investments made after the accomplishment of the Stability Agreement, considering that"-and here "not observed" means that they didn't question it or include any observation about it. And here comes the important portion:
"Considering that since they are linked, these
[Page 1657]
investments."
So, "since they are linked," the investments are linked to the "Cerro Verde Leaching Project," their results fall within the scope of the Agreement for Promotion and a Guarantee of Investments signed with the Peruvian State. Based on this Intendency Resolution.
Based on this Intendency Resolution, those new investments--that is to say, above 237 million--these new investments are linked to the "leaching project;" therefore, they are protected by the Agreement.
And for the record, this is Exhibit CE-150.
Is it not clear here, Ms. Bedoya, that the SUNAT itself--SUNAT Arequipa, as a matter of fact--is saying, yes, there were new investments above 237 million as new investments, but as they are related, they are linked to the "leaching project," they are covered?
So, I go back to ask you the question: Is it 237 million or is it any investment linked to the "leaching project"? They are contradictory. I just
[Page 1658]
showed you.
Let me repeat: The 237 million or any investment related to the investment project. Which of the two?
A. The 237 million. That's it.
Q. So, this Resolution by SUNAT itself is wrong? That's what you are telling us?
A. To begin with, this Resolution is no longer for the Regional Intendency of Arequipa. Second...
Q. It says--Cerro Verde is main contributor, but that is not relevant.
A. Second, I do not have the full context, because you are just showing me a paragraph. I do not know in particular what investment this is referring to.
If this is what you just told me, that this is for those investments, I see the following: Here it says, "The Assessment Department has not observed these investments made after," and here we see the crux of the matter. When one carries out a tax audit, it is quite likely that the tax auditor may not determine or identify all of the risk situations where
[Page 1659]
there could be a mistake or a different interpretation of the standard by the taxpayer and by SUNAT.
The fact that there was an audit does not imply that the auditor had discovered all of the operations where there was a mistake, and if he didn't or she didn't do so, that doesn't mean that they are correct, and it is also not true that if I see them later on, I cannot assess it differently. That is a detection risk, as we call it, and that is what could have happened in this case.
I did not participate of this Resolution; therefore, I am not aware of the details or why the auditor, who I don't know who it is, may have reached that outcome.
Q. We are going to look at the Resolution. Let me save the time. I just want to confirm that I understand your answer.
Your answer is that the case, Cerro Verde case, was so important that we drafted an internal report even before the Concentrator was built, before it entered into operation, before we audit Cerro Verde. So, you had an internal report right before
[Page 1660]
all of that because Cerro Verde, the Concentrator, was very important for Arequipa, but you are telling us, no, what is happening here is that when they audited the--when the Auditing Department audited this, they ignored the new investments, they didn't question them, they ignored them and that's what you are telling us; right?
A. No. I am not saying that they ignored that or they overlooked that. I think that there wasn't even an audit back then in this year, in 2002. But it doesn't mean that this is not something that couldn't be assessed later on.
But here we are talking about an expansion of the Leaching Project, and here we are discussing an investment that is completely different, that is a Concentrator Plant. We are talking about copper cathodes, and then we jump--we leap-frog to copper concentrates, which is something completely different, from 270 million to 800 million.
So, clearly, there is--from 237 million to 800 million. So, there is a great difference.
Q. Yes. Good news. We agree on something.
[Page 1661]
There is a big difference between a leaching plant and a concentrator plant. Nobody is denying this, but you are now ignoring what I'm asking you.
And I am familiar with you and I know that you do this, but, once again, I am going to insist until I get an answer.
The Concentrator is different, 850 million. Again, I understand. But here, the words are very clear. Those investments are protected by the Contract because they are linked, they are linked to the Leaching Project. But you just said these investments or the analysis is different, because here these are investments related to leaching, and the Concentrator was a completely different investment; then it is different.
Let me go back and reiterate, and we are going to go back to your Intendency Resolution, but before I go back to your own words, I have a question.
These additional investments that were above the 237 million, those additional investments that SUNAT here is saying were covered since they were related to the Leaching Project, do you continue to
[Page 1662]
maintain that it is 237 million, nothing else?
A. Yes. It's 237 million.
Q. And that these investments, therefore, are not covered?
A. That is correct. They should not be covered.
Q. Okay. Let's go to your Intendency Resolution.
First, let it be clear: SUNAT is saying something different, and you are trying to offer some context. But let us look at the Resolution.
A. If you introduce that comment, let me introduce my own.
Here, you are showing me a document, but we do not know what was analyzed in that case because, from what I see, you said that it was the 2010-2011 Royalties. So, this is an assumption that someone is introducing, but, in this case, in this audit the additional investments are not part of the analysis for 2002.
That is a disputed item. So, these are details that need to be borne in mind.
[Page 1663]
Q. I agree, but let me represent to you that that paragraph refers to the new investment of $15.5 million.
A. Yes, but the context is different. It is a different case. No one has analyzed that fact. This is an assertion by someone, but there is no underlying analysis of audit or by anyone as to determine the scope of the other investments under the Leaching Project, and that should be clear.
Q. Once again, the Tribunal shall read that paragraph and reach the conclusions that they deem necessary, but why don't we look at your own Resolution?
A. Let's go.
Q. This is Tab 13. For the record, this is Exhibit CE-38. And I'd like for you to go to Page 48.
And for all of us to be clear as to what we are seeing, the Intendency Resolution in the 2006-2007 Royalty Case--that is to say, the Resolution rejecting the Cerro Verde's Request for Reconsideration, and also the only auditor that signs this document is you.
A. That's it.
[Page 1664]
Q. Okay. Let's go to Paragraph 1, 2, 3, 4, 5. Perfect. It's on the screen. I will read your words aloud.
As it should be seen, that expansion--and, once again, let me represent to you that you're referring to $15.5 million investment. If your Counsel would like to show otherwise, they will have the opportunity, but let me represent to you that you're referring to those investments.
Let me read to you: "As can be seen, this expansion corresponds to disbursements related to the Investment Program contained in the Feasibility Study."
And here I would like to underscore "disbursements." We are talking about new disbursements, new investments. You use the word "disbursements."
And then it says: "This expansion is for disbursements related to the Investment Program contained in the Feasibility Study," and then it adds, which--and since this expansion corresponds to disbursements related to the Investment Program
[Page 1665]
contained in the Feasibility Study. And then you say since these new disbursements were contained in the Investment Program of the Feasibility Study, that the Contract covers these disbursements does not change the object of the Contract, which is circumscribed to the expansion of their production capacity from 72,000 to 105,000 pounds--that is to say, 48,000 MT/d of copper cathodes from copper ore heap leaching.
So, here you are not saying "it's only the 237 million;" you are saying that these disbursements--and it doesn't matter which ones--it says new disbursements are covered, because they are "related to the Investment Program contained in the Feasibility Study," and because they do not distort the main purpose of the Contract, which is limited to the 48,000 MT/d.
So, I go back and ask you: Is this your position, that if there are disbursements "related" with the "leaching project" they are covered, or is it your position, that only the 237 million, nothing else?
Please be specific, Ms. Bedoya.
[Page 1666]
A. When you ask the question, you include some statements that are not included there. I cannot be specific. I need to explain. Give me some time to explain so that everyone can understand, because what you do you is read this, but you have added several words that are not there.
To begin with, that paragraph does not say that that expansion is covered with the Contract, so--with the Stability Contract. Here, this is a description. The idea is to respond to an argument made by the taxpayer about the expansions made under the Leaching Project.
This paragraph only explains the third expansion. There were three: The first two during the Contract and this third one that is afterwards. And here it says that that expansion corresponds to "disbursements related to the Investment Program contained in the submitted Feasibility Study."
This paragraph comes from a different one that also refers to the expansion, and the only thing that we had to be able to work there was a Resolution, as I said a minute ago, that modified or that
[Page 1667]
authorized the expansion. There was no detail as to any amounts, 1.5 million that was never filed by the taxpayer, it wasn't there within the working papers of the case file.
So, here it is just a statement that this expansion is related to the Investment Program, and here it doesn't say that it is covered. It says "which does not distort the object of the Contract." That is true. That investment is not against the object of the Contract, because this is what I understood, too, since there was no additional documentation and the taxpayer had presented this document on the expansion, I understood that the expansion was linked to the increase in production capacity from 72,000 to 105,000 pounds. That's all it says, it says no more. I can affirm this because I participated in that case, there was no analysis as to whether these investments were inside or outside the Agreement because that was not part of the audit process.
As part of the request for reconsideration, we can only review what the taxpayer is questioning:
[Page 1668]
What is the dispute? And if these investments, new investments, were inside or outside the Project, that was not part of the dispute. So...
Q. I ask the questions, and you already offered us a long explanation.
(Overlapping interpretation and speakers.)
A. But your question is not proper.
Q. Let me ask you a different one.
You are saying that this was not the subject matter of the dispute, but if you look at this first paragraph on the same page, Page 48, first paragraph, there it says: "Cerro Verde"-and you wrote the arguments for Cerro Verde. "Cerro Verde argued that no one has questioned whether those investments are covered or not by the scope of the Contract, of the Stability Agreement."
So, that was the dispute. It was clear. It is here on paper. It was clear that Cerro Verde had argued: "Listen, SUNAT, in the past you did not question that new investments would be covered with the scope of the Stability Agreement." Clearly, Cerro Verde said that, and you analyzed the information.
[Page 1669]
You referred to the various expansions, and then in this paragraph that we just saw you addressed that argument. So, you are answering to Cerro Verde, indicating that those new investments had been covered under the Contract.
And when you do so, once again, you repeat, "these disbursements are related to the Investment Program." "They do not distort the object of the Contract." And that justifies that they were covered. It does not distort the object of the Contract because they are related to the Leaching Project.
That is clearly what you are saying there, Ms. Bedoya.
A. That's what you understand. It's not what I understand. I understand that that point was not subject to analysis. The only thing that is being said there is that it's expansion that is related to the object, because that's what I saw.
Now, if it's an expansion that was not related to the subject matter of the contract and went beyond it, well, there were no more documents for verifying that.
[Page 1670]
And if you would allow me to, now that you are making reference to this Resolution and to the Report that I wrote, if I could please read a Report--a paragraph from that Report so that you can better understand the position I had. I have a paragraph that I could read if you would allow me to.
Q. Yes. Let's turn to your Report in just a second. Of course. But now I'm going to ask another question.
Yes or no: Are you familiar with any assessment by SUNAT for those new investments?
Here, you're analyzing them. Now, at some point in time, did SUNAT come up with assessments for Cerro Verde, telling them, "Look, these new investments are not covered"? Does that assessment exist? Yes or no.
That's my question. Does it exist? Yes or no.
A. No, it does not exist, because it's never been the subject matter of analysis. Responding to an argument in the request for reconsideration doesn't mean it's been analyzed. I mentioned that, here, when
[Page 1671]
the IRS is going to make an assessment, it reviews the record of the taxpayer.
Here, we are talking about what year? 2006?
So, it's impossible that it's been possible to review documentation of 2002 because, in this Claim, which is based on the inspection of 2006, there was no document, nor was there any analysis, of how the taxes had been determined in 2002. That was not analyzed and it's not a subject matter of analysis in this case.
ARBITRATOR TAWIL: Good morning. How are you?
The issue has not been put forward as though there would be a possibility of SUNAT making an assessment of the--for the additional investments in the Leaching Project. So, it's important for me to know, at least, whether that still exists.
Is this your opinion or is it the opinion of the SUNAT that the additional investments were not covered by the Stability Agreement?
THE WITNESS: Okay. SUNAT and the Report of 2002 and--issued another Report in 2007, and there
[Page 1672]
SUNAT is even clearer because in that Report it notes that what is protected by the Agreement is the investment. Indeed, it says the amount finally that the Company executes.
Now, in this case, I don't have the specific data, but I understand that an amount below 237 million was invested. So, in that Report, SUNAT clearly says that what is invested is the--that is protected is the investment, the amount of the investment.
ARBITRATOR TAWIL: Ma'am, you're not answering my question.
My question is if there were any additional investments in the Leaching Project--and I'm sorry if I'm confused about the name--could there be a Tax Assessment by SUNAT?
THE WITNESS: At this time, no, because we have something called statute of limitations.
ARBITRATOR TAWIL: Yes, but apart from the statute of limitations, could there be an additional investment today in the original Project? Could there be an assessment?
[Page 1673]
SUNAT's position is that it's not covered--that additional investments in the Leaching Project are not covered?
THE WITNESS: That's right. They are not covered. Had there been a new one and had there been an audit and had that been analyzed, it's likely that one would have to determine an assessment there because of the additional investments in the Leaching Project.
ARBITRATOR TAWIL: Now, that is different from what has been put to us. Minister Polo told us that all additional investments in the Leaching Project are covered, but this is a different Project. You're telling us that SUNAT has a different position than what was conveyed to us?
THE WITNESS: The thing is, the position taken by SUNAT is for tax purposes.
ARBITRATOR TAWIL: Yes.
THE WITNESS: So, we analyze and that's the position. It's the investment, and there could not have been additional investments.
ARBITRATOR TAWIL: And is that position set
[Page 1674]
by SUNAT, no matter what the Ministry says?
THE WITNESS: Yes, because the one who is going to administer taxes is the Tax Administration, SUNAT.
ARBITRATOR TAWIL: Thank you very much.
MS. SINISTERRA: Thank you very much, Professor Tawil. I was going right there.
BY MS. SINISTERRA:
Q. Ms. Bedoya, I want to ask you once again: We're looking for the Transcript of Mr. Polo's testimony in case you want to see that, but Mr. Polo did say quite clearly that the Leaching Project, as set forth in the Feasibility Study, that, if there are additional investments related to, tied to, the Leaching Project, they may be covered as well. And the Sidley lawyers in their Memorials have said things that are similar, and we are also finding the specific quotes to show them to you because, as the arbitrator, Professor Tawil, says, we have been told different things, and it's important to know exactly what was the position.
So, either Mr. Polo, former Vice Minister of
[Page 1675]
the Ministry of Energy and Mines, is mistaken, or you and the 2010-2011 Resolution, your own Resolution in 2006-2007, were saying that there are other possible investments related to leaching that could be covered.
Now, there could be--the Government cannot consistently have two different positions. You might say, "No, but the Ministry of Energy and Mines"--no. The Government has to have a consistent position. And Mr. Polo has told us one thing, the attorneys have told us something else, the Resolutions of the Intendency yet another, and you yet another.
So, I'm going to give you one more opportunity. I'm going to ask you one more time: If we were to check against one another all these different statements, an "investment related to, tied to, the Leaching Project"-"an additional investment that is tied to, related to, the Leaching Project established in the Feasibility Study," could it be covered by the Stability Agreement? Yes or no.
A. No. I have asked you to allow me to read a paragraph of my Report. I don't know if I can.
Q. We're going to get to your Report, but first
[Page 1676]
I would like to confirm: Your testimony here is that Mr. Polo was mistaken, or that what he said is not accurate, and that the other documents and statements in the record saying something different--that it's "not a single dollar more," what your testimony is--any declaration to that effect is mistaken; the only position is the $237 million. Is that your testimony?
A. No, because I have nothing to do with and I have not heard what Mr. Polo had said, and I don't know why he said it. That matter goes to him.
You said I'm going to ask the question and I want to know what you think, and I'm answering what I think, and that's what I think and that's what I think is correct and what I know is correct, and what also backs up SUNAT's position in the 2002 Report and in the 2007 Report.
For us, additional investments are not covered.
Q. Very well, Ms. Bedoya. We are going to compare them once again. The Tribunal will be able to see whether or not there is consistency among the
[Page 1677]
members.
A. But it's pending for me to read the one paragraph of the Report.
Q. Yes, but first, it's a bit disconcerting to hear a different position depending on the Witness that we have in front of us, so I'm just trying to understand your position.
Cerro Verde has submitted an Investment Project for $237 million. As you know, that program was carried out before the signing of the Stability Agreement. You know that that Investment Program was carried out, and the Ministry ratified that it was carried out, in late 1997, before the signing of the Agreement.
So, your position is that, from the signing of the Contract and for those 15 years, if Cerro Verde invests a single additional dollar in its Mining Unit, a single additional dollar, then that additional dollar is outside the scope of stability. That's what you're telling us happens in practice?
A. Yes, but now you're talking about "invest," and we have to be careful there, because not
[Page 1678]
everything that is spent is investment. Because it is evident that during the 15...
Q. No. I'm asking about the investment. If it buys a new truck--
(Overlapping interpretation and speakers.)
Ms. Durán: She is trying to explain
Ms. Sinistera: Yes, but I understand the difference between investment and an expenditure.
Ms. Durán: Yes, but she wants to explain it for the Tribunal
Ms. Sinisterra: Please don't answer by telling me that there's a difference between expenditure and investment.
My question is: If there's a new investment--that, say, the Company buys a new truck--your position is that that truck is outside the scope of the Contract?
A. Yes, that's right, because the Agreement was only for the 237 million.
Q. So, if it buys 15 trucks, Cerro Verde has to separate it all out: 237 million, one regime, and the trucks another regime, and if there's a $2 million
[Page 1679]
investment, that's outside the scope as well, a different regime.
So, once again, not a single additional dollar?
ARBITRATOR TAWIL: Excuse me. And so, it needs to maintain separate books? The accounting has to be maintained separately within the same Leaching Plant to account for the additional investments?
THE WITNESS: Yes. Well--so, what's the situation here, Article 25 of the Regulation of the General Law on Mining indicates that the taxpayer, when having a Stability Guarantee, must keep annexes or exhibits that are going to help them keep that separate accounting.
Now, what's the situation? Well, if Cerro Verde invested, say, 15 million, I don't know how much she was saying, then one would have to be careful, because where the Copper Cathodes produced with the new investment are going to be governed by the stabilized regime, and the rest by the Common Regime.
So, in the case of the depreciation it is clear. The company bought 15 additional trucks, fine. Those will
[Page 1680]
be depreciated at a different rate than that stabilized for the goods initially purchased. That's how it works.
ARBITRATOR TAWIL: We understood this in relation to the Concentrator. But let us suppose that there's going to be an expansion of the Leaching Plant. And, now, instead of producing, say, 100,000 tons, it produces 120,000 tons. Within the same plant, we need to keep a double accounting?
THE WITNESS: Yes, that's right. That will have to be done. Why? Because the effect of the output from there, well, it's going to be governed by a different common regime. And so, it is different. And some companies have done this. They expand with respect to something that could be, as in this case, guaranteed; what is a new investment has to have separate accounting so as to pay the appropriate amount with respect to the other.
ARBITRATOR TAWIL: Even though it's part of the same, original Project?
THE WITNESS: Yes. Even if it is the same original Project. That's how it should work. Why?
[Page 1681]
Because when one sat down with the State to negotiate, at that time, it only proposed 230. And the difference isn't whether it's $1 or 800. The difference is that only this is what is stabilized. And the rest is to be governed by the common regime.
It is possible to separate out the books, and to have each part pay the corresponding tax, and it's not--there's not going to be a difficulty expanding an additional--an already-existing Project, nor if everything is being conducted within the same Concession, physically speaking.
BY MS. SINISTERRA:
Q. Ms. Bedoya, your answers are a bit disconcerting. I'd like to show you the Counter-Memorial that was presented by the Republic of Perú in this case. You see it in front of you. It's in English, but you can hear the--hear it interpreted. These are the words of the--Perú's lawyers so you can know exactly what you're looking at it. And it says: "Claimant argues that Perú treated certain investment made between 1999 and 2002 that were not included in the 1996 Feasibility Study as stabilized."
[Page 1682]
So, are you following me so far? It explains the context a bit, and then it says: "In fact, SUNAT determined that the investments fell within the scope of the 1996 Feasibility Study, because they were made to further the Study's goal of increasing production capacity of the Leaching Project to 48,000 MT of Copper Cathodes per year."
"The fact that Perú treated these subsequent investments in the Leaching Project--treated these subsequent investments in the Leaching Project"-- "which were intended to further the goal of the Leaching Project, outlined in the Feasibility Study, and which Perú obtained pursuant to a Stability Agreement as stabilized"--"that Perú treated these subsequent investments in the Leaching Project as stabilized."
And, for the record, this is Paragraph 612 of the Counter-Memorial, the Memorial that was submitted by the--Perú's lawyers to the Tribunal.
Ms. Bedoya, you can try to contextualize or explain what you believe the lawyers of Perú are saying, but what we see up on the screen--well, we're
[Page 1683]
seeing it up on the screen, and here the lawyers are clearly saying two things. First, that Perú treated these new investments as stabilized, and they're providing an explanation for that.
They're saying that it treated the new investments as stabilized because: "They were made further to the Study's goal," because they were made pursuant to the goals of the Feasibility Study of increasing production capacity of the Leaching Project to 48,000 MT per year."
So, once again, you are telling us today, here, just setting forth a position that is different, not only from what Mr. Polo described for us, not only different from the Intendency Resolution of 2010-2011, not only different from your own Resolution of 2006-2007, but you have it right before you on the screen. This is what Perú's own lawyers have said.
