Duke Energy International Peru Investments No. 1 Ltd. v. Republic of Peru
International Centre for the Settlement of Investment Disputes
ICSID Case No. ARB/03/28 (2008)
The government of the Republic of Peru (Peru) (defendant) privatized a government-owned electric company called Engenor. In 1996, Peru sold Engenor to a foreign investor. The sale contract contained a legal-stability agreement (LSA) protecting the buyer against changes in Peru’s tax laws for 10 years. The buyer subsequently sold its interest in Engenor to Duke Energy International Peru Investments No. 1 Ltd. (Duke) (plaintiff), a company based in the United States. In 2000, a new government took power in Peru. In 2001, the government’s tax authority, SUNAT, declared that Engenor’s 1996 sale was facilitated by the previous government’s improper decision to give foreign investors unfair tax breaks. SUNAT ruled that Rule VIII of the tax regulations empowered SUNAT to overturn the tax break and assess back taxes against Duke. After Peru’s tax court affirmed the SUNAT ruling in 2004, Duke appealed to the International Centre for the Settlement of Investment Disputes (ICSID). An ICSID arbitration panel found that although Rule VIII had been amended since 1996, the amendment made no difference in its applicability to Duke’s case. However, the panel also found that SUNAT’s 2001 ruling unreasonably abandoned the customary interpretation of Peru’s Merger Revaluation Law (MRL). That interpretation, which was in effect in 1996, would have undercut SUNAT’s reliance on Rule VIII.
Rule of Law
Holding and Reasoning ()
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