So, we've devoted a lot of time to this. It is disconcerting to see changes of position. And I'm simply going to tell you one last time.
MS. DURÁN: Sorry Madam President but this has gone for a long time, and she has been--Counsel
[Page 1684]
for opposing--opposing Counsel has been testifying, and there are no questions being posed to the Witness.
MS. SINISTERRA: Of course. Of course, there are. That's a very important question, whether she agrees or disagrees with statements made by Counsel. And I'm very happy to ask the question again.
BY MS. SINISTERRA:
Q. Ms. Bedoya, so, I was summarizing where we stand, and my specific question is, seeing up on the screen--what you see on the screen, what the lawyers of Perú have said.
Seeing this up here, do you maintain that your position was 237 million, not one dollar more or less?
A. Yes, that is the position. But you say-"and it's against what you said in your own Resolution," as though I'd contradicted myself, and that's not so. Here, I have a paragraph that says the contrary, but the lawyer has not allowed me to read it. I don't know if the President could authorize me to do so.
PRESIDENT HANEFELD: May I interrupt? Are
[Page 1685]
you aware of the content of this Settlement Agreement, which is mentioned in Paragraph 612?
THE WITNESS: I honestly didn't understand so well what the lawyer read. I'm so sorry. I don't know why the attorneys for Perú, if this is what they--if what she says is, indeed, what they say there. But what I know is the position of SUNAT.
For me, it's quite clear, it was always consistent, and all I wanted to read is read a paragraph from the Resolution that I wrote up, so that it can be clear, because that's not an issue that was analyzed at any time, not in 2006-2007 ones, nor in the 2008 one. That's why I wanted to read this paragraph. But every time that I've told her there's a paragraph that I'd also like to read, she tells me well, we're going to get to that in just a second, but she's not allowed me, thus far, to read it.
PRESIDENT HANEFELD: My question was, in this Paragraph 612, in this last highlighted sentence, reference is made to a Settlement Agreement. And my question is, are you aware of the content of this Settlement Agreement?
[Page 1686]
THE WITNESS: I'm so sorry, but I don't know what that paragraph refers to. I'm so sorry. I didn't understand, really, what that paragraph said.
PRESIDENT HANEFELD: In any event, it makes express reference to a Settlement Agreement, which was concluded with Perú, and which seems to concern the Leaching Project or whatever, the goal, and I just wanted to ask is, how does it affect your question.
Are you aware of the Settlement Agreement, and the content of the Settlement Agreement? No?
THE WITNESS: No. No.
PRESIDENT HANEFELD: Thank you.
Yeah. And now my co-arbitrator suggested if you need time to read the paragraph, in order to better understand the question, you are certainly welcome to do it.
You have done it in the Spanish original, so, if you show her the Spanish text of the submission. Or--
MS. SINISTERRA: There is no Spanish text to the submission, Madam President.
PRESIDENT HANEFELD: No. Okay.
[Page 1687]
MS. SINISTERRA: I can read it out loud once more, and I would actually like to draw the Witness's attention to Footnote 1283. I agree, context is important, and that includes the Footnotes included by Counsel for Perú. So, with your permission, I will switch to Spanish, Madam President.
BY MS. SINISTERRA:
Q. Ms. Bedoya, let's go back to the arguments that have been presented to us by the attorneys in this case, because, I reiterate, consistency is important.
I showed you that paragraph. I read it out. I hope that the interpretation worked?
A. Not so well, actually.
Q. Would you like me to interpret it?
A. Sure, then I'd be able to better understand it.
Q. Okay. Let's go back.
I was showing you Footnote 1283 because the Footnote, that is, the support that was cited by your lawyers for this assertion, is your Resolution of 2006-2007. Your Resolution of 2008--that has the same
[Page 1688]
paragraph that we've been looking at.
So, I will translate that Statement, the support cited by your lawyers in the Footnote 1283 which is your--it's your own Resolution--that is to say, they are of the view that your Resolution supports this statement, and that's why I'm going to translate it to you:
"In fact, SUNAT determined that the investments fell within the scope of the 1996 Feasibility Study because they were made to further the Study's goal of increasing production capacity of the Leaching Project to 48,000 MT of Copper Cathodes per year."
And then in the Footnote, Footnote 1283, it cites your Resolution, if we could jump to that Footnote, Footnote 1283. And what was the basis of that? Exhibit CE-46 which is the Intendency Resolution of the 2008 Royalties Case, and they cite the paragraph that I already showed you in which we discussed, and they underscore what the lawyers for Perú thought was especially important.
And what they underscored is that this
[Page 1689]
expansion, and we saw above, that it refers to the new investments, corresponds to disbursements related to the Investment Program contained in the Feasibility Study, and those disbursements do not distort the main objective of the Contract, which is limited to the expansion of the production capacity to 48,000 MT of Copper Cathodes.
I hope the translation has helped, and here we see your signature on this Resolution which, according to the lawyers for Perú, supports the assertion that the new investments were covered because they were done to carry out the objective of the Investment Project in the Feasibility Study.
So, Ms. Bedoya, everyone here in this room, we all saw in English, we heard the translation into Spanish, that the lawyers who represent the Republic of Perú in this case were saying that these--SUNAT determined that those new investments were covered because they were made to carry out the objective of the Leaching Project that was set forth in the Feasibility Study.
It does not say anywhere, not in the
[Page 1690]
Memorial by the Republic of Perú, nor in the Footnote that they cite as support, which is your own Resolution. At nowhere does it say that SUNAT did not consider this point, nor does it say anywhere, no, it was--the scope of the Contract was limited to the 237 million. The lawyers did not say that, nor was that their reading of your Intendency Resolution.
So, for the last time, who understands--who defines the scope; the lawyers or you?
A. Once again, I repeat, in that paragraph, all that is described is the expansion that was done in the Leaching Project. At that time, there was no document at hand that could be analyzed to say that it was a new investment, nor does that paragraph indicate that it is a new investment that is covered. It just says that it is related to, or tied to, because at that time, since there was no documentation, it was thought that it was something that was related to the investment.
And that's why, for a while, I wanted to specify the difference between a new investment to different investment. Another thing is a
[Page 1691]
disbursement. A disbursement can be to improve or repair something that might be needed. I don't have the details as to what that expansion was, the reasons, or what the details of it were, because those documents were not submitted in that audit. That was an audit on Royalties, and it corresponded to 2006. That is my view on that.
Those paragraphs do not say that SUNAT confirms, after something was done because nothing was done, that those additional investments are covered by the scope of the Agreement, and, indeed, this is mentioned in the 2007 Report where SUNAT is categorical in saying that it refers to the investment.
Specifically, the investment made by the Company on culminating the performance of the Contract in those years prior to the beginning of the stability. So, there's not been any contradiction, and I wanted to read this paragraph of the resolution that is mentioned, a different paragraph, which is Paragraph 45.
Q. Paragraph 45 of what? What document are you
[Page 1692]
talking about?
A. This is the Report that supports Royalties, 2006-2007, Page 45, last paragraph.
Q. I do not know if they did not explain the rules of the game to you, But the lawyers for Perú will have the opportunity, once I conclude, to take you to whatever paragraph that you wish, if they consider it advisable. Unfortunately, we're approaching lunch hour, and there are two points that I'd like to make. In the time of Perú's lawyers, you are welcome to, you'll certainly be able to, review other documents, other Paragraphs, but you just drew a distinction, or you're trying to explain this, at least apparent contradiction, by saying, well, one thing is a disbursement and another thing is a new investment. And so, I'd like to show you those new investments to which Perú made reference that we're talking about.
I showed you the document, thinking that if we look at things step by step that that would help you refresh your memory or better understand your own Resolution. But I'd like to put this up on the
[Page 1693]
screen.
The new investments that you call "disbursements," this is what we're talking about. For the record, that's at CE-378. These are the new investments that we're talking about, improving the crushing facilities, the expansion of Pad 2, and the Electrowinning Plant for a total value of 15.5 million.
Now, for the record, it should be clear that, in your Resolutions and in the paragraph that we read by the lawyers for Perú, that of the investments we're talking about, of which there are documents in the record at least, which were said to be covered by the Stability Agreement, well, those investments come to 15.5 million in new investments. So, we're not talking about just any disbursement or expenditure that you might want to distinguish in that way.
That's the point.
A. Yes, but those documents are not within the procedures. I had not seen them before.
Q. So, I'll provide them to you right now so can you see them.
[Page 1694]
A. Yes, but you can't say that something I wrote 18 years ago referred to this, when I did not have this at hand. So, we undertook an analysis, a paragraph was written up, and based on the documentation we had at that time, you cannot assert that what I was referring to was to this. No, because I never saw this. I was referring to the expansion of the documentation that was presented to us.
Q. This is crystal clear, Madam.
Unfortunately, we don't have enough time, but for the record, that Expansion Resolution that you're making reference to leaves it clear what the new investments were. The Resolution that you saw, well, indicated clearly what investments we were talking about. That doesn't matter now.
Let me ask you, let's assume that you didn't have clear in your mind what investments we're talking about. We will give you the benefit of the doubt.
You already saw the position of Perú. We showed you the Memorial, we showed you the Footnote supporting this. Now, it's clear.
This is my question: This investment,
[Page 1695]
15.5 million, having it clear in your mind what the investment was, and that this was crushing improvement, Expansion Pad 2, and the SX/EW Leaching Plant, for 15.5 million; having it clear in your mind that this was "related to the Leaching Project," and with clarity about what Peru said in this regard; in your understanding, this investment, in particular, once the facts are clear, this investment, in particular, would it have been covered by the Stability Agreement? Yes or no.
A. No. No, because the Regulations allowed for a new Contract to be entered into for this second expansion.
Q. Thank you very much. Thank you for your clarification and for being precise in connection with whatever your position is.
MS. SINISTERRA: Madam President. I'm happy to continue with my line of questioning. I'm mindful of the time. I'm very happy to continue, and we do have some time left with Ms. Bedoya. So, would you like to break for lunch, or should I continue a while further?
[Page 1696]
PRESIDENT HANEFELD: We can break for lunch now, if this is, for you, the perfect time.
MS. SINISTERRA: We're in your hands. I'm just mindful we do have significant sort of additional questions.
PRESIDENT HANEFELD: Yes. Let us break for lunch now, and then we continue five minutes past 2:00 p.m.
MS. SINISTERRA: Thank you, Madam President.
(Whereupon, at 1:03 p.m., the Hearing was adjourned until 2:05 p.m., the same day.)
PRESIDENT HANEFELD: Before Ms. Sinisterra continues, you mentioned several times during your testimony that you would like to read out one paragraph of your 2006 Report in order to explain your answers.
Can you just read it out for us and then we can continue?
THE WITNESS: Thank you.
MS. DURÁN: If I may ask the other side to put it on the screen as well.
[Page 1697]
THE WITNESS: Let's look at Page 45. Can we put Page 45 on the screen, please? It's the last paragraph of that page.
Very well. It says here: "In this regard, the fact that the--in this, we see that the fact that the Stability Guarantee only protects the Leaching Project"--am I reading too fast? Okay.
I'll start again: "In this vein, we see that the fact that the Stability Guarantee only protects the Leaching Project leads to a situation in which, if the Appellant makes subsequent investments not contained in the Feasibility Study submitted, as occurs with the Primary Sulfide Project, they will have to be governed by the ordinary legal regime, with the application of different legal regimes depending on the Project, notwithstanding that it may be the same beneficiation concession. To that extent, we are of the opinion that Articles 82 and 83 of the General Mining Law, as well as Article 22 of the Regulations of the Ninth Title, should be interpreted in accordance with the criteria"--well, here I make reference to two authors, Marilu Pedraza and Marcial
[Page 1698]
García Schreck. And what I wanted to point out was the first part of the paragraph, that is SUNAT's position, and that is the position on which this case was based in reference to the expansions.
The paragraph that we were looking at before does not state that the expansion is within the scope. The scope of the guarantee in connection with the expansions of the Leaching Project, that was not a matter in controversy, but the matter had to do--or the controversy rose that the project of Primary Sulfides was something totally different that--whether it was included or not included. And that paragraph says that it does not, because it was not contained within the investment of the submitted Feasibility Study. And that's all.
Thank you.
PRESIDENT HANEFELD: Thank you for this clarification.
Then please go ahead.
MS. SINISTERRA: Thank you, Madam President.
BY MS. SINISTERRA:
Q. We are going to continue. Hi again.
[Page 1699]
We went back to your Resolution. I'm going to ask another question.
The paragraph that we discussed in detail this morning makes reference to the Financial Statements of Cerro Verde.
Do you recall that?
A. Yes. Yes, it makes reference to that.
Q. Okay. So, it does make reference to that. Okay.
We need to try and be very brief because of time limitations.
Let us now look on the screen, and I'm going to tell you where exactly it is in your binder, but apparently it is now going to be turned on--the screen is. It is your Tab 11, if I'm not mistaken. Go to Page 18. For the record, this is CE-418.
So, these are the Financial Statements of Cerro Verde as of 31 December 2002 and 31 December 2003. And we're going to look at Page 18, and we see here the production in metrics, metric tons for Cerro Verde. We see production numbers: For 2003, 87,000, and for 2002, 86,000. These are the
[Page 1700]
Financial Statements for the years 2002 and 2003 that take into account the investments made by Cerro Verde in 2002 and 2003.
You mentioned in your resolution these Financial Statements. So, this is a document that you took into account, that you had top of mind. And did you know that in 2002 Cerro Verde had exceeded the 48,000 metric tons for capacity, production capacity that the Feasibility Study makes reference to? Did you know this or not?
You can see here the Financial Statements--to refresh your memory, the Financial Statements that you mentioned--and at CE--418, well, you can see in the document, did you know that in 2002 Cerro Verde had doubled--doubled--production capacity to 86,000 MT?
Did you know that?
A. I do not recall.
Q. Thank you. Ms. Bedoya.
Quick question: Have you read the Witness Statement that we prepared of Mr. Aquiño?
A. Who?
[Page 1701]
Q. Did you read the Witness Statement that we submitted of Mr. Aquiño?
A. No, I have not.
Q. I'm asking you because at Figure 19 of Mr. Aquiño's Statement, there is a table with all of the production numbers of Cerro Verde, year after year, and all the documents that support and show how production was increasing and how it was doubling.
And this would corroborate what we see here.
But you never saw that; right?
A. No, I never saw that. If it is the way you say, the fact that there was no audit, or it wasn't indicated that this was not part of the Stability Guarantee does not mean that you cannot do this in the future. If somebody does something wrong and person is not corrected and then the person is corrected later on, well, it does not mean that--
Q. Excuse me, Ms. Bedoya. You're talking about corrections. I've only asked about some kind of assessment by SUNAT of these 2002 investments that doubled the production capacities.
Have you seen that assessment?
[Page 1702]
A. No.
Q. Does that assessment exist?
A. No.
Q. Okay. No further questions on that matter.
Let us now look at Paragraph 26 of your
First Statement.
Have you found it?
A. Just one moment, please.
Q. Paragraph 26 at Page 13 of your First
Statement. And we're going to show it on the screen.
Have you found it?
And, again, Ms. Bedoya, we're short on time,
and I would be very grateful if you could be very,
very specific. If you want to expand and give more
details, the lawyers for Perú can then ask you
questions and expand where relevant. Okay?
A. Okay.
Q. Here you say that the stability benefit was
clearly delimited and agreed upon by the Parties, and
the State can estimate the fiscal impact that is going
to have during the years the Contract is in force.
Did you see that?
[Page 1703]
A. What number, you said? 26 or 23?
Q. No, I said 26. At Page 13, this is
Paragraph Number 26.
I can read this again, if you want.
Since this benefit is clearly defined and
agreed upon by the Parties, the State can estimate
the--the fiscal impact it will have during the years
the Agreement is in force.
Do you see that?
A. Yes, I do.
Q. Now, in this connection, you are in tune
with Perú's Counsel and with the Experts Ralbovsky and
Eguiguren, and they all say the same, and I would like
to understand what this means.
The Government of Perú estimated the fiscal
impact of Cerro Verde when it entered into the 1998
Agreement?
A. I have no idea of that.
(Overlapping interpretation and speakers.)
BY MS. SINISTERRA:
Q. So, you did not estimate that; right?
A. I did not.
[Page 1704]
Q. Do you know--I think I know you didn't do
it, but do you know what agency is in charge of
conducting this estimate of the fiscal impact? Is it
MINEM? Is it SUNAT? Is it the MEF?
Who is the agency in charge of assessing the
fiscal impact mentioned by the lawyers and Experts?
Who does that?
A. SUNAT does not have jurisdiction to do that.
I don't know what agency does this.
Q. Just to be super clear, you never provided
an estimate of the fiscal impact of the Cerro Verde
Agreement? You never saw this document; right?
A. No.
Q. Why is it that you mentioned this, then?
A. This paragraph tries to explain what the
Parties brought in to the negotiation. This is
theoretical. The investor--and I have not seen a
document where Cerro Verde indicates the return on
investment of the investment, but I'm sure it did have
it, but it's just an assertion of what the Parties can
do. The investor also can do this, and it wouldn't
make sense for the State to provide this benefit
[Page 1705]
indefinitely and unlimitedly.
Q. Okay. So, if you put this in your
Statement, I understand that you agree and you
understand what this is saying.
You say that the State has to estimate the
fiscal impact during years the Contract is in force.
This Agreement was in force for 15 years.
How is it that the State can estimate the
fiscal impact of something 15 years going forward?
How does a State know whether the taxes are going to
change, if a new Royalties Law is going to be enacted,
if there's going to be a tax on net assets like in
2006, or a Special Mining Tax is going to be imposed
in mining like in 2011?
How can the State make a tax projection
15 years into the future? How is it that the State is
going to know what's going to happen with the taxes?
A. I don't understand your question. The State
signs with an investor, and it has a date for the date
that has been established, and the legal framework is
frozen 15 years into the future. So, we know what
taxes are that are in force and that the Company is
[Page 1706]
going to have to pay for 15 years. So, I imagine that
the specialists are going to be able to estimate this.
There is no uncertainty as to whether this can be
made.
Q. Did you know that the tax rate for Income
Taxes stabilized by Cerro Verde and, according to you,
for 237 million, did you know that that rate was
30 percent?
A. Yes.
Q. Did you know that in 2001 that Income Tax
rate went down to 20 percent?
A. Yes.
Q. So, Cerro Verde was paying a higher rate
than the ordinary regime for this stabilized Project?
Yes or no.
A. Well, you're saying 20 percent. It's not
20. I don't know exactly what rate it is. I would
have to look at the provision, but Cerro Verde--and
this is true, what you said--stabilized the rules of
the game at that date, and that is the game.
If afterwards there is a modification that
worsens or improves the situation, well, that's
[Page 1707]
irrelevant, and the stabilized legal regime is the one
that's going to be applied to it.
Q. Again, Cerro Verde paid a greater rate than
the ordinary regime because of the application of the
Stability Agreement?
A. Yes, that's right.
Q. I know you're not a technical person and you
didn't do this, but this is something that the
Government, in principle, has to take into account
when the Government conducts this estimate of the tax
impact. This is something--is this something that the
Government should take into account?
A. My understanding is that it is. It's not
only a lower rate. There are also other benefits.
For example, an accelerated depreciation rate.
(Interruption.)
(Overlapping interpretation and speakers.)
A. Yes, ma'am.
SPANISH REALTIME STENOGRAPHER: Please pause
between the question and answer.
BY MS. SINISTERRA:
Q. We know that there are other benefits, other
[Page 1708]
guarantees. That's not important. Again, please
short answers. You can go over it again with your
lawyers. You said that it is important that the
stabilized guarantees must be clearly defined for the
State to be able to estimate the tax impact, but you
never...
SPANISH REALTIME STENOGRAPHER: Excuse
me, the interpreters are asking you to repeat
the question because they cannot follow you.
Q. Thank you. We can close this
quickly. We know that there are other
guarantees, that is not the point. The point
is that you said in your witness statement
that the stability benefit must be clearly
limited so that the State can estimate the
tax impact.
It is a curious statement and difficult to understand.
Did you conduct that fiscal estimate for the
impact? Yes or no.
A. No.
Q. Have you ever seen a fiscal estimate before?
A. No.
[Page 1709]
Q. SUNAT, as far as you know, does not conduct
this type of fiscal estimates?
A. There is no power of SUNAT in that regard.
Q. Okay. Very well. Let us now talk about
something that we are all awaiting to hear, which is
the internal report of June 2006. Okay?
You said in your Statements and you said
during the February Hearing that by mid-2006 Mr. Cruz
asked you and Mr. César Guillén to determine the tax
situation of the Cerro Verde Concentrator, and that,
on the basis of that request, you prepared with
Mr. Guillén the 2006 internal Report; correct?
A. Correct. We also were supported by a team.
Q. But you and Mr. Guillén are the only ones
who signed this; correct?
A. Yes.
Q. And at the February Hearing I asked you:
Why is it that you didn't mention this Report in your
First Statement? It is quite strange that an internal
report that was so important went unmentioned in your
First Statement.
You told me that you had not found it when
[Page 1710]
you submitted your First Statement and that you didn't
like to cite things without the appropriate support,
and that is why you didn't mention it. But after
conducting a search, you found it, and that is why you
did cite it in your Second Report.
Do you remember that exchange?
A. Yes, that's right.
Q. You told us that you ultimately found the
Report and included it in your Second Report. And you
said: "I found it in a box"
A. It was given to me by a person that had it
in a file.
Q. You used the phrase: "I found it in a box."
(Overlapping interpretation and speakers.)
A. I cited the name of Mr. Ravines, who was the
auditor who gave it to me. I didn't find it in a box.
Q. Okay. Roger Ravines found it in a box.
A. It was in a file, a file like this one.
Q. We're going to have to go to the Transcript,
but if we look at Tab 3, we can see the Transcript.
You said what you said. The words at the
Hearing were very clear. Let us put them on the
[Page 1711]
screen.
A. Yes, I remember that I indicated that it was
in a file.
Q. No, ma'am. You used the word "box."
Okay. The important thing is the following:
It was said that the box was not numbered, and you
said that that file did not have any numbers or codes?
(Interruption.)
(Comments off microphone.)
MS. DURÁN: I'm just asking her to put it on
the screen because we don't know where to look.
MS. SINISTERRA: It will be on the screen
momentarily.
BY MS. SINISTERRA:
Q. 1605. It's right here, 1601, Line 15.
I asked you a number of questions, but
finally this very important Report, and then we have
an exchange, and I say to you, finally: "Then they
found them in boxes?"
And you said: "Yes. It was in a file."
Let's go down a little bit. Scroll down.
"In which box specifically?" That was my
[Page 1712]
question.
1602, Line 2: "In what box specifically?"
Your answer: "They don't have a number.
They don't have a code. They do not have it. I
wouldn't be able to give you that information. I do
not know."
Do you recall that?
A. Yes, perfectly well.
Q. And you maintain this; right?
A. Of course.
Q. What we have here on the record a
photocopy--that is to say, the original copies, the
original file was not found; is that correct?
A. That is correct. But it wasn't really a
case file. It was just the report with some exhibits.
Q. Okay. It wasn't a file, but it was just a
report, a report with exhibits; right? And the
exhibits were not found?
A. Correct.
ARBITRATOR TAWIL: Quick question. What is
a report outside of a file? I don't understand that.
THE WITNESS: This was an internal
[Page 1713]
investigation only for purposes of the audit-for the
Intendant, he was the one that asked for this--to give
it the use that it wanted him to give to it. This was
internal. So, this is not part of a file. It doesn't
go to the taxpayer. No audit had begun, and of course
there was no Request for Reconsideration.
ARBITRATOR TAWIL: Okay. But there is an
internal file as a consequence of the request of the
person that asked for the Report. That's an internal
file?
THE WITNESS: Well, a file is part of a
proceeding that has been established already. This
was just an investigation that was printed out.
ARBITRATOR TAWIL: But somebody asked for
the investigation. Is there an email about that?
THE WITNESS: No. Everything was done
orally. There is nothing.
ARBITRATOR TAWIL: Okay.
THE WITNESS: We're talking about 2006.
ARBITRATOR TAWIL: Okay. It doesn't matter
the year.
THE WITNESS: Well, but those orders could
[Page 1714]
be given like that. We didn't need anything more
formal because this was an internal investigation.
ARBITRATOR TAWIL: And the Report is not
recorded anywhere?
THE WITNESS: No.
ARBITRATOR TAWIL: Thank you.
THE WITNESS: Okay.
BY MS. SINISTERRA:
Q. Precisely in connection with my questions,
you confirm the instructions--that the instructions
that Mr. Cruz got were verbal?
A. Yes.
Q. We saw that this internal report was signed
by two people: Mr. Guillén and you, Ms. Bedoya.
What portions of the Report were prepared by
you and which portions of the Report were prepared by
Mr. Guillén?
A. He was an auditor, and he was the one who
explained to the team how the company worked, what
these investments consisted of.
Q. Who wrote it?
A. I did.
[Page 1715]
Q. The whole thing?
A.. I wrote the whole thing, but with his help.
We met. He explained things to me. He is
an accountant auditor, and I'm a lawyer auditor, so I
had to transcribe the ideas.
Q. You both signed it; right--because you both
agreed?
A. Yes, that's right.
Q. Going back to the question by the Tribunal,
the words that you used in February were the
following: "The internal report was not part of any
administrative proceeding."
Those were the words that you used, and you
ratify those; right?
A. Yes.
Q. And you also said at the February
Hearing--and we see here it's not part of any
administrative proceeding.
A. Yes, correct.
Q. You also said in February at the Hearing
that in June 2006, when this Report was prepared,
there was no meeting with Cerro Verde to hear your
[Page 1716]
position at the time, whether the Concentrator was
covered or was not covered. No meetings were held at
that time with Cerro Verde.
Do you maintain your testimony?
A. Yes.
Q. You also said in your Second Statement that,
"given the conclusions of the internal report, SUNAT
issued the Audit Orders for Cerro Verde for 2006-2007,
and 2008." So, what motivated SUNAT to start the
audits and issue these Orders, in your words, were the
conclusions of the internal report.
Do you maintain your testimony?
A. Yes, that's correct.
Q. I think this is clear, but I wanted to make
it very clear for the record.
In the cases of the--the Royalties Case for
2006-2007, and 2008, was the Report the motivation for
this?
A. Well, the audit takes place after
programming, and, of course, the person responsible
had considered the conclusion as valid to start the
audit.
[Page 1717]
Q. Okay. That is my question. Don't worry.
We're going to go step by step. You will have time to
go over this with your lawyers.
If it makes you feel more
comfortable, the words you used were that
SUNAT issued the Audit Orders for Cerro Verde
for 2006-2007, 2008 on the basis of the
conclusions of the internal report; is that
correct?
A. Yes, that's correct.
Q. You also said very clearly in the February
hearing that the Cerro Verde auditor in the Royalties
Case for 2006-07, and '08, was Mr.--
A. Just one moment.
MS. SINISTERRA: I understand this is not on
our time.
(Interruption.)
(Comments off microphone.)
MS. SINISTERRA: We're very happy to be
patient. Just make sure it's not on our time. Thank
you.
THE WITNESS: Apologies. Please.
[Page 1718]
BY MS. SINISTERRA:
Q. It's not a problem. Don't worry about it.
A. It's just an alarm.
Q. It's not an urgent call or anything like
that?
A. No, it's not.
Q. We can go on, then?
A. Yes.
Q. You just confirmed to me that the reason for
the Audit Orders for Cerro Verde for 2006-2007, and
2008 was the internal report.
And, Ms. Bedoya, you said this already, but
for the record, the auditor in the Royalties Case
2006-2007, and 2008 in Cerro Verde was Mr. Guillén; at
least in one of them, Mr. Guillén?
A. Yes, that's correct.
Q. And also we saw this a number of times
today, but the auditor that rejected the Request for
Reconsideration in the 2006-2007, and 2008 cases was
you; it was just one auditor, the only one that
rejected this. Your signature is the only one that
appears in the document?
[Page 1719]
A. Yes, that's right.
Q. So, for everyone to have this very clear as
to what happened, perhaps I think we are going to
share with you a demonstrative, and here we have the
exhibits on which you rely, and we are going to
provide a copy to everyone. And we are also going to
give a copy to the Tribunal.
And this is just to confirm the facts that
you just confirmed to us.
So, in the Audit Division you have César
Guillén, who is the one that issued the Assessment for
Cerro Verde in 2006-2007, and 2008, as you just told
us, and Gabriela Bedoya.
Ms. Gabriel Bedoya--that is yourself--is the
one who rejected the requests for reconsideration in
the 2006-2007 and 2008 Royalties cases. And César
Guillén and Ms. Bedoya are the two authors of this
June 2006 internal report. We all agree on this.
So, I'm asking about the facts. Do we agree
on the facts?
A. No, I do not agree.
Q. You don't agree on the facts?
[Page 1720]
A. No. I do not agree because it is very
small, but if you look at the Resolution, it is signed
by the intendant and it is also signed by the Chief of
Claims. It has another signature that is not mine. I
only project the Report supporting the Resolution.
You are saying that, in the facts, I am the
one who rejected it as Gabriela Bedoya, but that is
not right.
Q. You offered me the same answer in February.
So, we agree. But the person who drafted the
justification saying we reject the Request for
Reconsideration, I know that it was later on approved,
but who signed as the deciding auditor? That is one
person, and that is you.
A. The Report, yes, but not the Resolution.
Q. Okay. We agree.
The Tribunal's President asked an important
question. She asked you: Is it normal for SUNAT to
draft this type of Internal report? And based on what
you told us, it is an Internal report beyond an
administrative proceeding, without any record number,
prior to the construction of the Concentrator, prior
[Page 1721]
to the time it entered into operation, before any
consultation with Cerro Verde, before any type of
audit.
So, did I understand correctly that this is
the norm? You said this practice is quite regular.
You said it is quite regular, very common?
A. Yes, it is. Correct.
Q. So, within SUNAT, I imagine that there are
many other internal reports that SUNAT prepared
without knowledge of the taxpayer before overseeing it
and also in writing?
THE WITNESS: I am just turning off my
phone.
(Comments off microphone.)
BY MS. SINISTERRA:
Q. So, let me repeat my question.
You tell me today that it is common for
SUNAT and that SUNAT has other boxes with internal
reports on other taxpayers stating a tax position
without the investment having been made, without the
taxpayer knowing, beyond an administrative proceeding,
in writing, and then those auditors--also issue the
[Page 1722]
Assessments--reject the Request for Reconsideration.
Did I understand you correctly that, in your
opinion, that is quite regular or even normal?
A. It is not only normal, but it is part of our
responsibility, because it would be irresponsible to
go audit a taxpayer without knowing the operations.
It is normal to be able to investigate with the
documentation presented by the taxpayer himself before
initiating an audit.
We are not violating any taxpayer's right,
because there is no assessment. Here the taxpayer may
defend himself or herself against an assessment when
the assessment has been issued when we are at the
audit stage, when there is a request. That's when
they have the option to answer.
But prior to that, we knew that the
Concentrator was under construction. There are some
requirements requests by SUNAT asking for
documentation in 2005, 2006, to get to know what the
operations were. And this is normal because, at the
end of the day, this is going to give rise to an
impact not only on the taxpayer, but on others. And
[Page 1723]
it is totally normal.
It is not always done in writing, that is
true. And this is the way it was done this time. It
is quite common, and those meetings are maintained
within the Administration.
This is part of their duty to get to know
the taxpayer, to audit.
ARBITRATOR TAWIL: But is this Internal
Report made known to the taxpayers so that that party
may question it or respond?
THE WITNESS: No. SUNAT will report on
their position whenever the assessment is finally
made. The Report indicates that the Concentrator will
be within the regular tax regime, so it had many
impacts.
ARBITRATOR TAWIL: But do you provide the
Internal Report once--when you make the assessment?
THE WITNESS: No. Because it was a prior
analysis made with internal documentation. No, it is
not given to the taxpayer, as I said before, it is not
part of...
ARBITRATOR TAWIL: Is the taxpayer informed
[Page 1724]
that the Report existed?
THE WITNESS: No, because it is the Opinion.
It is SUNAT's Opinion.
ARBITRATOR TAWIL: But you said it was
binding.
THE WITNESS: No, it is not binding. But it
is the legal interpretation of the standard, and this
is not going to change. What is binding is the
interpretation SUNAT had regarding the scope in
another circumstance.
ARBITRATOR TAWIL: But if it is not going to
change, and it is not given to the taxpayer, what can
the taxpayer do so as to question or challenge it?
THE WITNESS: Well, they have the
opportunity to do so when the Assessment is presented.
It cannot be before. It could have been the case that
SUNAT does not go after Royalties and did not audit
it. That it did no auditing because time could have
elapsed, and SUNAT did not use their power. So, how
could I share in 2006 a Report with the taxpayer if I
do not know if in the future he will be actually
audited. That is how things work. First comes the
[Page 1725]
assessment and then the taxpayer can defend itself...
ARBITRATOR TAWIL: But then you're telling me that
they never get to see the Report.
THE WITNESS: Correct.
BY MS. SINISTERRA:
Q. We are going to explore this in further
detail but before that I have three specific
questions. Once again, you told us in your Statements
and also in February that that Report established the
tax position of the Concentrator as of June 2006.
And I understand you maintain your position?
A. Yes.
Q. Second, you referred to 2005-2006. You were
not very specific, but I think that you are referring
to the request for information by SUNAT in 2005 and
2006 to Cerro Verde. We already discussed this in
February. Those requests had to do with the
reinvestment of profits--not about the scope of the
Agreement, or if the Concentrator was covered or not;
correct?
A. Correct.
Q. So, those requests did not inquire
[Page 1726]
any--about Cerro Verde's position or opinion as to
whether the Concentrator was included under the
Contract?
A. Yes. These were Reports just requesting
information.
Q. The facts are very important here. The last
fact I would like to verify with you before we go back
to that, in February you told us--and if you need to
see this, we will show it to you.
You told us in February that it was the norm
for SUNAT's officials to meet colloquially,
informally, to talk about their assumptions, to
brainstorm ideas, that it was the norm for them to
meet and have discussions, but you told us that
usually they do not conclude with a conclusion that is
shown in a document. But in the case of Cerro Verde,
you said that it was a complicated case. So, you
said, it's better to put it in writing since it will
be useful to make decisions.
It's on the screen, and this is your
Statement?
A. Yes, that is correct. And there it says it
[Page 1727]
was said. I was only the person who received
instructions. But, yes, I do understand that that was
the idea, to put it in writing and to put it as an
Appendix because it was quite complex. There was a
good deal of terminology that we were not familiar
with. That's why we had the Investment Contract and
the Concentrator Investment and other documents.
Q. Very well. I just want to highlight here
and confirm that you uphold that you said: "We met
informally." There is a brainstorm--and you are
saying that that is normal, but "in this case it was
asked that it be in writing because of the fact that
it was a case that had many different facets, many
technicalities and details." It was not simply
applying the law or not. It was a complex issue, many
technicalities and details.
So, "that's why it was said it's better to
put it in writing, and it will be used for making
decisions."
Do you maintain what you said?
A. Yes.
Q. Perfect. And just for the record, to be
[Page 1728]
clear, this is the Transcript of the Hearing held in
February, 1568, Lines 2 to 10. In English it's 1528,
Lines 4-17, more or less.
Ms. Bedoya, when you confirmed in the
February Hearing--and I thank you for the consistency.
When you confirmed that this internal Report
established the tax position of the Concentrator
according to SUNAT, and that it also encouraged the
audit by SUNAT to Cerro Verde, when you confirmed
that, and when you confirmed that the Report was
written by César Guillén and you--Gabriela Bedoya, and
that the assessments were made by one of the auditors,
César Guillén, and that that Report was signed only by
you, and that this was outside of an administrative
process, and without knowledge of Cerro Verde, when
all of this was clear, I asked you a question.
I asked you, Ms. Bedoya, under Peruvian Law
and under basic rules of justice for the taxpayer,
isn't it clear that there is a conflict of interest?
Isn't it clear that, first, there is a final position
on the Concentrator, in this Internal report, and
later on, both authors of that Report assess and
[Page 1729]
reject the Request for Reconsideration?
Isn't there a conflict of interest,
Ms. Bedoya? Isn't it obvious that you should have
abstained from participating, under Peruvian law and
under Peruvian rules, but also out of basic rules of
justice for taxpayers.
Do you recall that exchange?
A. Is that your question, whether I recall that
exchange? The answer is yes.
Q. And I am going to show you the rule that I
showed you back then. For the record, this is Exhibit
CA-231. And for the record, this is the consolidated
text of the Law on General Administrative Procedure,
and we are going to look at Article 97. And I will
read it to you.
Article 97 reads: "The Authority that has
decision-making power," and you told us that, as an
auditor, you do have that power, "or whose opinions on
the merits of the procedure may have an impact in the
Resolution, should abstain from participating in
issues on which it has a mandate, if it has had any
intervention, or if, as Authority, it had stated
[Page 1730]
previously their opinion on the issue so that it could
be understood that he or she has issued an opinion on
the subject matter"
We see the rule; right?
A. Yes.
Q. And I asked you again, I think it is
obvious, Ms. Bedoya, that there was a conflict of
interest here, since, once again, the two authors of
the Report expressed an opinion as to whether the
Concentrator had to pay Royalties or not, they set
what you have mentioned a thousand times is the final
position on the Concentrator, those two authors were
the ones that issued the Assessment, audited it, and
because of the Report, issued the Assessment.
And then the other author rejects or
projects the Report rejecting this request for
reconsideration against the Assessment, and that this
is made by the two authors of the Report is a clear
conflict of interest.
MS. DURÁN: Madam President, I need to
object.
Sorry. I need to object.
[Page 1731]
Counsel for Claimant is, again, testifying,
and I need--and I would like to state for the record
that Claimant received the 2006 Report in document
production before their Reply, and this is the first
time they're making this argument here.
MS. SINISTERRA: Excuse me? I apologize,
Ms. Bedoya. We have a procedural discussion that
doesn't include you.
This Internal Report was presented by the
Republic of Perú with their Rejoinder, and the
arguments were presented in the February Hearing, and
it is the first time that there is an objection. And
in your direct, you asked Ms. Bedoya about the Report,
so beyond any other fact, by asking you in the direct,
I have the right to refer to this.
Madam President, I'm just saying that the
objection is unfounded, among other things, because in
their direct, they asked Ms. Bedoya about this
Internal report. We discussed the Internal report
extensively at the SMM Cerro Verde Hearing in
February. The Transcript of that Hearing is in the
record, so I'm puzzled at the idea or suggestion that
[Page 1732]
we never raised these arguments, including at the
opening last week, or that for some reason we
shouldn't be able to ask Ms. Bedoya questions about
this Report.
MS. DURÁN: If I may.
Respondent produced this document on
July 25, 2022, in this Arbitration, months before the
Reply, so Claimant could have raised this argument in
this Arbitration. It was not produced in the Cerro
Verde Arbitration because it was not responsive to the
document request from Claimant. It was responsive to
Document Request 1D. We did produce it on
July 25, 2022. Claimant did not raise any arguments.
They did not submit the document on the
record with their Reply, and this is the first time
they are making this--arguments in this Arbitration.
They did it on the Opening, we did not want to
interrupt their Opening, but we want to set the marker
here that they had this document since document
production, and this is the first time they're raising
this argument in this Arbitration. The Cerro Verde
Arbitration is a different situation.
[Page 1733]
PRESIDENT HANEFELD: But as it has been now
already addressed in the Direct, please go ahead with
your questions.
MS. SINISTERRA: Thank you very much, Madam
President.
And just for the record, the first time the
Respondent made arguments about this Report was in the
Rejoinder, so we're entitled to make arguments in
response.
Thank you, Madam President.
BY MS. SINISTERRA:
Q. I apologize for the unnecessary
interruption, but sometimes procedural issues do come
up.
I need to sort of sum up and come back to
what we were discussing, the facts and the
circumstances when this Report was prepared, and it
was shared again, key issues, it says the position of
the Concentrator, that Cerro Verde was not consulted,
that Cerro Verde learned last year, 16 years after its
existence, all of this is clear.
And I said, Ms. Bedoya, by reading this
[Page 1734]
rule, it seems clear that there is a conflict of
interest. And your answer was that there was none,
that, in your opinion, there was no conflict of
interest, that, in your opinion, it wasn't necessary
to recuse yourself from the case, but as part of your
answer, it is important to hear your explanation. You
said that you don't think there is a conflict of
interest.
You said--and one of the reasons that you
offered for why there was no conflict of interest, was
that any other auditor would have reached the same
conclusion.
Do you recall making that statement? And I
think that you made a similar statement in connection
with a question by the Tribunal. That is an important
topic, and if you wish, we can show it on the screen,
but I would like to, again, go back to that part of
your answer.
You said that there was no conflict of
interest, because any other auditor would have reached
the same conclusion. And, as a matter of fact, you
said this in response to a question by the Tribunal in
[Page 1735]
the Hearing in February, after an exchange, all of
these facts were clear, and the Tribunal asked you a
question. I will read it to you, and we can also show
the video so that we do not leave any doubt.
First, I am going to read it to you.
Co-arbitrator Garibaldi told you:
"So, are you saying that this position was
a position that had already been adopted at the SUNAT,
internally, and, therefore, anyone who was the
resolving auditor would have made the same decision?"
And you answer: "Of course, that is the
case." And we can play the video for you.
(Video played.)
BY MS. SINISTERRA:
Q. --Members' response by now. So, if it's a
problem, we can move on. Let's just do--play briefly
and if not, I can also show her the Transcript or put
it into the record.
(Video played.)
BY MS. SINISTERRA:
Q. So, again, you don't think that due process
was violated, that the taxpayer was in a defenseless
[Page 1736]
situation, that there was a conflict of interest, but
you answer clearly to the question: "Any person within
SUNAT would have--any person who was the auditor,
would have solved the issue the same way," and your
answer was "yes, of course."
Do you maintain your testimony?
A. Yes. Anyone could have solved this in this
fashion, because SUNAT had already set a position as
to the interpretation of the Rule. When we're talking
about something that is of an evidentiary nature, with
facts or documents that may change, but when it is an
interpretation, this was not going to change. It
doesn't mean that all of the processes are the same.
ARBITRATOR TAWIL: But when you are saying
that it had already set a position, is that in the
Internal Report?
THE WITNESS: Well, position here, here
we're talking about a legal interpretation. Yes, the
internal report already had a legal interpretation of
the scope of the benefit. When there was the audit,
the documents were reviewed with the Concentrator in
2006-2007 and 2008. The same conclusion was reached
[Page 1737]
because we are talking about the legal interpretation
SUNAT had. This was not going to change over time.
ARBITRATOR TAWIL: But that is what I do not
understand.
If there is an Internal report with a legal
position that is not shared with the taxpayer, how can
the taxpayer refute that position, that, in your
opinion, was already set, and that no inspector was
going to change?
THE WITNESS: That is an interpretation on
the legal scope of a specific topic. It could have
been verbal. Let us imagine that it was not in
writing, but SUNAT had already analyzed the topic and
said the Concentrator is beyond the scope because of
the Report that they had as a background issued in
2002.
The moment when the taxpayer can
present its arguments is when it is informed
that it has to pay Royalties because the
Concentrator is outside of the scope. That is
the moment, which occurred in 2008, when the
Company could have replied, and pointed out,
[Page 1738]
and in the request for reconsideration
something else could have happened.
ARBITRATOR TAWIL: Yes, but you did not
provide the Report when you conducted the audit.
And, you said, the position--has already
been defined. If there is a Legal Opinion that they
are not aware of, how can they revert it?
THE WITNESS: Well, there is a part there
that you do not understand. With the beginning of the
audit in 2006 or 2007, the request is issued,
explaining the position, and there it is stated
at--under Article 85 of the General Law on Mining,
says this, article 22 of the Regulations says that,
your Agreement only says leaching, it details the
position, , and that's the point when we give time to
the taxpayer to refute and also indicate the arguments
against that.
ARBITRATOR TAWIL: And that's when you
attach the Report?
THE WITNESS: Well, that Report was just a
legal analysis.
ARBITRATOR TAWIL: But is the legal
[Page 1739]
analysis attached?
THE WITNESS: No, it is not
attached.
ARBITRATOR TAWIL: Well, then the Party does
not have all of the elements?
THE WITNESS: Yes, they have the elements
because the elements are in the letter of the Law.
For example, this Article, that Article. So, if you
review the Report, the Report is a summary of the Law,
the Regulations, and the Contract, it is the same, so
there was no difference, and this was indicated at
that moment. There was no violation of rights.
It is similar to having the IRS review a
specific sector, to investigate and also to use public
information to get to a conclusion before auditing.
Do they need to communicate all of the taxpayers
that--what they are doing? I don't think so. That is
part of SUNAT's audit power. They do have that power.
BY MS. SINISTERRA:
Q. Ms. Bedoya, I don't think IRS drafts final
Reports on taxpayers without consultation, but that is
not the case.
[Page 1740]
In your Witness Statement, here, there it
clearly states that with the Internal report of 2006,
SUNAT already had a position, given the tax situation
of the Concentrator. That is, this is your Second
Statement, Paragraph 14. And, if necessary, we will
play the video again.
But let me reiterate, do you maintain your
Statement at Paragraph 14? Do you maintain what you
said at the February Hearing, when Co-Arbitrator
Garibaldi told you: "Then, you're saying that this
was a position already taken within SUNAT, and that
any who was the resolving auditor was going to resolve
in the same fashion," and your answer was "of course.
Of course. Certainly that's the way it is."
Do you understand that?
A. I do, and the thing is, there is no improper
procedure there. Nothing at all has been violated.
It was only logical that SUNAT had to find out what
was going on with the Company, what was happening with
that Concentrator Plant, and particularly to know
whether it was or was not with--under the Stability
Agreement.
[Page 1741]
You are making statements when you ask me
questions, quite extensively, and you want me to
answer with yes or no, and that's not possible.
Q. The thing is, whether or not a right was
violated is a decision that will be made by the
Tribunal.
Let us go back to the Transcript of the
Hearing. You're going to see it up on the screen.
You're still in Tab 3. This is CE-1138, and we are
going to see--in principle, we are going to be looking
at Page 1570:14.
Sorry. We're having some technical
difficulties.
Yes, if we could put it up, please. 1570 is
the page number, Line 14. Here we are. Line 14.
This is the question. I'm going to read to
you a question that I asked you. I'm going to read
your answer as well. And I'd like to emphasize
whether I'm understanding something you said. My
question was as follows--CE-1138, Page 1570, Line 14.
My question was as follows: "Ms. Bedoya,
what sense does it make for Cerro Verde to guarantee,
[Page 1742]
to be guaranteed and be told that it had due process, that its arguments would be heard, if it was clear that SUNAT was going to reach the same conclusion--to be more specific, that you individually in the requests for reconsideration was going to reach the exact same position you had already had in 2006? So, my question: What happened to due process for Cerro Verde, Ms. Bedoya?"
Well, now let's look at your answer. And, once again, you repeat that you consider that due process was not violated, but you say something that I find curious and which I would like to understand.
You say--and this is at Line--further down. Let's start at Line 11.
So, once again, I say: "Where is Cerro Verde's due process, Ms. Bedoya?"
You provide an explanation, and then you continue, saying: "SUNAT has to think not only about the taxpayer, but also about what this investment is going to imply for the Arequipa Region."
MS. DURÁN: Madam President, she is reading one line in a 22-line answer.
[Page 1743]
MS. SINISTERRA: You can take her to the answer if you wish. She said these words. I'm entitled--
MS. DURÁN: These words are completely taken out of context.
MS. SINISTERRA: No. She said these words, and I'm entitled to ask what she meant by those words. If you want to take her to the other 22 lines, be my guest on redirect.
BY MS. SINISTERRA:
Q. Ms. Bedoya, I have to repeat: You say there, after I say: "What about due process for Cerro Verde?" And you say: "I don't think there's been a violation," and you explain why you think so. And then you say: "Moreover, SUNAT has to think not only about the taxpayer, but also about what this investment is going to imply for the Arequipa Region."
I'm struck by this, that it has to think not only about the taxpayer, but also about the implications for the Arequipa Region.
So, my question is quite specific. Is there any rule of--governing SUNAT that says that, to
[Page 1744]
determine whether an investment is or is not guaranteed, that the auditors must consider the impact of the investment for the region? Does that provision exist? Yes or no.
A. What I am referring to there--
Q. Does such a provision exist?
A. I'm not going to answer, because the way you're asking me--
Q. Is there some provision that says this is a relevant factor or is there not?
A. You're taking what I said there out of context.
Q. But I want to know if such a rule exists.
(Overlapping interpretation and speakers.)
Q. Excuse me. I'd like to know whether there is some provision in Perú or an internal rule within SUNAT that says that, in order to be able to determine whether an investment enjoys stability, that one of the factors that should be taken into account by the auditors is not only the taxpayer, but also what that investment is going to imply for the region.
Is there such a provision? Yes or no. It's
[Page 1745]
a simple question.
A. The audit power and the prerogatives that the Regional Intendant for Arequipa has, which includes protecting the proper determination of taxpayers' tax obligations within the power of the intendant, the intendant can order that investigations be undertaken that imply a specific point, as in this case, or points or implications for other taxpayers.
This question is related to the 2006 Report.
When the 2006 Report was done, it was to identify implications at all levels.
So, what is it that's being said there?
Cerro Verde is a large company, and all companies that provide services to Cerro Verde--well, if it was going to have an $800 million investment, everything in the region would have greater movement. There would be more people providing more services. So, it was evident and it was fine, and there is nothing bad about it, that SUNAT said, "Let's investigate this scope and this provision."
So, I don't see what the difficulty is.
That's why that has been said there.
[Page 1746]
Q. I understand, Ms. Bedoya, but, once again, there is no provision that says SUNAT, in order determine whether or not an investment is stabilized, take into account the fiscal impact of that investment?
A. No, it doesn't, but the audit powers of the auditors enable them to inquire, and it's totally valid for them--to inquire into a taxpayer and the implications for other taxpayers. That is within their power.
Q. It's good to know that that is your position. You confirm that there are no rules?
A. I didn't say that there are no rules.
(Overlapping interpretation and speakers.)
(Interruption.)
(Stenographer clarification.)
BY MS. SINISTERRA:
Q. Let me ask my question.
You already answered that there is no rule saying, "Gentlemen of SUNAT, to determine whether an investment is or is not stabilized, you not only need to think about the taxpayer, but also what that
[Page 1747]
investment will imply for the region." There is no provision that says that this is one of the considerations that an auditor should look at in order to determine whether an investment is or is not stabilized.
And you just told me, no, that provision does not exist, and that's the point; correct?
Correct?
A. No, it is not correct, because there are no specific provisions for each sector. What exists are general provisions. So, specifically, if you're going to look for it, you're not going to find it, because there are not specific ones. That's impossible. Imagine if you are going to regulate everything specifically.
Q. Nor a general provision, nor a specific one?
A. No, I have not said that. I have said that there are general provisions on audit.
Q. And these say, "SUNAT, in order to determine whether something enjoys stability, think not only"--
A. You're repeating the same thing again, and I just said--I said that there are general provisions,
[Page 1748]
and not specific ones--
(Overlapping interpretation and speakers.)
PRESIDENT HANEFELD: We have to really ask questions, make a pause, and then the response, because our Court Reporter here is really otherwise unable to do his job.
MS. SINISTERRA: I think the record is clear on the answer, Madam President.
PRESIDENT HANEFELD: Is the record clear?
MS. SINISTERRA: Not on, perhaps, the last exchange, but on her answer to the question.
I'll ask it again.
BY MS. SINISTERRA:
Q. Ms. Bedoya, once again--and you can try to go off on a tangent if you'd like. Once again, I'm asking you a very specific question.
I asked you, given the circumstances that were in evidence at the Hearing in February, I told you, Ms. Bedoya, it was evident that Cerro Verde's due process rights were being violated. And your answer was: "I don't think so."
And one of the reasons that you gave to
[Page 1749]
justify your answer was, in addition, SUNAT has to think not only about the taxpayer, but also about what this investment is going to imply for the Arequipa Region.
Now, in this Arbitration, we have discussed in extenso the Mining Law, the Regulation, Resolutions of the SUNAT, of the Tax Tribunal, of the MINEM, extensively, and we have never seen a general or specific provision that says that when SUNAT engages in an audit to determine what does and does not fall under the Stability Agreement, one of the factors that it must consider is not the taxpayer, but rather the implications of the investment for the region.
Can you tell us specifically if there is any specific provision that says that, as auditor, I had to take this into account, please tell me what it is.
Otherwise, I understand that there is no provision, whether general or specific, that states this exactly.
Is there or is there not?
A. Only general provisions about how to carry out oversight and what should be taken into account. Nothing more.
[Page 1750]
Q. Fine. Now, that is a clear answer.
Now, one more aspect of your answer that we want to pick up on or go back to. We will see it on the screen.
Now, for the record, this is Page 1571 of the Transcript. It's Exhibit CE-1138, Page 1572, and we will begin reading--I'm sorry, 1571, and we begin reading at Line 18: "Yes, it is logical to think that SUNAT wanted to know how it was going to act."
It's talking about Cerro Verde.
"And for that, it was fundamental"--and this is what I'd like to highlight and understand: "It was fundamental because the taxpayer's position was already known."
So, here you're saying that when you prepared that Report in 2006, the taxpayer's position was already known. And then you say it was fundamental to find out whether the Concentrator was going to fall under the Stability Guarantee or not, because it was known that the taxpayer was intending to have what finally happened happen, to include the plant within the benefit of stability.
[Page 1751]
So, when you projected this Report, or when you did this Report, it was fundamental to know that the Cerro Verde position was that the Concentrator was covered. It's clear there. You knew that that was the position, and so you thought it was fundamental to write the Report.
So, my question is very specific, and you already gave us the answer, and I would ask if you could reiterate it once again.
Considering that it was fundamental to write that Report, that you knew that Cerro Verde understood that the Concentrator was going to be covered, neither you nor, as far as you knew, SUNAT informed Cerro Verde: "Cerro Verde, you're wrong. The Concentrator is not covered, and here there is an internal report explains why."
You never told this to Cerro Verde or give them the internal report; correct?
A. Could you repeat the question once again?
Q. I'd be delighted to do so. You say here in the Transcript--
A. Could you put the specific question? I
[Page 1752]
understood what you read.
Q. Okay. So, the specific question is, as you say, for you it was fundamental to know that--Cerro Verde's position--or that Cerro Verde wanted that the Plant be included within the stability benefit, knowing that that was Cerro Verde's position, then you put together an internal Report saying the contrary.
So, I'd like to confirm, once again. At that time no one told Cerro Verde: "You're mistaken. The Agreement doesn't cover the Concentrator."
You didn't tell Cerro Verde this, and nor did you give them the Internal report; is that right?
A. Yes, that is right. Because that was not the appropriate thing to do. At that time, the analysis was undertaken, and it's true, when they said "investigate," they told us orally that it was known that that was the Company's position. And that's why it was done. That is this really covered or not covered by the Guarantee, and that's why we undertook the analysis.
But once again the same response: One cannot give--notify the taxpayer of that document
[Page 1753]
because it's an internal document, and it was not giving rise to an Assessment at that time. Now, it could be that subsequently--well, there couldn't even be an audit, that's why we were told.
MS. DURÁN: Let her respond.
THE WITNESS: It's informed--the taxpayer is informed when there's going to be an Assessment, right until before that I cannot. I cannot tell the taxpayer: "I think you're doing this wrong." "I'm thinking that it's like this, and then later on I'm going to confirm it to you?" No.
When a--the request is put forward, that is when it is done. In that moment the taxpayer is told everything. And the Request is complete. The reason is explained, the provision is explained, and the Agreement is explained. That is the moment.
BY MS. SINISTERRA:
Q. Ms. Bedoya, in the Request did you specifically mention the Internal report? Yes or no?
A. No.
ARBITRATOR CREMADES: I'd like to put a
[Page 1754]
question to you.
THE WITNESS: Of course.
ARBITRATOR CREMADES: The question that is being put to you time and again this afternoon, do you understand that there's some confusion as between the competence of SUNAT for tax issues and Royalties issues with the competence of the MINEM, because clearly the MINEM is the one that would set, according to one criterion, whether or not there's coverage. And then you draw out the tax consequences thereof.
Isn't there a certain confusion in the question being put to you?
THE WITNESS: Well, the thing is, from what I'm understanding, it's thought that the taxpayer's right was violated because the preliminary investigation that was undertaken was not communicated to it. But that's not right, because SUNAT within its powers can carry out an investigation and can reach a preliminary conclusion.
That conclusion is what gave rise to the verifications that were carried out subsequently. That is right, and that's how work is done. Nothing
[Page 1755]
of the taxpayer's has been violated because it's only when the Assessment is going to be imposed that the effect is communicated to the taxpayer: You know what, we've analyzed the Agreement, and we are reaching this conclusion, and at--that is the moment when, because of the operations for 2006 and 2007, you have to pay the Mining Royalty.
Then it's been done for other years and for other taxes, because since the Concentrator is in the common regime, it implied many things that were not stabilized. But nothing's been violated, because our procedures, well, the first is the audit. It was notified, the challenges were indicated to the taxpayer. The taxpayer then responded. And in the First Administrative Instance, that's where the request for reconsideration can be made, where the arguments were heard and everything else.
ARBITRATOR CREMADES: Mention is made repeatedly of a due process violation. Now, in the administrative jurisdiction, and in the SUNAT, before the Decision is made, to speak of due process as though it were a Tax Court, isn't that some confusion?
[Page 1756]
THE WITNESS: Not only that, but confusion is created by the fact that when the 2006 investigation is undertaken, there was no procedure whatsoever. What procedure has been violated if there was none? Nothing. It was merely an investigation.
Evidently, since this is an issue having to do with an interpretation of a provision, well, over time, it's not going to change. And it's not going to change because SUNAT has to be consistent with what it says as well.
So, we had a Report from the national legal intendency that established the scope of the Guarantee. One could not move far from that Report, because it's binding on us and it's public.
Cerro Verde was familiar with that Report.
Now, if Cerro Verde had such a big doubt as to whether the Concentrator fell under the Agreement or not. Then it could have consulted SUNAT through its association, and that consultation would have yielded the same response. It did not do so.
Cerro Verde thought and assumed that everything was covered when that wasn't so, and when
[Page 1757]
the audit was carried out, then it was said right then and then--well, there it indicated its arguments, but here no process was violated because there was no process. The process began in 2008, that there was a preliminary investigation, and that is why all these questions are now being raised. Doesn't mean that there's been a due process violation, nor that there's been any violation of the taxpayer's rights.
The taxpayer had the opportunity. Well, in due course, it understood why the misgiving was being raised, and that's when they could respond. But absolutely nothing was violated.
ARBITRATOR CREMADES: I understand that in your response, you're saying at that time there was no process yet, and, therefore, there's no violation of due process because there's no process. The process began once--the consequences of all the investigation carried out or communicated. Is that your answer?
THE WITNESS: Yes. But I must specify that, in such an audit Study, the reason why SUNAT considers this is so, is communicated. Here, it's not a question of us reaching a conclusion in 2006, and
[Page 1758]
everything else is just a procedural claim. That the audit and request for reconsideration are going to have the same conclusion. It is not like this. There is a conclusion that is reached initially, to simply review the Agreement and the legal provisions, and, subsequently, this was in the wake of the analysis, the operations that we're talking about, the operations that came from the Cerro Verde Concentrator, which is what was not stabilized.
ARBITRATOR CREMADES: Your answer is very clear. Thank you very much.
THE WITNESS: And so, nothing has been violated. Thank you.
PRESIDENT HANEFELD: Please, allow me a follow-up question, and that which concerns the question of how you or SUNAT acted in comparable cases where the scope of Stability Guarantees signed another mining law was an issue. And maybe we can put on screen, Exhibit RE-175.
This was, in my understanding, the list that MINEM provided to SUNAT, which listed all the--now Companies and Projects affected by the Royalty Law.
[Page 1759]
This tab that we had a couple times in front of us.
I'm looking for the chart.
MS. SINISTERRA: It will be up momentarily, Madam President. There we go.
PRESIDENT HANEFELD: There it is. And if we could also have the English version, and I would...
Are you familiar with this list of Agreements of Guarantees, now, Ms. Bedoya?
THE WITNESS: Yes, I've reviewed that Report at some point in time, but this list of Agreements--the truth is, I don't remember it. I know those are the Contracts that were in force at that time.
PRESIDENT HANEFELD: But--now, you know the Report in which this list was included; correct?
THE WITNESS: The truth is, I'd have to review it because this is from some time ago, and I don't remember so well, but, at any rate, what is your question?
PRESIDENT HANEFELD: My question is, have you been involved in establishing a Report in other cases that are listed here? Or have you served as an
[Page 1760]
auditor in another case that is established here?
THE WITNESS: No, in--none, just in the case of Sociedad Minera Cerro Verde.
PRESIDENT HANEFELD: Because I wondered, and Claimant's Counsel has also alerted to this paragraph.
In Paragraph 40 of your Second Witness Statement, you state that, during the 22 years that you have worked for SUNAT, you have not known of any case in which a different interpretation has been adopted regarding the scope of the Stability Guarantees signed under the Mining Law.
And I wondered, now, whether you can refer us to any specific examples which support this testimony. But now I understand, and now for this kind of Guarantees, Stability Agreements, you were not involved? But these were the ones affected by the Royalty Law; right?
So, what was the basis for your testimony in Paragraph 40 of your Second Witness Statement? Just have a look at it, and then explain to me what the basis of the Statement was.
THE WITNESS: Yes, please.
[Page 1761]
PRESIDENT HANEFELD: Please take your time.
THE WITNESS: Thank you.
I have not participated in other cases.
Those Agreements that are listed there, I don't know if they've had some sort of tax implication or Assessment, but I have not participated because at that time I worked in the Arequipa regional office, and Cerro Verde is a mining Company there. There are not others. Well, there may be others, but with different cases.
This case regarding the scope of the Stability Agreement, I just examined in relation to this Company. What I do recall, and what the list of companies indicates, I cite it as an example, the case of Yanacocha, because it seemed to me very illustrative. The Company always noted that the benefit goes to the Concession, but I found in the Yanacocha Case that a Concession is part of two different Stability Agreements at the same time.
So, that example takes apart the Company's position, which is that the Guarantee encompasses the Concession, because actually the Concession is simply
[Page 1762]
a mining right and nothing more. So, that is the example, when I was shown the list, I thought that that's--the Yanacocha Projects were there as well.
And that's the only thing I understand about, that I know about that. I don't have information about another company.
PRESIDENT HANEFELD: Thank you.
MS. SINISTERRA: Thank you, Madam President. Just very brief follow-up questions.
BY MS. SINISTERRA:
Q. Just to confirm this statement in Paragraph 40, Ms. Bedoya, that says: "During the 22 years that I've worked at SUNAT, I've not known of any case in which a different interpretation has been adopted," that is mainly based on Yanacocha, based on what you just told us; right?
A. No. That's my experience as an adjudicating auditor. I have not seen other cases.
Q. Yes, but the list that the President indicated, you said you don't know those cases?
A. No. No.
[Page 1763]
Q. And you did not write internal reports about those other companies; correct?
A. No, and they're not even under the jurisdiction of the Intendency.
Q. So, you didn't write such a Report?
A. No.
Q. And you've never seen, you don't know of any internal report about these other companies; correct?
A. No.
Q. And you worked directly in the Yanacocha Case?
A. No. No. I just mentioned it because it struck me--the question--the Concessions just struck me.
Q. But you don't work on that case directly?
A. No. No.
Q. And one last question.
Arbitrator Cremades asked you a very specific question. He said, Ms. Bedoya, MINEM sets the criteria in--regarding coverage, whether or not something enters into or is covered by a Stability Agreement. So, I would ask, MINEM--or who set that
[Page 1764]
position as to whether the Concentrator was or was not covered? MINEM or SUNAT or both?
A. Both in their respective fields, because SUNAT has to see whether the taxpayer is paying the proper tax--or the correct tax payments--and needs to verify. And they--evidently, it needs to verify whether the Leaching Investment is the only one that is covered, or whether there's some other. And in this case, it was verified that the Concentrator was outside and, therefore, its--the Assessments that were reviewing came out.
ARBITRATOR TAWIL: Now, I got confused. Either I misunderstood or you told us before that it was SUNAT that determined whether or not it was covered by stability.
THE WITNESS: For tax purposes, SUNAT, but MINEM might have its own opinion on it, and that's totally valid, but for tax purposes, in terms of how much has to be paid in taxes and Royalties, it's SUNAT.
ARBITRATOR TAWIL: But not how much, but, rather, if it's covered. If MINEM says it's covered
[Page 1765]
by the Stability Agreement, that's fine, and you say no. Is there a determination for taxes?
THE WITNESS: Yes.
ARBITRATOR TAWIL: Well, then it is SUNAT.
THE WITNESS: SUNAT is the one that has to interpret everything. In this case, happily, we were both looking at the same thing.
ARBITRATOR TAWIL: So, it doesn't matter what MINEM says in order to determine whether there is a tax liability?
THE WITNESS: That's right. Because the Tax Administration is the only one that can determine taxes.
ARBITRATOR TAWIL: Okay.
MS. SINISTERRA: On that answer, I have no further questions, Madam President.
Thank you very much, Ms. Bedoya.
I should add I reserve my right to recross just in case of doubts, depending on any questions from Counsel or any further questions from the Tribunal.
Thank you, Madam President.
[Page 1766]
Thank you very much, Madam Bedoya, for your testimony.
THE WITNESS: Thank you.
PRESIDENT HANEFELD: Do you have questions on redirect?
MS. DURÁN: Probably, if I may take like a three-minute break.
PRESIDENT HANEFELD: Sure.
MS. DURÁN: Thank you.
(Brief recess.)
MS. DURÁN: Thank you.
BY MS. DURÁN:
Q. Ms. Bedoya, what opportunities does the taxpayer have to challenge the Assessments made by SUNAT in connection with the payment of taxes or Royalties?
A. The tax contentious proceeding has two parts: First the request for reconsideration, and then you have the appeal. The Request for Reconsideration is looked at in Perú by the Tax Administration also, so then you--and then you also go
[Page 1767]
to Request for Reconsideration. I work for the Request for Reconsideration Division. Then the Resolution is issued, and then the taxpayer can go to the Tax Tribunal via an appeal.
Q. What recourse does it have against the Decisions by the Tax Tribunal?
A. The taxpayer, if it disagrees, can file a Contentious-Administrative Lawsuit, which goes to the Judiciary in Perú. So, there are a number of stages there until you get to the Supreme Court in a cassation appeal.
Q. What did the Supreme Court to conclude, and the other courts in Perú conclude, in connection with the SUNAT's interpretation in connection with the Stability Agreement of Cerro Verde?
A. Starting at the Tax Tribunal, they agreed with SUNAT. They reached the same conclusion: That the legal interpretation that SUNAT had was the correct one.
Q. You were shown this document. I don't know if you recall.
A. Yes.
[Page 1768]
Q. Mr. César Guillén was the only auditor for Cerro Verde?
A. No. There were others. There were a number of auditors. I do not remember the name. A lot of time has gone by.
Q. Let's put on the screen RE-26. You talked a number of times about a 2002 Report. It's on the screen. Let us look at Paragraph 5.
What is the nature of this Report?
A. This Report, as I said, was issued by the Legal Intendency, and it is binding. It is public as well. It is published in SUNAT's webpage and it is binding. That means that, as public officials, we cannot really drive away from what this Report says.
Q. When you say it's public, what do you mean?
A. These are reports that are published in the webpage of SUNAT, and they answer inquiries by the trade unions or entities in Perú. Generally these have to do with the general scope of the Regulations.
Q. Has SUNAT issued other reports such as this in connection with the scope of the legal Stabilization Agreements?
[Page 1769]
A. Yes. There is a 2007 Report--166 is the number. That Report concludes more precisely--well, because here, in order to answer an inquiry that had to do with a contribution to FONAVI, they analyzed first what the Agreement protects. And as you can see here at Number 5, it says here--let's see.
They say here: "As can be seen in the above-mentioned provisions, the benefits granted through the Tax Stability Contracts under Title Nine of the General Mining Law apply to the Mining Titleholders, and even though they temporarily stabilize the tax regime in effect as of the date of the approval of the Investment Program, said benefits must only apply to the activities involved in the investment made in a given Concession or Administrative-Economic Unit. In such regard, if the taxpayer engages in other activities"--and then, for example, I was talking about an expansion of the Leaching Plant--"these will be subject to taxation under the regular regime, unless they also enjoy tax stability and simultaneously with the activities for which the stability exists, as long as the stability
[Page 1770]
remains in effect."
So, when it talks about investment-related activities, what investment? The investment that is contained in the Stability Agreement and limited by the technical-economic Feasibility Study.
And, if we look at Number 6, we see that this perspective is corroborated by Article 25. I also mentioned Article 25. It says that companies must have exhibits for any new investment or expansions that are stabilized.
The other Report you were asking me about was the 166, 166/2006. That's even more precise.
Q. Can we put it on the screen? It's RE-27. RE-27.
A. Here you can see in the summary at Number 1, it says here: "The tax stability guaranteed through an Agreement signed with the State under Title Nine of the Single Unified Text of the General Mining Law benefits the Titleholder of the mining activity for a period of 15 years only for the investment activities that are subject -that are foreseen in the Feasibility Study, taking into account the definitive amount
[Page 1771]
required for its performance in a given Concession or Administrative-Economic Unit."
That is why subsequent investments, if they happened, those were not contained. They were not covered. This is definitive: Only those investments in the Contract.
ARBITRATOR TAWIL: The previous Report was making reference to a Concession, it didn't talk about Feasibility Study.
THE WITNESS: Here it says "investment activities contained in the Contract"--that is to say, the activities have to be carried out in some place. So, that is why they say that they have to be developed in a Concession or in an EAU. So, the Concession is only a right to do something. It cannot be benefited by a guarantee. It's just a Concession.
BY MS. DURÁN:
Q. Thank you.
MS. DURÁN: I have no further questions.
MS. SINISTERRA: I do, Madam President. We are getting the exhibits ready. If we can get one second, I would be grateful. Thank you.
[Page 1772]
PRESIDENT HANEFELD: Sure.
(Pause.)
MS. DURÁN: Madam President, to avoid any interruptions, this is a document I did not talk about in my redirect.
MS. SINISTERRA: I think you should hear the question before you make an objection, and I have three questions. This concerns the third of my questions.
So, Madam President, with your permission, with regard to my first question.
BY MS. SINISTERRA:
Q. Ms. Bedoya, you were shown this slide; is that correct?
And I can show you the exhibit, if you want.
It is RE-190. But you knew that in the 2008 Royalties Case, there was one auditor, and that auditor was César Guillén.
In the 2008 case, there was one auditor, and it was César Guillén. Did you know that?
A. I know that there are a number of them.
Q. Did you know that in the 2008 case, there
[Page 1773]
was only one auditor, and it was César Guillén. Did you know that?
A. No.
Q. For the record, this can be seen in RE-190.
Second question: You spoke about the 2002 SUNAT Report. You knew--and we don't have time to discuss this--did you know--this is the 2002 Report.
Did you know that SUNAT reports only become binding in 2007, when Article 94 of the Tax Code was amended? Did you know that?
A. Yes, but let me clarify something here.
The provision says that it's binding since then, but this does not mean that, for us SUNAT officials, we failed to consider what the Report says.
The article did this starting on that year, but, to us, it is still binding, because if we say something that is contrary to what a SUNAT Report says, the consequences are serious.
We could be talking about the application of Article 170 that talks about double criteria by SUNAT. So, for us, in 2002, that provision was indeed not binding, but for us it was.
[Page 1774]
Also, when Requests for Reconsideration are addressed, there was a provision that said that the provision was binding from 2007 onwards.
Q. But the provision that said that it will be binding for the Tax Authorities, that was from 2007, do you agree?
A. Yeah, but the Requests for Reconsideration were after.
Q. Well, yes, but this is before the 2007 reform that said expressly that they were binding. So, in 2002, this provision that says that they are binding was not in force at the time?
A. Yes. Yes.
Q. Third question. We are going to show a 2002 SUNAT Report.
You spoke, Ms. Bedoya, of a 2002 Report. The Parties profoundly disagree on what the Report says or it doesn't say, but you spoke about a 2007 Report. The Parties agree, this is after 2006. We don't have time to talk about this Report.
I will talk about this Report. It is a 2012 Report. This is CE-883, Page 3, Paragraph 3.
[Page 1775]
MS. DURÁN: I'm sorry. I have to object again. How is this document related to my redirect?
MS. SINISTERRA: Madam President, they asked her--it's relevant in two ways.
First, this whole discussion is based on the premise that Ms. Bedoya stated in her Witness Statement that, in her 22 years at SUNAT, this has always been SUNAT's position.
To test that, you asked her about two Reports from SUNAT, which is a selective choosing. I am entitled to ask her about another SUNAT report about the exact same issue.
So, with your permission, Madam President, I think my question about a SUNAT Report that relates to the same point we are discussing is entirely appropriate.
And, again, for the record, I am asking about CE-883, Paragraph 3.
PRESIDENT HANEFELD: Please go ahead.
MS. SINISTERRA: Thank you, Madam President.
BY MS. SINISTERRA:
Q. This is a 2012 Report, a SUNAT Report of
[Page 1776]
2012, so the provision that talks about this being binding was already in force. The provision was from 2007 and this is a 2012 Report; correct?
A. Correct.
Q. And SUNAT says: "As a consequence, and as applicable to the first question asked, since the mining activity owner is an Income Taxpayer"--well, I'm going to read everything to avoid objections.
"As a consequence, and as applicable to the first question asked, since the mining activity Titleholder is an income taxpayer, without limitation to the obligation of determining results for each Concession or Unit, abiding by the terms of the tax system that had been stabilized, it shall be taxed on its total net income of the fiscal year, without any impediment to its offsetting tax losses from one or more of its Concessions or Economic-Administrative Units."
You did not mention this 2012 Report in your Statements; right?
A. It's in my Second Report in answer to arguments posed by you.
[Page 1777]
Q. I'm going to read another paragraph out of this Resolution. Can we look at two paragraphs above where it says--"as it flows from the above," "as a result of the above" in English?
Thank you.
"As a result of the above," it says, "mining activity Titleholders that have signed Agreements on Guarantees and Measures to promote investment under the General Mining Law will enjoy a stabilized tax system applicable solely to the concession or Economic-Administrative Unit for which said Agreement has been signed."
Again, it says here: "Applicable to the Concession or Economic-Administrative Unit for which said Agreement has been signed."
Clearly, SUNAT is not saying that this is limited to the amount of the Investment Program, or not even the Investment Program.
Here, they're talking about Concession or Economic-Administrative Unit.
Do you see that, Ms. Bedoya?
A. Yes, I do. This inquiry comes from: What
[Page 1778]
is it that a company must do when they have a number of Stability Agreements and they have concurrent regimes that are different amongst themselves? So, how can they determine the tax for income and how can they apply losses between the different projects? The question made in this Report, in my opinion, is poorly formulated because it talks here about Concessions and EAUs. That is why the answer goes along those terms.
In this case, no discussion is made of the scope of the Stability Agreements such as in the other two Reports that we have mentioned. Here, a response is given to an inquiry about: What do we do with the losses? And the answer being provided is this one.
My understanding is that this is a response to a question that was ill-made because, for practical effect, it could have been used, but the Guarantee covers the Investment Contract included in the investment project included in the Agreement.
Q. Luckily, this is in the record, and the Tribunal may make its own determinations.
MS. SINISTERRA: I have no further questions. Thank you.
[Page 1779]
PRESIDENT HANEFELD: But do I understand your testimony correctly that your position is that this 2012 Report is not relevant enough for our case here, and can you just explain in easy terms, again, why it's not relevant? Why do you think we should not consider it? Because...
THE WITNESS: The inquiry here has to do with another issue. It doesn't have to do with the scope of the Stability Guarantee. The question has been posed incorrectly, because the question has to do with concessions or EAUS. That's not correct.
But, of course, we answered the inquiry. A company that has three stabilized projects, what the company is going to do when determining the Income Tax, which is filed as a single tax, is to use the losses from all of the Projects. And the same thing will happen when it comes to the balance in favor that is also the subject of the inquiry here.
But it's not relevant, because this is not analyzing the scope of the Stability Guarantee, which is the case in the other two Reports that rule on the
[Page 1780]
scope of the Guarantee.
This Report, the 2012 one, is not relevant, in my opinion.
PRESIDENT HANEFELD: And can you refer us to any specific language in this Report which shows that it did not discuss the scope of guarantees?
Is there any specific language to this effect, or is it just your personal opinion that it does not deal with it?
THE WITNESS: Is the Report here? If we could show it so that we can show the President, please.
PRESIDENT HANEFELD: Yeah, it's Exhibit CE-883. And I saw one provision, but I'm not--it's your testimony, which could confirm what you just said, but...
THE WITNESS: This is the one from 2002.
You're making reference to Report 84.
Yes. Can we just show it on the screen?
One moment.
MS. SINISTERRA: I'm not sure how we lost control of the monitors.
[Page 1781]
(Overlapping speakers.)
PRESIDENT HANEFELD: I don't know. I want to ask about the 2012 Report.
MS. SINISTERRA: We have it already, if we can please put up CE-883.
MS. DURÁN: That's exactly what we were doing. If we can see the whole document, please.
And show her the first page.
THE WITNESS: Okay. Let's see.
First, you must understand the subject matter of this inquiry. It's right here. It says: "With respect to mine activity Titleholders that have signed Agreements on Guarantees and Measures for the Promotion of Investments with the Peruvian State for one or more of the Concessions or Economic-Administrative Units in connection with promotion activities."
So, the premise here is that this is a company that has a number of stabilized projects.
They say, it is true, the word "Concessions or EAUs," but in this Report the scope is not examined.
The premise is that this is a company with a
[Page 1782]
number of projects, and the question is asked. To determine the Income Tax, can it compensate tax losses for one or more of its concessions or Economic-Administrative Units to be offset against the profits of the others? When determining payments on account of Income Taxes, should their determination be made according to the preceding item? And then they talk about General Sales Tax and the application of the balance in favor. If I have a GST that has a certain rate and another one that has a different rate, how is it that we can use the balance if the General Sales Tax is just the one? That is why the inquiry was made.
So, the Report examines these matters. So, they look at what they're going to do with the losses and what's going to happen with the balance, but it does not examine the scope of the stability. It stems from these premises; that is why the paragraphs read by Counsel show the answer, the answer to the question as it was formulated. The question had to do with Concessions, and the answer will be done accordingly.
But this is no implication. Here, they are
[Page 1783]
not saying that the Stability Guarantees, the Concession. Nowhere in this Report it says that.
PRESIDENT HANEFELD: Thank you.
THE WITNESS: You're welcome.
PRESIDENT HANEFELD: Additional questions?
MS. SINISTERRA: Madam President, as much as I would love to take Ms. Bedoya through various paragraphs and footnotes in the document, I think in the interest of time we will not ask further questions about this particular document.
PRESIDENT HANEFELD: And any other questions?
MS. DURÁN: None from us.
MS. SINISTERRA: Not from us, Madam President. Thank you.
PRESIDENT HANEFELD: Okay. We also do not have any further questions.
So, thank you very much. You are released as a Witness.
(Witness steps down.)
PRESIDENT HANEFELD: Then we should now have our 15-minute break, and then we continue with
[Page 1784]
Mr. Cruz.
(Brief recess.)
PRESIDENT HANEFELD: Then we will continue with the examination of Mr. Cruz.
COLÓN HARALDO CRUZ NEGRÓN,
RESPONDENT'S WITNESS, CALLED
PRESIDENT HANEFELD: Welcome, Mr. Cruz.
I'll introduce the Members of the Tribunal. I'm sitting here with Professor Tawil and Dr. Cremades. My name is Inka Hanefeld, and you have been called as a Witness in this Arbitration by the Respondent, so I have to ask you to read out the Declaration under Rule 35(2). It should be in front of you.
THE WITNESS: Good afternoon.
I solemnly declare, upon my honor and conscience, that I shall speak the truth, the whole truth, and nothing but the truth.
PRESIDENT HANEFELD: Thank you very much.
Do you have your Witness Statements? It's RWS-7 and 14 in front of you.
THE WITNESS: Correct.
[Page 1785]
PRESIDENT HANEFELD: Can you confirm that these are your Witness Statements and that they correspond to your recollection, or do you have anything to amend or correct?
THE WITNESS: Yes. These are my Statements.
PRESIDENT HANEFELD: Perfect. Then we hand over to Respondent's Counsel for a short direct.
MS. DURÁN: Thank you, Madam President.
DIRECT EXAMINATION
BY MS. DURÁN:
Q. Mr. Cruz, you were just asked about your Witness Statements, and they are based on your knowledge and personal experience; is that correct?
A. Yes, it is.
Q. What is your training, academic training?
A. I have a bachelor's degree in administrative sciences from the National University of Piura, and I have a master's degree in the international finance, and also human resources.
Q. What is your current position?
A. I am a specialist at Position 5 with the
[Page 1786]
management of strategies in the National Offices for Risk Management of SUNAT.
Q. What have been your positions within SUNAT?
A. I have been professional analyst, section chief, division chief, regional intendent, intendent of Lima, intendent for the major national taxpayers, and also I have been intendent for human resources.
Q. You explain in your Statements that the tax system in Perú is based on self-determination. Could you please explain this concept?
A. As many countries, in Perú, the determination of the tax is the responsibility of the taxpayer. The taxpayer determines the taxable base, determines the tax to be paid, deducts credits, makes the tax return and presents and pays in the terms and conditions established by the SUNAT.
And after that, SUNAT has the power to audit if these returns have been presented based on the existing regulation, and as part of an audit process it can make some assessments in case there is a violation.
Q. In both of your Statements, you mentioned
[Page 1787]
sending Cerro Verde a communication on February 17, 2005.
A. That is correct.
Q. Why did you send this letter and what was the purpose of this communication?
A. This communication was given in the framework of the approval of the Royalty Law,--at a regulatory level, at the central level, SUNAT developed a plan to help taxpayers, and they sent a communication to the Regional Intendencies for them to communicate their taxpayers within their jurisdiction.
And these communications were basically a reminder that the Royalty Law had been approved and that an online form had been approved for payment to be made in case the taxpayer had to pay Royalties.
Those communications were sent nationally to all of the taxpayers that had a mining concession.
Q. Would you please explain to the Tribunal the meeting that you held with representatives of Cerro Verde in March 2005?
A. In March 2005, the taxpayer Cerro Verde, through their legal representative, requested a
[Page 1788]
meeting, which was granted, and they basically presented the scope of their stability agreement as a result of their royalty-related issue.
Q. Did you confirm Cerro Verde that they were not going to pay Royalties for the Concentrator?
A. No. At no time did I do that.
Q. Could you have confirmed that to Cerro Verde?
A. But at that type of meetings, in general, the taxpayer presents whatever they consider to be of help or the interpretation that they give to a regulatory issue. What SUNAT does at these kinds of meetings is basically to take notes as a way of background, so, in case of a verification process, more emphasis would be given to those issues that are indicated.
In addition to that, at these kind of meetings, usually no answer is provided because clearly, any situation will require a deeper analysis, and in connection with that, my Opinion as official, or the Opinion of any of the officials participating at the meeting, is not binding. Whatever is stated
[Page 1789]
there is not what may be determined at a later audit.
SUNAT's binding position used to be given trough Reports that were published based on the taxpayers' questions that were presented through a representative trade union or body.
Q. Thank you.
MS. DURÁN: I have no further questions.
PRESIDENT HANEFELD: And, Mr. Cruz, do you remember that you ever received a formal or official request by Cerro Verde to determine the application to pay Royalties or not, or would there have been a chance to ask for such an official Opinion from SUNAT at this early stage, in March 2005?
THE WITNESS: No. Cerro Verde did not present an application.
PRESIDENT HANEFELD: But would there have been the chance to submit such a formal Application for a binding Opinion on this issue?
THE WITNESS: If they had any doubts, they could have gone through a union so that SUNAT, through its National Legal Intendency, may issue an Opinion and determine the scope of the regulation about which
[Page 1790]
they had had any doubts.
PRESIDENT HANEFELD: And is this commonly done when such meetings happen and there is significant doubt that then such a legal binding Opinion or Resolution is sought by SUNAT?
Is this common practice, that companies ask for such a binding legal resolution if they have doubts as to certain significant payment obligations?
THE WITNESS: Taxpayers, whenever they have doubts about the scope of a rule, they resort--or at least back then, but now they can do it directly--they resorted through a trade union, and they requested an explanation or more specification about the scope of the rule. And, given that, SUNAT would issue Reports that are binding and public. During the meetings held in any Intendency with any taxpayer, it was part of the attention procedure of the taxpayer and the taxpayers' indicated positions that they may have had, and also the SUNAT basically reflected whatever they said.
But it is not the norm to share a position at that point in time, because SUNAT's position - of
[Page 1791]
the operative entities is expressed through the assessment reports--that is to say, after an audit or verification process. In that moment, the opinion was issued, that was the chance that the taxpayer had to express any comments or concerns in case they don't agree with any assessment SUNAT issued.
PRESIDENT HANEFELD: Then I turn to Claimant to ask further questions. We may come to questions later.
MS. SINISTERRA: Thank you, Madam President.
CROSS-EXAMINATION
BY MS. SINISTERRA:
Q. Good afternoon, Mr. Cruz. As you may recall, my name is Laura Sinisterra, and I represent Claimant, and my duty is to ask you some questions about your Statements.
We will try to speak slowly because of interpretation purposes, but we hope to be specific, given how late it is today.
And the President asked you an important question, so we are going to explore this topic regarding the consultation that Cerro Verde could have
[Page 1792]
or could have not presented.
THE WITNESS: Ok.
Q. Let's be specific. Here we are talking about Article 93 of the Tax Code; correct?
A. Yes.
Q. Article 93 refers to consultations that could be held by means of representative entities. You call them unions; correct?
A. Yes, representative entities or unions.
Q. In March 2005, you had a meeting with Ms. Torreblanca, and you just said that you didn't say one thing or the other. You didn't tell her "you are going to be covered" or not. You did not express an opinion or position in that regard, but you told her or suggested, "Ms. Julia Torreblanca, I recommend you to hold a consultation under Article 93 of the Tax Code."
Did you make that suggestion at that meeting in March 2005 to Ms. Torreblanca?
A. Not that I recall.
Q. And according to Article 93, which we just saw, as you confirm, it would have to be done through
[Page 1793]
associations.
That means Cerro Verde as a company, Cerro Verde directly could not submit a consultation to SUNAT; correct?
A. Yes, that is correct. It's through a representative entity.
Q. And since it's through a representative entity, it's a general inquiry?
A. Correct.
Q. Cerro Verde could not make a specific inquiry into its Contract and its Concentrator; correct?
A. Yes. That's right. That is what the provision says.
PRESIDENT HANEFELD: And the trade union, is it, for example, the Mining Association, or what would be the proper body to make such a request?
THE WITNESS: The Mining Society or some Chamber of Commerce, associations that bring together a group of taxpayers.
BY MS. SINISTERRA:
Q. Now that you mention those two examples, you
[Page 1794]
say that the inquiry could have been made by the National Mining society or the Chamber of Commerce of Lima?
A. For example.
Q. For example, but let's take those two examples.
Do you know how many mining companies are part of the National Mining Society, approximately?
A. No, I have no idea.
Q. About 50?
A. May well be.
Q. And do you know how many members are in the Chamber of Commerce of Lima, more or less?
A. No.
Q. 13,500 members of the Chamber of Commerce of Lima.
These entities represent a variety of interests; correct?
A. Yes. And there was also Chamber of Commerce of Arequipa in Arequipa.
Q. So, it doesn't depend on a taxpayer. These activities don't--it doesn't depend on Cerro Verde for
[Page 1795]
the National Mining Society or the Chamber of commerce to make an inquiry or not. In other words, as I said, it doesn't depend on Cerro Verde that such an inquiry be made.
A. Well, the members can make a petition through the association, and as you can see, over time there are many Reports that the SUNAT has published that are responses to associations who--which were basically questions from one of the members. That was the mechanism.
Q. At the end of the day, it's the association--for example, the Chamber of Commerce of Lima, which has 13,000 members. At the end of the day, it's the association who decides whether or not the inquiry is made. It's not a particular taxpayer; correct?
A. Yes, that's what I've said. It is through an association.
But, just to specify, we understand that the members, precisely as they are part of some organization, well, they are there to be helped as well, right?
[Page 1796]
Q. Yes, but the associations don't have any obligation to engage in inquiries that a taxpayer might request. At the end of the day, it's the association's decision, and they have several members, each member with their--its own interest.
So, at the end of the day, it's the association's decision and not the taxpayers'.
Do we agree?
A. What you had at that time was that option, and, I repeat, over time this was the practice, and SUNAT has published many reports precisely because taxpayers, through the association, would make the inquiry.
Q. But do we agree it doesn't depend exclusively on the taxpayer? Right?
A. Well, very well. Agreed.
Q. We're talking about 2005, Mr. Cruz. We're talking about the time when you met with Julia Torreblanca.
A. That's right.
Q. You are very familiar with the provisions applied by SUNAT, so no doubt you'll know the answer
[Page 1797]
to this question.
In 2005, had Cerro Verde carried out or made the inquiry through an association, and if it agreed to make a general inquiry and if SUNAT had answered that, in 2005, it would not have been binding; correct?
A. If it had answered in 2005? Well, once it's published it becomes binding.
Q. In 2005--according -- and I can be specific--according to Article 94 of the Tax Code, in 2005 those inquiries were not binding. Did you know that?
A. Yes, I recall that.
Q. So, an inquiry in 2005 would not have been binding; correct?
A. Once it was published, it was considered binding by all the operators.
Q. Mr. Cruz, the provision is very clear, and I ask you to be just as clear.
A. I'm telling you what we did in practice. When the National Legal Intendency set a position, that position was considered by us as binding.
Q. According to Article 94 of the Tax Code, an
[Page 1798]
inquiry in 2005, according to the law, was not binding; correct?
A. That is what the law says.
Q. Correct. Thank you.
Nor there was a provision that stipulated the legal term for the SUNAT to answer those inquiries; correct?
I'm talking about 2005. There was no provision setting a maximum time frame for responding; correct?
A. From I recall, there was no such term established.
Q. Thank you very much, Mr. Cruz. It was important to clarify those points.
So, now, I'm going to put some questions to you on your preparation for this Hearing, and I'm going to ask you a couple of questions about the February Hearing, when we already had a conversation, and I'd be happy to show you your answers on the screen. You also have a copy of the Transcript in the binder.
You gave several answers to several
[Page 1799]
questions, and then we're going to go through them together to begin.
A. Okay. Fine.
Q. So, with respect to your preparation for this Hearing, you mentioned that you had read the Statements by Ms. Bedoya. You referred to her as "Gabby," but we all know that you're talking about Ms. Bedoya.
Do you recall that?
A. Are we talking about the previous Hearing?
Q. Yes. Correct.
You confirmed for us at the previous Hearing that you had read the Statements by Ms. Bedoya.
My question is: You have read her Statements; correct?
A. For the first Hearing, yes.
Q. For the first Hearing, yes.
And you told us at that Hearing that--you had received, you said, a file: "They gave me a link to download. From the link, I downloaded the Statements that were there. There were those by Gabby, my own, those of Ms. Torreblanca, those of the
[Page 1800]
Expert that you had sent." And this was for the Second Statement.
Do you recall that?
A. Yes, that's what I said.
Q. Now, that link that you received - I just want to be specific--that link that you received, you said, was for the Second Statement?
A. No. This was after my Statements.
Q. But you filed two. So, I just want to know--
A. It was after the second one.
Q. After the second one, but before the Hearing?
A. Before the Hearing, yes.
Q. Before the Hearing, you received a link that had the Statements of all of the Fact Witnesses.
A. Not all of them. Just some.
Q. Some, including Ms. Bedoya?
A. Yes, Ms. Bedoya's Statements were there.
Q. Do you recall a meeting with the Sidley lawyers at the offices of the Navarro law firm in July 2022 in Lima?
[Page 1801]
A. Yes.
Q. Were you there?
A. Well, I've been to some meeting, but I don't recall the exact date. But I did go to a meeting in San Isidro where I was convened by the lawyers for the defense.
Q. I'm specific about the date because several Witnesses have mentioned it, but I understand that you don't remember the exact date?
A. I don't remember the exact date, but I did attend a meeting there.
Q. Now, I understand that at that meeting, other Witnesses were present, and some joined by videoconference or Zoom.
A. When I was talking with the lawyers, it was just me. Before that, Mr. Camacho had been talking with them. He left and I went in.
Q. And did anyone connect by videoconference?
A. Not that I recall.
Q. In the sessions you had to prepare for the February Hearing, you met three or four times, Ms. Bedoya told us, with her and with the lawyers here
[Page 1802]
in Washington.
Do you remember those meetings?
A. Yes, I do.
Q. And you told us that at that meeting you reviewed the Statements once again, with Ms. Bedoya, with the Sidley lawyers, and with you.
Do you remember those meetings?
A. Yes, I do.
Q. For this Hearing, did you also meet with Ms. Bedoya?
A. No.
Q. You met three or four times before the February Hearing, but you did not meet for this one? What changed?
Why did you no longer want to--well, you met three or four times before the February Hearing. At the February Hearing, we learned about this, and I asked you--and you honestly answered to my questions that, yes, this became a matter of knowledge for all, and now for this Hearing you have not been meeting.
What changed? Why the change?
A. Well, I attended the meetings at the law
[Page 1803]
firm. When I went, there were the lawyers of the firm, and Gabriela was in another room, preparing.
Q. Ok, so you don't know why you met with Gabriela to prepare one Hearing and not for the other.
A. It wasn't to prepare the Hearing. At the meeting, as I mentioned at the last meeting, each person reviewed their own Statement. That was it.
And the lawyers wanted to make sure that we are clear about everything we had said in the event that the Tribunal might seek some clarification of the different elements to be able to clear up any doubts that anyone might have. That was the gist of each meeting.
Q. Yes, but that was done at a meeting where Ms. Bedoya, you, and the lawyers were all physically present; correct?
A. Yes, at one meeting at least.
Q. Did you review your Transcript from last--from the February Hearing?
A. Yes.
Q. What other parts of the Transcript did you review?
[Page 1804]
A. No other. Just my own.
Q. Your own. And did you see the video or audio of any other section?
A. No. None.
Q. I'm pleased to know that you reviewed your Transcript, Mr. Cruz. It might make life easier for both of us, because you must remember what you told me at that Hearing, and, as I said, we're going to review a couple of answers that you gave me, and I'm going to ask whether you confirm or do not confirm your testimony on that occasion.
So, as you'll recall, no doubt, one of the issues that we discussed at that Hearing was: What are the criteria used by SUNAT to determine whether an investment is or is not stabilized under an agreement?
Do you remember that discussion?
A. Yes, I do, but if we could see it, the text of the Transcript, that would be better.
Q. Yes, we are going to take it step by step and we'll see that. I wanted to know if you remember the discussion in general-It was an extensive discussion, but we're going to look at certain of your
[Page 1805]
answers.
So, the first: At the Hearing, I asked you, and you confirmed, that each Stability Agreement stabilizes an Investment Project. Your word was: "Each Contract stabilizes an Investment Project."
I suppose you still agree with that statement; correct?
A. Yes.
Q. And I told you one thing we discussed was that the mining companies, the mining industry, is the second-most capital-intensive industry. Ms. Chappuis said that after aviation, mining is the second-most capital-intensive industry. In other words, mining companies are constantly making investments.
So, I said, well, let's understand, when the mining companies assessed by SUNAT make investments constantly, how does SUNAT know when an investment is or is not covered? And the question that I asked you was: "How does SUNAT know whether an investment was stabilized or not?" And your answer was: "One must analyze several aspects."
Do you maintain that position? One must
[Page 1806]
analyze various aspects in order to know whether or not a given investment is or is not stabilized; correct?
A. What I recall is that you were asking me about an additional investment, not about a Stability Agreement. The Stability Agreement, according to what is established, is the Feasibility Study that determines the scope of stability.
The context of that question was related to some hypotheticals that you put forward, as far as I recall.
Q. Yes, exactly. We are talking about new investments and whether new investments are or are not stabilized and the analysis undertaken by SUNAT, and you said one must analyze several aspects.
It's up on the screen. And I ask if you agree one must analyze several aspects.
Let's look at which aspects we looked at at the Hearing. But the premise you gave me--and I'm simply confirming this--is that one must analyze several aspects; correct?
A. It's just what I was saying, that we started
[Page 1807]
from a hypothetical that you put forward at the previous Hearing.
Q. That's right, in a hypothetical--I did put a hypothetical to you, and I said: "In this case, this new investment, would it be covered or would it not be covered?"
And you told me: "Well, one must always analyze several aspects in order to figure it out."
That's what we're analyzing; agreed?
A. Yes. And that was the response to your question at the previous hearing.
Q. And, as regards that discussion, you said specifically--and, for the record, this is at CE-1138, Page 1666, after Line 22--we will show it up on the screen in just a second.
You said: "In other words, there are several factors on which one can make an investment without it implying that it be outside the scope of the Contract."
We can see it here in English and in Spanish.
At Line 6, you say: "That is, there are
[Page 1808]
several factors about which one can make an investment without it implying that it's outside the Contract."
Do you see that?
A. Yes, I do.
Q. "And so, that means there are investments that," I asked, "that might not be outside the scope of the Contract?"
And you said: "Correct. One must look at it on a case-by-case basis"?
A. Correct.
Q. So, I am confirming your response that one must look at it on a case-by-case basis, but there may be new investments that don't escape the scope of the contract. Those were your words?
A. Yes. In the context at the meeting, it was, for example, if there were a change in machinery--say the machinery was lost because of an act of God. Well, one would change the machinery. Evidently, it was like a new investment, but in fact it was replacing the machinery. In that context, I gave the responses.
Q. Yes, but the words you used were
[Page 1809]
"investment" and that there are new investments that might not be outside the scope of the Agreement.
I'm showing you your words, and I'm simply asking whether you remember and confirm your opinion, and I understand your answer is, yes. Indeed, your answer was: "Yes. It depends on a case-by-case basis."
Yes or no. So, yes, it's yes or no: There are new investments that continue to be covered and there are others that are not covered. That's the position that you explained to us; correct?
A. Yes, but there we're talking about the investment with those already there because Cerro Verde--at the end of the day, the Concentrator investment was another distinct and bigger issue.
Q. Yes. We're not talking about the Cerro Verde Concentrator. We're talking in general terms.
A. Hypothetical with respect to the same plant?
Q. Yes, in a hypothetical, but based, of course, on your understanding of the rules in Perú, the General Mining Law, the Regulation in terms of--to figure out what is stabilized and what's not.
[Page 1810]
So, as you told us, there are several factors that need to be analyzed. There may be investments that are covered. There may be other investments not covered. It depends, case by case, and I asked who performs that analysis. Who determines whether--this investment yes and the other investment no? And you told me the SUNAT auditors in the audit phase; correct?
A. Where there is verification of compliance with the provisions.
Q. And that's the SUNAT auditor?
A. Well, it depends on the scope of the Stability Agreement, and they have to look at what is and what is not stabilized.
Q. That's the SUNAT auditor; correct?
A. The SUNAT auditors do that work.
Q. And to try to nail down what your position is or was, one of the questions I put to you is: To determine whether a new investment is or is not covered, is the amount a relevant criterion?
And you answered: "Yes, the amount is relevant for determining whether an investment is or
[Page 1811]
is not covered."
Do you maintain that position, that the amount is one of the relevant criteria?
A. Yes. That's the same position. The amount--well, if I have an investment for $250 million and there's an investment's expansion with $800 million, then it's clear that it's outside the scope of the Agreement.
Q. Yes, that's what you told me. If it's 850 million, you said that would fall outside. If it's less than 850 million, it's case-by-case or it depends on the amount.
In other words, the amount is a criterion?
A. It is one of the criterion that is analyzed.
Q. So, let's say that the amount is only 1 million. I understand for you, 850 million, the answer is no, but if the amount is just 1 million, it could be covered--that new investment could be covered; correct?
A. As I had said, it's true, if there is a change of machinery, the example I gave you, and it cost a million, then it's likely that it's stabilized.
[Page 1812]
Q. Likely that it's stabilized. Okay.
And let's look at a different hypothetical, a mining company--I'm the one who's asking the questions, not your lawyers, and there's nothing up on the screen yet. I'm going to ask you a hypothetical, and the answer is not on the screen.
I'm just asking you this today, we've seen you say that it's a case-by-case analysis, that there are several factors to be considered, the amount is one of the relevant factors.
So, let me cite an example. Let's talk about Cerro Verde. It presented a Feasibility Study for the Leaching Project; correct?
A. Yes.
Q. And you say that the Leaching Project which was in the Feasibility Study is what was covered by the stability; correct?
A. I didn't understand the question.
Q. Let's talk specifically about the case of Cerro Verde.
Do we agree that Cerro Verde presented a Feasibility Study in 1996?
[Page 1813]
A. Yes.
Q. And Perú's lawyers and you have said that this Feasibility Study was for a Leaching Project, and that the Leaching Project is what is covered or encompassed by the Stability Agreement; correct?
A. The scope of the Agreement is set forth in it. You asked me if I said that. I did not say that. I believe the attorneys as part of the defense have put that forward, but you said that I said that.
Q. Well, let me ask you the question once again, if you will.
Speaking of a hypothetical, you told me, to know whether a new investment is or is not stabilized, one must consider several factors; one must look at it on a case-by-case basis?
A. That's right.
Q. And the amount is one relevant factor, and it's the SUNAT auditor who at the end of the day decides whether or not the investment is covered or not.
We're on the same page; right?
A. Yes, that's right. That's what I said.
[Page 1814]
Q. And now my question is: Let's now bring this down to the case of Cerro Verde. Let's talk specifically about Cerro Verde. You were the Intendant of SUNAT Arequipa at relevant points in time, so let's talk about Cerro Verde.
Cerro Verde was one of the largest taxpayers in Arequipa; correct?
A. It was the major--a major taxpayer in that Intendency.
Q. Yes, in Arequipa.
So, my question: Understanding your answer in a hypothetical case, let's apply it to the case of Cerro Verde.
Cerro Verde presented a Feasibility Study in 1996 for what was called in that Feasibility Study "Leaching Project." It explains that it includes an Investment Program that is approved. The Investment Program is carried out and the Stability Agreement signed in 1998, as it's been described by the lawyers for Perú.
So far we're on the same page?
A. Yes.
[Page 1815]
Q. Now, if Cerro Verde were to build an additional leaching pad related to, tied to the leaching, and its value is, say, $2 million, would that be stabilized or not, in your understanding?
A. It is likely that it is and it's likely that it's not. It depends on what it's used for and all of that.
Q. Well, I'm giving you a specific example: Leaching pad tied to the Leaching Project.
You say it depends, but I'm telling you, according to your understanding--well, let's suppose it's a $2 million investment. Would it be covered or not?
A. If it were outside the scope of the Feasibility Study, then it should not be covered.
Q. But you just told me that there are new investments that could be covered and that you have to look at it on a case-by-case basis, that it depends on several factors, and the amount is one factor?
A. And the use, what the money is for.
Q. Yes. Okay. You said amount is one of the relevant factors; correct?
[Page 1816]
A. Yes.
Q. So, once again, I'm asking you: If a $2 million investment is made related to or associated with the Leaching Project--or let's say it's 1 million that is tied to the Leaching Project.
Might it be or might it not be covered?
MS. DURÁN: Sorry, if I may object.
He just said that that determination is made by the auditors. He was not an auditor in SUNAT. And this is outside the scope of his Witness Statement.
He's a supervisor only. He wasn't involved in any of those facts.
MS. SINISTERRA: Madam President, he was the head of SUNAT Arequipa at relevant times, including when he ordered Ms. Bedoya to prepare the internal report in June 2006.
How is asking him his understanding about the Stability Agreement not relevant or outside the scope of his Witness Statement? I'm not sure--I'm quite puzzled, once again, by your objection, Counsel.
MS. DURÁN: I'm just saying, he specified that that determination is made specifically by the
[Page 1817]
auditors. He may be the head of the whole SUNAT of Arequipa, but, of course, he did not make those determinations by himself, and that was outside the scope of his functions. He did not participate in the audits.
MS. SINISTERRA: Is your position that the understanding of the Head of Arequipa, SUNAT, about the scope of Stability Agreements is not relevant?
Is that what you're saying, Counsel?
MS. DURÁN: It's outside the scope of his role as a head of SUNAT and also outside the scope of his Witness Statement, which is against Section 19.7.3 of Procedural Order Number 1, which was the duplicated in Procedural Order 4.
PRESIDENT HANEFELD: Understood. But on the other hand, if you understand it correctly, it was you who asked Ms. Bedoya to establish this 2006 Report; is that correct?
THE WITNESS: Yes. In 2006 I charged a group of persons with performing an analysis of the scope of the Cerro Verde Agreement, this in relation to Royalties to be paid by the new Concentrator Plant.
[Page 1818]
PRESIDENT HANEFELD: So, I think it is now really fair to establish the factual basis of the witness knowledge on everything related to this issue in March 2005 and mid-2006.
So, please go ahead.
MS. SINISTERRA: Thank you, Madam President.
BY MS. SINISTERRA:
Q. Sorry for the interruption, Mr. Cruz.
So, let me ask you the question once again.
It is very simple.
You told us and in your Statements you say that you clearly understand SUNAT's position regarding the scope of the Stability Agreement, and you told us that it was the Leaching Project included in the Feasibility Study, and I want to understand what that means. If there's an investment of just $1 million, according to SUNAT, according to your understanding, could that or would it not be covered by the Agreement?
A. It might not be covered by the Agreement.
Q. But would it or would it not be?
A. What would the usage be?
[Page 1819]
Q. For a leaching pad.
A. What does that imply?
Q. That the leaching process would be more efficient, among other things.
A. Is it just to change the machinery? What aspects?
Q. Well, let's say, yes, but--
What I see is that it depends on a case-by-case basis.
It is not a clear-cut yes or no but, rather, it needs to be analyzed, and, perhaps, because of that you said one needs to analyze it on a case-by-case basis. It's not absolute. You cannot tell me: Definitely yes or Definitely no.
The auditor or the respective person has to step in and examine it?
A. That's right.
Q. To be able to say yes or no.
A. Yes, but there is always the basis of the agreement--the basis of a Feasibility Study. That's the basis for the auditor's evaluation.
Q. Yes, SUNAT has to bear in mind the Stability
[Page 1820]
Agreement, the General Mining Laws, the Regulation, no doubt.
But once, once again, Mr. Cruz, your answer is not clear-cut. It's not a definitive yes or a definitive no. You have to look at it on a case-by-case basis; correct?
A. Yes.
Q. Yes. Thank you. I wanted to have your position clear.
Next question: Would you be surprised if I told you, no, Mr. Cruz, the position is wrong. The right position of SUNAT is that no new investment can ever be covered ever?
Would you be surprised if I told you that according to what we just discussed?
A. There was a SUNAT position in that regard in connection with what the Stability Contract covered.
Q. Here, we are talking about your understanding. You were the Regional Intendent of Arequipa, and you asked for a report in June 2006. We are interested in knowing your understanding. You met with Julia Torreblanca in 2005. We want to know your
[Page 1821]
understanding at the time.
A. When? What time? '05-'06?
Q. Yes, '05, '06.
A. When I asked for a report to be prepared in connection with the scope of the Contract, I was indicating that I needed more knowledge than I had in order to have clear the position of the Intendency and the time the Intendency had to act. If things had been very clear in my mind, I wouldn't have had to set up this Working Group.
ARBITRATOR TAWIL: So, the situation was not clear in 2006?
THE WITNESS: Well, when the Royalties Law was enacted in 2004, there were some situations in which the role of SUNAT wasn't clearly established, whether SUNAT was going to be able to assess or not assess.
In 2005, as far as I can recall, the issue was that SUNAT was only going to receive the payment. SUNAT was going to be able to conduct audits, and then, by law, SUNAT is empowered to audit taxes. So, was a royalty a tax or not? That was a discussion at
[Page 1822]
the time. That is why in 2007, only in 2007, SUNAT is given the authority to audit contributions.
That is what the issue was at the time, from a timeline viewpoint.
BY MS. SINISTERRA:
Q. Mr. Cruz, just to clarify the question posed by Mr. Tawil, you mentioned 2007, but we are interested in 2005 and 2006. In '05 and '06, your testimony is that the position of SUNAT was not absolutely clear as to which new investments could or could not be covered under a Stability Agreement.
It wasn't crystal clear at that time; right?
A. SUNAT's position was established in 2002 with a report prepared by a taxpayer related to mining through a representative association, and an answer had been provided and the issue of FONAVI came up, and I think things were clarified what was stabilized, the investment amount.
Q. You said something different, Mr. Cruz. And this reminds me--
A. Excuse me, ma'am. You're talking about my understanding back then.
[Page 1823]
Q. I'm talking about '05 and '06.
A. Yes. Okay. '05-'06, at that time. Just to provide context here, I've been a Regional Intendent in Arequipa since 2004. I worked in other offices, where taxpayers had no Stability Agreement where I was working before. So, this was a new issue for me.
So, all of this is part of the learning process at the time. That is why what we're talking about--we're talking about my understanding. We're talking about my experience at the time.
Q. I want to go back to the transcript where you say here on the Transcript when you were asked why did you ask for the preparation of that internal report in mid-2006, you said: Obviously, if I had had things so clear in my mind, I wouldn't have done that. I wouldn't have set up that Working Group to look at Cerro Verde.
Mr. Cruz, we ask you to be honest, be precise in your answer. In 2005-2006, my understanding is that it wasn't absolutely clear, which was the understanding--your understanding, at least--in connection with the Stability Agreement or
[Page 1824]
the scope of new investments; correct?
A. For me?
Q. For you?
A. At the time, probably not.
Q. Okay. Probably not. It wasn't clear?
A. Not totally clear.
Q. Okay. Not totally clear, sir.
Mr. Cruz, thank you for your honesty. It wasn't totally clear at the time.
If I tell you that the position of SUNAT in 2005 or 2006 of Arequipa, the position of SUNAT in Arequipa was that the Stability Agreements only cover the amount in the Investment Program. In the case of Cerro Verde was 237 million. According to SUNAT, Arequipa in 2005 and '06, Stability Agreements only covered 237 million and not $1 more, not a truck more or a dollar more.
The understanding there--I understand your answer would be, no, it wasn't clear. You, as an intendent of Arequipa, you were looking at that and you were saying that, no, it wasn't clear?
A. Yes, that's what I was saying. It was clear
[Page 1825]
for SUNAT, and it was clear for--
Q. But you were the Regional Intendent of Arequipa. You said that it wasn't clear for you. It wasn't clear for you, you said.
As a Regional Intendent of Arequipa, you were the highest authority in Arequipa--you said in '05 and '06 things weren't clear; correct?
A. Well, I explained the context, and I was looking at the issues.
Q. Correct.
A. Yes, but what you were saying is that the position of SUNAT was clear, and the taxpayer knew this as well.
Q. Sir, we're going to talk about the taxpayer next. It is very important here to understand what the position of SUNAT Arequipa was. There are a number of contradictions, and when we had a similar discussion in February, the President of that Tribunal asked you: "Mr. Cruz, your answers are fluffy. It's not this. It's not this either. So we are trying to understand."
Okay. You said this, and it's on the record
[Page 1826]
that you were the highest authority of SUNAT Arequipa, and these things were not clear in your mind in '05 and '06?
MS. DURÁN: Claimant's Counsel is, again, testifying, and she's not asking any questions of the Witness.
PRESIDENT HANEFELD: Can you rephrase your question and ask the question?
MS. SINISTERRA: Absolutely, Madam President.
BY MS. SINISTERRA:
Q. Mr. Cruz, if the position was not completely clear for you at the time, well, why is it that you said in your Witness Statement--and we can show it to you on the screen--you just said your position was not absolutely clear. But in your Witness Statement you say that the position of Perú and your position has always been-you used the word "always," it has always been that Stability Agreements only cover the initial Investment Project included in the Feasibility Study. Always.
MS. DURÁN: What exactly are you talking
[Page 1827]
about? She said Witness Statement, so...
BY MS. SINISTERRA:
Q. It is in his Witness Statement, but we are just going to refer to the Transcript, given it's up on the screen.
MS. DURÁN: No, you just read his Witness Statement, so you can point him to what paragraph you're reading.
BY MS. SINISTERRA:
Q. I'm going to restate my question, Mr. Cruz. We have a document here on the screen.
At the Hearing, the February Hearing, you told us the position of Perú has always been that the Stability Agreements only cover the initial Investment Project included in the Feasibility Study.
You used the word "always." A moment ago you just said that, you, as the highest authority of SUNAT Arequipa in '05 and '06--you did not have these things clear in your mind.
What's it's going to be, Mr. Cruz, at the end?
(Overlapping interpretation and speakers.)
[Page 1828]
A. Could you please go back?
MS. DURÁN: If I may point out. You are reading, you are reading from your question.
BY MS. SINISTERRA:
MS. SINISTERRA: And his response was "correcto, sí."
BY MS. SINISTERRA:
Q. Mr. Cruz, sir, apparently there's a confusion here because we have heard every day a different version as to what a Stability Agreement covers and what it doesn't cover. We are trying to understand. A few moments ago you said honestly that in '05 and '60 you did not have a clear position and that is why you set up a Working Group and you asked that a report be prepared on Cerro Verde. But in February, two months ago, you said that the position had always been clear.
Which one is it? What you said in February or what you are saying now, Mr. Cruz? What is the position that you maintain?
A. I'm just trying to understand the full context of the question, but from what I recall, you
[Page 1829]
were making reference to what Mrs. Bedoya was saying. And you said that I had said that the position of Perú had been that "always," but from what I recall, I was saying that it hasn't been like that for the whole time, but it has been like that ever since I gained knowledge of that. That was the context of the question I was answering.
Q. So, the position of SUNAT has not always been that?
A. Well, what I have told you, from the time the Report was published, then that is the time in which the position was established by SUNAT, the position of SUNAT. You were asking there about the position of SUNAT.
Q. So when you said "always" here, "always" is wrong here. In your experience as the highest authority of SUNAT Arequipa, it is erroneous to say that the position had always been clear in connection with the scope of the Stability Agreement; correct?
A. As I said, ever since SUNAT ruled on the matter in 2002, SUNAT had a position on the matter. If you're asking my understanding of the thing at the
[Page 1830]
time as an intendent, that's how I understood things. And then the auditors cleared up the situation in the Working Group.
Q. Again, Mr. Cruz, you said a moment ago that your position was not clear. In February you said that it had always been clear.
I want to know which one of these two is the correct one.
A. What I am telling you is that in 2002, the position of SUNAT was clear. In my understanding--you have asked me about my understanding at the time. My understanding at the time was not crystal clear to me, and that is why I ordered an evaluation by the specialists from the Intendency.
Q. Let us try and understand this testimony. You were telling me now that from 2002, things were clear; is that correct?
A. Again, since the Report was published, SUNAT's position was that one.
Q. You're talking about the 2002 Report?
A. Yes. Since that time--
Q. What is that time, sir?
[Page 1831]
A. Well, formally there is an official position of SUNAT.
Q. What time?
A. After the 2002 Report.
Q. Why did you say a few moments ago then that in 2006, you set up a Working Group to look at the Cerro Verde Case because it wasn't clear?
A. You were asking me about my understanding, my understanding at the time. I am answering about my understanding at the time.
Q. You were the highest authority of SUNAT Arequipa.
A. I was a Regional Intendent, but I am not the specialist in Income Tax or other taxes. I managed all of the office in connection with performance. I had teams that were specialists in connection with Assessments. I don't make the determinations. I'm not the one who audits a taxpayer. I have never done it so far.
Q. So, if for the highest authority of SUNAT Arequipa the issue was not clear, how could it be clear for the taxpayers?
[Page 1832]
A. Because SUNAT had already published this.
Q. But for the highest authority for SUNAT Arequipa, you, it wasn't clear for you.
How could this be clear for a taxpayer, Mr. Cruz?
A. Let us go back to this issue of understanding. The word highest authority, Madam President, well, that's a hierarchy in a regional office. SUNAT is a national agency. It has a superintendent, and it has National intendency offices, and then you have under those the Regional Intendent's Office. I managed an Intendent's office, and we managed objectives. We had centralized--and decentralized audit plans, and we managed things in order to see things done. But I am not a specialist in Income Tax. I do not conduct determinations.
There are teams that are dedicated to that, there are audit teams with specialized auditors, and there are teams made up in accordance with the different sectors. That is how an Intendency works. As, I repeat, I arrived at Arequipa in 2004. I came from the Regional Intendency Tacna. I had no
[Page 1833]
taxpayers with Stability Contracts.
This issue was new to me. So, what we did is, well, we set up teams. What the taxpayer is guaranteed is that the auditor conducting the audit is specialized, and it's a suitable person in whatever it is that is done. It is not that I conducted the audits or that I assessed the taxes.
Q. So I cannot say "highest authority of the Arequipa office." I can call you Regional Intendency of Arequipa?
A. Yes.
Q. Okay. Regional Intendent of Arequipa. You said it wasn't clear but there was a 2002 Report that established the position of SUNAT.
When you met with Mr. Torreblanca in March 2005, why didn't you just tell her: "Julia, refer to the 2002 Report. The position that you're saying that the Concentrator is going to be covered, that's not clear to me. Why don't you go look at 2002 Report?"
Why didn't you just ask her to look at the 2002 Report if SUNAT's position were so clear?
[Page 1834]
A. I do not recall that a mention was made of the Concentrator at the meeting.
Q. In that meeting--We can go back to the documents. In that meeting--and you had made this clear before.
A. Royalties was discussed, not Concentrator.
Q. Well, yes, if Cerro Verde was going to pay Royalties or not. Correct?
A. Well, but let's look at the context, 2005--
Q. But let me ask you an easier question.
A. Excuse me, ma'am. I think timelines are important.
In 2005 when the meeting was held, Cerro Verde sent a letter saying that they were not going to pay the Royalties because they were covered under the Stability Agreement. That is the answer by Cerro Verde to that initial communication that was mentioned at the beginning of the Hearing.
At the time, Cerro Verde was sent a payment schedule for 2005. And it was related to Royalties for 2004 and 2005, and then Cerro Verde said: "We're not going to pay."
[Page 1835]
Cerro Verde has not paid so far for those years. It hasn't paid Royalties. The Royalties were assessed for Cerro Verde when the Concentrator Plant started production, and then in 2005, there was no Concentrator Plant. So, we are talking about a point in time, and the lawyer infers that I should have told Torreblanca that she should have looked at--
Q. Well, my question is different.
Did you mention to Ms. Torreblanca at the meeting the 2002 Report?
A. No.
Q. We're going to talk about that meeting further. Perhaps, we can put on the screen the document behind Tab 3. This is the Transcript of the February Hearing, CE-1138. 1711 is the page, Line 21, or thereabouts.
At that Hearing something similar happened. It was a bit disconcerting to try to understand the position, and the President of that Tribunal asked you a question that I wanted to look. President Blanch asked you: "Were you given then some guidelines in writing to SUNAT, or were there internal guidelines
[Page 1836]
that SUNAT had to help determine if the nature of the Contract was distorted or not? If there is a new investment, is it included? Is it not included? Does it distort the Contract? Are there guidelines, written guidelines to SUNAT?"
Your answer is that: "No, there were no guidelines."
Do you maintain that testimony that there were no guidelines to help an auditor with this confusion or with this lack of certainty that you've described? Was there any guidelines, any written guideline for the auditors to know how to analyze this issue?
A. Well, the question doesn't really say whether these guidelines were given to the auditors. It talks about guidelines to SUNAT. If SUNAT was given guidelines, and I said, no, SUNAT was given no guidelines.
Q. Again, CE-1138, 1711, 21. And you are saying, no, SUNAT had no guidelines written, no written guidelines to have an auditor to determine in a specific case if an investment was or was not
[Page 1837]
covered.
A. The answer to my question is in a different context. If the Ministry of Energy and Mines establishes the guidelines for SUNAT, well, that is the context of that question. That's how I understood it, and that's why I answered it in that way.
Q. Sir, you were the Regional Intendent of Arequipa at that time. Did you ever see guidelines, written guidelines to help an auditor to understand this situation specifying whether a new investment was or was not covered? Did you ever see guidelines such as this that were written? Yes or no.
A. All of the auditors have at hand the internal regulations and the regulations related to the cases that they are auditing. So, if there was a report by Legal, they would have access to it. They would have had access to it, internal inquiries as well. That is the way in which the SUNAT acted.
Q. Apart from the Regulations that there were no specific guidelines?
A. Well, yes, the Legal Reports that are taken into account. When an auditor examines everything,
[Page 1838]
even, the Decisions from the Tax Tribunal, that is background information to look at the criteria there and to know whether positions are maintained or not.
Q. Mr. Cruz, I don't know if you are hearing the translation. I have to let the translation end. This is not an invitation for you to continue your statement.
I like specific questions. Ms. Blanch asked you in February because we were having a similar discussion and it was difficult to understand things, and she asked where there written guidelines to SUNAT? And you're saying, we have a law. There are reports, inquiries, the Decision of the Fiscal Tribunal, but there are no specific guidelines that would help an auditor to determine if a new investment is or is not covered; right?
A. Express guidelines on the case that you are putting forth? No.
Q. Thank you, Mr. Cruz.
We're going to talk about this meeting with Ms. Torreblanca again. It's an important meeting. In February 2005--and Counsel for Respondent asked you
[Page 1839]
about this--SUNAT Arequipa sent a communication to all of the mining companies, including Cerro Verde, in connection with the Mining Royalties.
You're saying this was a general communication with general instructions, but you signed this and you sent this to the mining companies; correct?
A. Yes.
Q. And Cerro Verde answered this specific communication, and we can show it to you, but in that communication, Cerro Verde said: "I am not obligated to pay Royalties because I have a Stability Agreement"; correct?
A. Can we look at it?
Q. Yes, of course.
It's CE-486.
It's a communication from 4 March 2005.
MS. DURÁN: Which tab?
BY MS. SINISTERRA:
Q. It is Tab 5, Mr. Cruz.
Do you recall this letter?
We also talked about it in February.
[Page 1840]
A. Yes. Mention is made here that if they have to pay Royalties, they have to submit a return on the basis of the letter that was sent.
Q. It's not that visible but I'm going to read the last paragraph, if you want.
A. I was reading the first paragraph, ma'am.
Q. I'm going to read you the last paragraph.
It says: "In connection with all of the above, we respectfully inform you that Cerro Verde is not subject to the obligation to file any return or make payments related to the Mining Royalty approved by law."
Okay. So you sent a communication to all mining companies on the basis of the Mining Royalty, and Cerro Verde says: "I am not obligated to make payments or make any returns in connection with the Mining Royalty."
In your Statement and at the Hearing, you confirmed that you received this letter; correct?
A. Correct.
Q. And so I was clear, for you, in March 2005 that at least in the judgment of Cerro Verde, Cerro
[Page 1841]
Verde had to pay no Royalties.
A. That is what they said, and SUNAT didn't assess Royalties for 2005.
Q. But the position of Cerro Verde, you knew, and you knew it in March 2005?
A. In 2005 they said that they were not going to pay Royalties, and SUNAT didn't assess Royalties for that period.
Q. To be precise, they said they were not subject to the obligation.
A. During that time. Perhaps, there is an obligation one year, and there is no obligation in another year.
Q. SUNAT never replied in writing to this letter of Cerro Verde?
A. No, there was no reason to reply. They said they were not going to pay and they didn't pay.
Q. So, no response was provided by SUNAT. So, a few days after this letter was sent by Cerro Verde saying Cerro Verde is not subject to the obligation to pay Royalties, you and Ms. Julia Torreblanca met; is that correct?
[Page 1842]
A. Yes. There was a meeting with the representatives of Cerro Verde.
Q. As you well say in your Statement at that meeting, Ms. Torreblanca said, again to you, what this letter says, that Cerro Verde is not subject to the payment of Royalties; correct?
A. That is what I recall, yes. That was basically the tenor of the conversation.
PRESIDENT HANEFELD: Mr. Cruz, did she expressly say to you "and this applies specifically also for the Concentrator when the construction is ready in two years," or did she just broadly state that Cerro Verde would not pay Royalties?
How specific was it related to the Concentrator, the conversation in your recollection?
THE WITNESS: There was nothing related to the Concentrator. Mention was made of Royalties that had been approved at that point in time generally.
ARBITRATOR TAWIL: And you knew that the Concentrator was being built?
THE WITNESS: At the time, yes, I did know about that. Yes, I did.
[Page 1843]
PRESIDENT HANEFELD: And how did you prepare for another meeting? So, you joined in the region in 2004, and then you had received this letter of 1st of March 2005. So, you were aware that Royalties for one of your biggest taxpayers is an issue, so how did you prepare for the meeting?
What did you review, or did you not prepare?
I just wanted to understand what is behind the letter?
What was the meeting about?
THE WITNESS: If we're trying to understand this letter, this letter was a general communication. It was only for informational purposes. The letter was not saying: "You have to pay Royalties." It reminds the taxpayer that, if payment is made, this is the schedule.
Now, for the meeting, what we usually do is we listen to the position of the taxpayer, but no decision is going to be made at the meeting. Then what we do is we talk to the heads of division that work with me, and then you listen to the position of the taxpayers, but no determination is made on the inquiry. You just go there; you listen to the
[Page 1844]
position of a taxpayer in connection with a given subject. It is not that we will answer the inquiry directly there.
My opinion was not binding. Hypothetically speaking, if I had said "no" or "yes," and the auditor later on goes in and examines things, the auditor can determine something different from what I have said.
So that is why when SUNAT formally rules on things, it does so after the audit of the determination.
So, you ask for general background, and then you work with your support team at the Office of the Intendants. That's how things happened.
PRESIDENT HANEFELD: But, more specifically, and at this very meeting and not yet about how you responded, but what the questions were that were posed and discussed.
Again, not were the payment of Royalties for the Concentrator, when ultimately ready to produce in two years, was this an issue or was a royalty as a general topic an issue, or was royalty for the Leaching Facility an issue?
What was the topic of this meeting as
[Page 1845]
Ms. Torreblanca explained it to you in the meeting?
THE WITNESS: The meeting took place because the Royalty Law had been published in 2004 and also because of the communication that they received, they understood that they were not going to pay. So, it was about whether or not they were going to pay royalties. They said they were covered, but, in particular, nothing was said about the new construction, the Concentrator.
It was a topic about a position they had that they were shielded from the Royalties. That was basically the tenor of the discussion, or, rather, what the company told us. Once again, we take note, and whenever there is a verification process, this is analyzed in further detail. And in this case, this was taking us background information.
ARBITRATOR TAWIL: However, I don't think I understand the situation very well. Were you by yourself at the meeting with Ms. Torreblanca...?
THE WITNESS: No.
ARBITRATOR TAWIL: You were with part of your team?
[Page 1846]
THE WITNESS: Yes.
ARBITRATOR TAWIL: You said that SUNAT's position was clear as of 2002. Part of your team of technical in nature. So you just said that you knew that they were building the Concentrator, and I imagine that, for Arequipa, it was a very extremely important plant?
THE WITNESS: Yes.
ARBITRATOR TAWIL: So how could it be that at a meeting where your team is attendance, the situation is clear to the team in 2002. You know that the Concentrator has been built and you go there, and you they tell you: "We're not going to pay Royalties," and you kept quiet and didn't say anything. You didn't say: "But what's going on with the Concentrator?" Nothing. You didn't even refer to this?
THE WITNESS: No.
ARBITRATOR TAWIL: Was it just a protocol- based meeting? What was it?
THE WITNESS: But we need to have a clear idea of the timing.
[Page 1847]
ARBITRATOR TAWIL: But clearly the obligation was not accrued. It was not in production, but you knew that the Concentrator was there, and apparently you had a clear position as of 2002.
So, how could it be that during that meeting the topic didn't come up? "Look, you have the Concentrator."
THE WITNESS: Let me go back to what I said and the topics that were being discussed. The topics were unclear, if SUNAT was going to determine or not--in 2004, when the law was approved, it wasn't clear. There is a big discussion as to whether SUNAT had the mandate for the Assessments. And this was with another law of that was modified in 2007.
ARBITRATOR TAWIL: But the meeting was held in 2005. Because our discussion here also has to do with 2004. So, in 2005, wasn't it clear whether it was going to be assessed or not?
THE WITNESS: Whether SUNAT was going to assess Royalties? No, it wasn't clear.
PRESIDENT HANEFELD: But then let us move a little bit in time. What happened in
[Page 1848]
between--according what you can recollect--between this March 2005 meeting and the point in time in mid-2006 where you requested Ms. Bedoya to establish this SUNAT report on royalties on the Concentrator Plant? It's a long time period.
Were there any further discussions or any instructions from MINEM on this point? So what happened in between these two points in time?
THE WITNESS: After 2005, in 2005 we requested information in connection with the Cerro Verde suppliers. We wanted to make an audit plan at a local level, and we wanted to see the providers that were included as part of those who provided Cerro Verde for our auditing plan.
In 2006, we heard by the end of the year the Concentrator will start production. That was in 2006. So we started to look at the scope as to whether Cerro Verde was already covered by the Contract. I ordered to the Chief of the Division, and said: "Put together a team, and I want to have some clarity." I, rather, asked the Chief of the Division--not myself. I asked the Division Chief to put together a team to analyze
[Page 1849]
the situation and, also, depending on the result, we'd prepare the teams to be able to act properly.
And based on this, I met with the Division Chief to get a team put together and get a report on the subject matter.
PRESIDENT HANEFELD: And just to better understand, was the report due to an additional or further or specific request of Ms. Torreblanca or Cerro Verde relating specifically now to the payment of Royalties for the Concentrator, or was it just prompted because you knew the Concentrator was about to be completed so that topic would arise?
THE WITNESS: Your second option, the latter.
So, this was close to finishing the construction of the Concentrator, and it was going to be operational in the short term, we needed to have a clear idea as to the new investments, issues surrounding the new investment.
PRESIDENT HANEFELD: And when this Report was finally issued by Ms. Bedoya, were there any remaining controversies or uncertainties with regard
[Page 1850]
to the correctness of this Report, or was it just the clarity that everyone accepted as being the final clarity of the issue?
THE WITNESS: The Report was drafted by a team of workers, and it was a position that was being developed, and it also allowed us to better understand the stabilization of the Contract and whether the Concentrator was included or not, and that was the topic of the Report.
PRESIDENT HANEFELD: And as you may know, and now serious concerns of due process have been raised here in these proceedings by Claimant.
So, according to your practice, was it a normal, regular thing to do to put up a team to establish such a report, or was it an extraordinary thing to do when the Concentrator Project was about to be completed?
Was it standard practice, or was it an exceptional measure of yours to let this Report be established?
THE WITNESS: Usually when there is such a controversial issue, this is done, but it is not usual
[Page 1851]
to have a report for each case. But in some cases, one has the ability to ask a group of workers to draft a report as to the understanding of the Regulatory Application that has taken place.
PRESIDENT HANEFELD: And you just said it was such a controversial issue. Why was it so controversial at this time, from your point of view?
I had asked, had Cerro Verde specifically put up this topic again, or why was it, for you, such a controversial topic?
THE WITNESS: It was controversial because there was an initial comment that they were covered by the Stability Contract, and they just wanted to have the certainty that that was the case.
PRESIDENT HANEFELD: So, at that point in time, you considered the letter of the 4th of March, which expressed the general refusal of Cerro Verde to pay Royalties, to also address specifically the Royalties for the Concentrator, and, therefore, you wanted now internal insurance within SUNAT that it was not covered, or what was your testimony?
THE WITNESS: Cerro Verde had sent a letter
[Page 1852]
stating their position, and since it was close to having the Concentrator operational, we wanted to have the certainty--they wanted to have the certainty whether the Contract also covered the Concentrator.
So, I instructed for a team to be put together to have some clarity around this.
PRESIDENT HANEFELD: So, it was they--it was Cerro Verde who wanted this certainty and asked for certainty, and asked for certainty?
THE WITNESS: No, we needed the certainty.
ARBITRATOR CREMADES: Is it normal for a taxpayer to tell SUNAT: "I am not going to pay a royalty?"
THE WITNESS: The taxpayer at the end of the day expresses their acts through its own returns. So, the taxpayers have their obligations in the law, and based on that regulatory interpretation, they present their interpretation, and SUNAT later on carries out an audit to determine that will happen or not.
It is not that a taxpayer may say ahead of time, "I am going to pay or not." It doesn't exist like that. The obligation is there for the taxpayer
[Page 1853]
to state how much to pay, and then SUNAT conducts a random verification.
ARBITRATOR CREMADES: Let's say that there is a taxpayer, and the lawyer--and it is a lawyer, that taxpayer. And that taxpayer tells you: "I am not going to pay taxes in Arequipa." Is this acceptable?
THE WITNESS: No, no one says that they are not going to pay taxes. They are not going to send a letter saying they were not going to pay taxes. There is an obligation to present a return on a monthly basis. So, if the monthly tax return is not presented, and SUNAT, as part of the verification, determines that the taxpayer had to present a tax return but they didn't do it, then SUNAT will let that person know that there is a violation.
ARBITRATOR CREMADES: So, basically, once the Concentrator starts producing, you tell Cerro Verde: "Okay. It's up to if you do not present the returns and don't pay"?
THE WITNESS: Yes. That's the procedure. The return is the act which initiates the
[Page 1854]
verification, if the taxpayer is complying with their tax obligations.
ARBITRATOR CREMADES: In the meantime, you study the situation, and you have no reason to communicate the taxpayer, your studies on coverage or not. You just wait for the taxpayer to present the tax return whenever it is due because the Concentrator would be operational.
THE WITNESS: That's the way the Administration worked. They verify after the recent taxpayer's obligation is generated. Otherwise, there is no--they do not tell the taxpayer you have to pay such and such a tax.
ARBITRATOR CREMADES: Sorry. You do not tell them you need to pay? So, at the end of the day you are not there to write reports. You just wait for the taxpayer to present the tax return?
THE WITNESS: Yes. Out of the set of tax return presented, an analysis is conducted to determine who will be audited and who will not, and whoever has not presented their tax return, we notified them so they regularize their situation.
[Page 1855]
ARBITRATOR CREMADES: Now, changing scenarios, we heard a lot about the intervention of Congress member such as Diez Canseco and other noises that took place in Arequipa.
Did you suffer any of the impacts of this?
THE WITNESS: Well, we have a large team that is independent, and I have been the Intendent in Arequipa in 2006, 2008, and I did not receive--2004, 2008. I did not receive any situation in which a Congressperson telling me what to do. And I would have paid no attention to that, if that happened because we just follow the laws, the legislation on taxes. And as to my actions and my practice at SUNAT, I have never received an indication by any other person to indicate that to do something that is not.
ARBITRATOR CREMADES: What would have happened if Cerro Verde said, if you do not give me the coverage--if they said this before 2004: "If you don't give me coverage, I will not invest"? The President of the Republic also says that this was a highly important investment.
THE WITNESS: SUNAT only sees contracts as
[Page 1856]
signed. SUNAT does not participate in the negotiations.
ARBITRATOR CREMADES: So you are there after MINEM has already negotiated? You are just there from the tax point of view?
THE WITNESS: Yes.
ARBITRATOR CREMADES: So implement the legislation from the point of view of taxes?
THE WITNESS: Correct.
ARBITRATOR CREMADES: Thank you very much.
MS. DURÁN: If you allow me.
MS. SINISTERRA: I have not concluded my cross-examination.
MS. DURÁN: No, I just want to correct something on the translation that is not reflected in the Transcript.
In response to Arbitrator Cremades' question, Mr. Cruz answered regarding Congressman Canseco, Mr. Cruz answered in Spanish, "in absoluto," and he gave the explanation. The "in absoluto" was not translated and is not reflected in the Transcript.
So I'm just making the marker so it needs to be
[Page 1857]
corrected.
In English, it is Line 68:20, which is missing the translation; and in Spanish it is 57:19.
PRESIDENT HANEFELD: This is noted. Please go ahead.
MS. SINISTERRA: Thank you, Madam President.
BY MS. SINISTERRA:
Q. Mr. Cruz, you just had a very important exchange with the Tribunal. We are going to review some of the topics arising from the questions by the Tribunal, and we are going to look at the documents on the record.
First, this letter. We are looking at this letter. That is the letter sent by Julia Torreblanca to address your communication to the mining companies addressing their Royalties, and we see the last paragraph that reads: "Given all of the above, we respectfully communicate Cerro Verde is not bound to present any return in connection with the Royalties, or payments made for Royalties."
Now, let's look what it means "given all of the above." Let us look at Paragraph 2 of that
[Page 1858]
letter.
MS. DURÁN: Can you remind us which tab it is on, please?
MS. SINISTERRA: Again, for the record, this is CE-486, Exhibit 486. This is at Tab 5.
BY MS. SINISTERRA:
Q. Let us see the above-mentioned.
Here Cerro Verde is clearly telling that they are hereby indicating that "the date of February 13, 1998, as the date that Cerro Verde signed an agreement of guarantees and Investment Promotion Measures with the Peruvian State by virtue of which it obtained various Stability Guarantees, including those related to tax and administrative regime."
Do you see that?
A. Yes
Q. In two paragraphs below, it says: "Given the aforementioned, we let you know that Cerro Verde is not bound to pay the Mining Royalty." They are clearly talking about the Stability Contract. They mention that in the letter. Correct?
A. Yes
[Page 1859]
Q. Now, let us see what was written in this statement that is in the First Statement, Paragraph 17, your First Statement, Paragraph 17. Let us look at Paragraph 17. There you state: "After receiving the letter from Cerro Verde of March 4, 2005, I met with Ms. Julia Torreblanca at her request. Ms. Torreblanca requested this meeting for the purpose of discussing the scope of the Stabilization Agreement and reiterating her position that Cerro Verde was not subject to the payment of Mining Royalties."
It was clear from the meeting held with Julia Torreblanca on March 4, 2005, that Cerro Verde told you they were not bound, they were not bound by the payment of the Royalties, given their Stability Contract.
Is this correct?
A. Yes, that is what was said.
Q. You told us twice today here, and you also said it in February, that you knew at that point--in time in March 2005, you knew that Cerro Verde had just started investment. They were going to have an investment on the Concentrator that was very important
[Page 1860]
for Arequipa.
You knew of that Concentrator; correct?
A. Yes.
Q. Now, let's make it clear for the record.
In March 2005, you did not tell Ms. Julia Torreblanca the Contract does not cover a new investment? You did not tell her?
A. She didn't ask me.
Q. You didn't tell her?
A. She didn't ask; I didn't say.
Q. At that point in time, they were starting to build the Concentrator. If you had told her, Ms. Torreblanca--
A. Let me insist on something. SUNAT does not have any obligation to tell the taxpayer what the obligations are. The obligations are stated under the law. That's where each taxpayer finally makes their own assessment and return. That is a concept. It is not that SUNAT has to tell a taxpayer what they have to do or not.
Q. Is that your position? So that's your position, I think. So clearly we are talking about
[Page 1861]
the fact, but at that point in time, it is very clear you never said it to her?
A. I had no reason to tell her.
Q. Now, we are going to look at the Report of 2006, the internal report. For the record, this is RE-179. We are going to read the title of this internal report that you asked Ms. Bedoya and Mr. Guillén to prepare.
This is a report on the "Application of the Contract of Guarantees and Measures for the Promotion of Investments in the Mining Royalty with respect to the expansion of Cerro Verde's Current Operations, Primary Sulfides Project."
It is very specific, and now we are going to look at Page 4 of this Report.
MS. DURÁN: Which tab?
MS. SINISTERRA: I believe we don't have a printed copy in his binder, Madam President. But it's on the screen, and, if needed, we will print it out.
PRESIDENT HANEFELD: I have a printed version. I don't need it.
MS. DURÁN: Well, the witness might need it
[Page 1862]
printed out.
MR. RIVERA: We will get him one.
MS. SINISTERRA: This is a clean copy. So,
this is a copy that has the underlined paragraph that
we would like to discuss.
BY MS. SINISTERRA:
Q. Here it says, again, this is the Report that
you requested Ms. Bedoya and Mr. Guillén in mid-2006
to be prepared. It reads: "Bearing in mind the
aforementioned background, it is now necessary to
analyze the tax implications of the 'expansion of
Cerro Verde's current operations-Primary Sulfides
Project,' on the understanding that we have found out
about the SMCV's position on this matter, which
is--again, we have found out about the Sociedad Minera
Cerro Verde's position, which is aimed at considering
said investment, such said investment, the Primary
Sulfide Project--that is to say, the Concentrator, as
part of the Agreement of Guarantees and Measures for
the Promotion of Investments signed with the Peruvian
State."
So, it was absolutely clear, and this Report
[Page 1863]
is supposedly dated June 2006. Cerro Verde's position
was absolutely clear, and that Cerro Verde understood
that their Contract covered the investment in the
Concentrator. It was absolutely clear. Wasn't it
like that, Mr. Cruz?
A. That's what the Report states.
Q. Okay. That's what the Report states.
Another question, and if I am not wrong you
answered this to the President. In February 2005, you
didn't tell anything to Ms. Torreblanca. In
June 2006, when this Report was issued, did you tell
anything to Mrs. Torreblanca?
A. No.
Q. Did you provide a copy of the Report?
A. No, not at all.
Q. So, you left Cerro Verde in their position
with their understanding; correct?
A. Yes. SUNAT does not tell taxpayers how and
when to pay, what they need to pay. There are
conditions to make the declaration.
Q. So you didn't tell them. You didn't give
them a copy of the Report? You didn't tell Julia
[Page 1864]
Torreblanca--correct?--or anyone at Cerro Verde.
A. Correct.
Q. A final question: You also told us that it
was clear that in June 2006, even while the
Concentrator was being built; correct?
A. Yes. They were in the final stage.
Q. It wasn't in operation; correct?
A. Not yet.
Q. So, Cerro Verde did not have an obligation,
in your mind, to present a return and pay Royalties?
A. Correct.
Q. Why the rush? Why the rush to define the
position in June 2006? Why did SUNAT need to have in
writing that SUNAT was going to charge Royalties to
Cerro Verde in June 2006 when the Concentrator was not
even built?
Why the rush in June 2006, Mr. Cruz?
A. As I was explaining, we were analyzing all
together the whole topic related to the Concentrator,
basically suppliers looking at our audit plan, and we
wanted to be certain about the issues raised by Cerro
Verde at some point in time.
[Page 1865]
Q. And why in June 2006 and not July of 2005,
for example?
A. Because the approach to the operation was in
2006, and we were approaching the start-up of
operations.
Q. But the Concentrator had not yet begun to
operate, as you told us, and Cerro Verde was under no
obligation to present a declaration until
February 2027. But, in any event, SUNAT, as of
June 2006 had to define its position about the
Concentrator.
A. That is when the Decision was made.
Q. And, once again, you didn't tell Cerro Verde
anything?
A. No, there was no reason to inform them.
MS. SINISTERRA: No further questions, Madam
President. Thank you.
QUESTIONS FROM THE TRIBUNAL
ARBITRATOR CREMADES: I'd like to ask you,
with respect to other taxpayers, these internal
reports, were they communicated?
THE WITNESS: No, not at all. The analysis
[Page 1866]
was--is internal, and it's used as an antecedent when
there's verification.
ARBITRATOR CREMADES: So it is purely
internal?
THE WITNESS: Yes.
ARBITRATOR CREMADES: And it's only for the
inspector's knowledge?
THE WITNESS: Yes, that's right.
ARBITRATOR CREMADES: Thank you.
PRESIDENT HANEFELD: Respondent, any
questions in redirect?
MS. DURÁN: No questions from our side.
PRESIDENT HANEFELD: Also no additional
questions from the Tribunal's side.
Thank you very much, Mr. Cruz. You are
hereby released as a witness. Thank you.
THE WITNESS: Thank you very much.
(Witness steps down.)
PRESIDENT HANEFELD: Which concludes our
Day 6, unless the Parties have any issues they want to
raise.
MR. PRAGER: No issues from Claimant's side.
[Page 1867]
Thank you, Madam President.
PRESIDENT HANEFELD: Thank you.
MS. DURÁN: No issue from our side.
PRESIDENT HANEFELD: Then our Secretary will
circulate later today the time block so that you have
certainty on the remaining time.
For our last Hearing day, which is devoted
only to the Closing Statements of 1.5 hours each per
Party, we would suggest that we start already at
9:00 a.m. on Friday so that we can conclude at
lunchtime, around about 1:00, and thereby have, in any
event, sufficient time to ask questions and discuss
procedural things and the like. So, if the Parties
and everyone could be prepared to start on Friday
already at 9:00, this would be highly appreciated, and
then we will conclude at 1:00 p.m.
MS. SINISTERRA: Absolutely, Madam
President. We would be happy to.
PRESIDENT HANEFELD: Thank you.
MS. DURÁN: Yes, we are in your hands.
PRESIDENT HANEFELD: Okay. Perfect. Okay.
Marisa, will you circulate the remaining
[Page 1868]
times on the basis the Parties can discuss
arrangements; right?
Thank you very much for the long intense
day. Good evening. See you tomorrow.
MS. SINISTERRA: Thank you, Madam President.
Good evening.
MS. DURÁN: Thank you.
(Whereupon, at 6:03 p.m., the
Hearing was adjourned until 9:30 a.m. the following
day.)
[Page 1869]
I, Dawn K. Larson, RDR-CRR, Court
Reporter, do hereby certify that the foregoing
English-speaking proceedings were
stenographically recorded by me and thereafter
reduced to typewritten form by
computer-assisted transcription under my
direction and supervision; and that the
foregoing transcript is a true and accurate
record of the English-speaking proceedings.
I further certify that I am neither
counsel for, related to, nor employed by any
of the parties to this action in this
proceeding, nor financially or otherwise
interested in the outcome of this litigation.
Signature
Dawn K. Larson