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Bahasa Indonesia version

12 March 2002

For further information:
Charles Scheiner or Thomas Freitas at La’o Hamutuk
Tel: +670(390)325013 or +61(408)811373
email: laohamutuk@easttimor.minihub.org

Can the Rule of Law Prevail?

Pressure from UNHQ Exacerbates Amos W Tax Controversy

La’o Hamutuk holds press conference at Dili port. 

The East Timor Revenue Service (ETRS) has assessed Intership, an international corporation, for more than $750,000 in unpaid back taxes. Pressure from United Nations Headquarters in New York on ETRS and the UN Transitional Administration in East Timor (UNTAET) not to follow the law has complicated the ongoing dispute. According to documents anonymously given to La’o Hamutuk, the East Timor Revenue Service is trying to collect $766,272 from Intership Limited, which owns the Amos W floating hotel in Dili harbor. Since Intership has not paid, a lien has been issued, prohibiting the Amos W from leaving. UN Headquarters has pushed UNTAET to overturn the lien and allow the ship to leave, although UNTAET’s tax law is clear that the Amos cannot depart until the tax liability has been resolved.

This debate has been discussed at the highest levels of the United Nations and by East Timor’s Council of Ministers (Cabinet), but it has not become public. La’o Hamutuk is releasing this information because we believe that the rule of law is under attack in East Timor, and that the public needs, and has the right, to know of the decisions their government and UNTAET officials are faced with.

The core of the current controversy is whether business done by private companies under contract with the UN is exempt from taxes. UNTAET Regulation 2000/18, which established the UNTAET taxation system, contains no such exemption. In fact, standard UN practice where there is no agreement to the contrary is that UN contractors pay taxes. The East Timor Revenue Service, with the support of the Minister for Finance, is enforcing this law and is trying to collect service and income taxes from Intership, mostly for the year 2000. But the heads of the United Nations Office of Legal Affairs and Department of Peacekeeping Operations in New York are insisting that UNTAET violate or amend its laws and allow the Amos W to sail away.

Although this issue relates to Intership, the larger question as to whether UN contractors owe taxes has major implications for East Timor’s ability to finance government operations, both now and in the future. UN contract business is and will continue to be a significant portion of East Timor’s economy. If it were excluded from taxation, government revenues would decrease drastically, which the people of this impoverished country cannot afford. If the UN succeeds in enforcing such an exemption, it would be placing UN interests above the rule of law and the sovereignty of the soon-to-be-independent East Timor.

La’o Hamutuk supports the position of the East Timor Revenue Service and the Minister for Finance, which is apparently supported by the Council of Ministers. We also appreciate the role of the SRSG, who has thus far declined to exercise his unilateral power to amend or override UNTAET Regulations. We encourage him to further support East Timor’s Transitional Administration by urging Intership to pay their taxes.

We remain concerned for the future will East Timor be able to stand up to such pressure from the United Nations or other international institutions? When the Democratic Republic of East Timor (whose new Constitution declares that “The State shall be subject to the Constitution and to the law”) and the UN negotiate a tax agreement for the future, will it be fair, arrived at without coercion and meeting East Timor’s economic needs?

The appended chronology gives more specifics of the tax dispute and the pressure from UNHQ.

Full public disclosure and transparency can help East Timor’s people ensure that their country achieves true independence. That is why we are releasing this information.

La’o Hamutuk is a joint East Timorese/international NGO which has monitored international institutions in East Timor since April 2000, based on the principle that the East Timorese people should be the primary decision-makers for the reconstruction, development and government of their country. We distribute our information by print and via radio, to help bridge communications and understanding between East Timorese civil society and the international agencies.

- end of release, chronology follows -

Chronology of the Intership-UNTAET Tax Dispute

1. In December 1999, the London-based company Intership Limited, owner of the floating hotels Amos W and Olympia, brought the hotels to Dili, where they have provided hotel, restaurant and other services both for private individuals and for the United Nations under contract.

2. On 30 June 2000, after consultation with the National Council, SRSG Sergio Vieira de Mello issued Regulation 2000/18, which assesses a 10% service tax on individuals and businesses providing services in East Timor. It was later amended to include wage and income taxes. The regulation does not exempt businesses contracting with the United Nations. The ETRS has applied this regulation in the context of the Vienna Convention which exempts the UN and its subsidiary agencies from taxation, but contains no exemption for UN contractors.

3. During 2000, Intership paid commissions or “spotters fees” totaling $650,000 to unknown persons, which has raised questions about whether these payments have influenced policy on this matter.

4. Intership, apparently on the advice of UN Headquarters in New York (UNHQ), refused to pay some of the tax assessed, claiming that their contractual business with the UN was not taxable.

5. On 5 January 2001, then Assistant SRSG Jean Christian Cady notified UNHQ that Intership had paid taxes due through the end of 2000, except for $100,072 in service taxes. The Olympia left in January 2001, but the Amos W remained, considered by Mr. Cady as “sufficient security against possible non-payment.” The East Timor Revenue Service also assessed Intership for $407,275 in back income taxes, but this was disputed because it stemmed from business performed under contract with the UN. Mr. Cady indicated that this issue was to be negotiated between the ETRS and UNHQ, and implied that Intership did not need to pay that portion of the assessment.

6. On 1 December 2001, ETRS notified Intership that they owed outstanding taxes and penalties of $766,272. Because of this obligation, a lien has automatically issued under UNTAET Regulation 2000/18 and the Amos W is barred from leaving East Timor.

7. On 16 January 2002, Intership wrote to UNHQ acknowledging that they owe some taxes, but disputing more than half the assessment. They claimed that the lien has prevented the Amos W from fulfilling a contract elsewhere and has cost Intership $294,500, with the possibility of much greater losses in the future. Intership implied that they might sue the United Nations.

8. On 24 January, Hans Corell, head of the UNHQ Office of Legal Affairs (OLA), recommended to Jean-Marie Guéhenno, Under-Secretary-General for Peacekeeping Operations, to direct ETRS to revise Intership’s assessment to exclude taxes due to UN contractual business, which would reduce the assessment by more than two-thirds. This was passed on to Dili.

9. On 30 January, ETRS Interim Commissioner Graham Daniels informed Finance Minister Fernanda Borges and Chief Minister Mari Alkatiri of pressure he was receiving from UNHQ, writing that “blatant disregard for the rule of law is displayed just to do whatever is possible in a self-serving way to protect UN interests.”

10. On 5 February, Intership faxed the OLA in New York, threatening to “make a claim against the United Nations” and reiterating that “we MUST have the matter resolved during the week.”

11. On 6 February, Hans Corell (OLA) asked Jean-Marie Guéhenno (DPKO) to tell UNTAET to “immediately issue an executive order for the release of the Amos W.” Mr. Guéhenno conveyed Mr. Corell’s message to SRSG de Mello the following day.

12. On 11 February, Commissioner Daniels (ETRS) informed Finance Minister Borges of continuing pressure from UNHQ, and pointed out that he cannot overrule the law without a “transparent Executive Order” from the SRSG. Ms. Borges supported him, asking “Does the UN or UNTAET want to nullify a court order? Where is the independence of the judicial system? What about the UN not observing the laws it has promulgated in East Timor?”

13. As far as we can determine, there has been no substantive action since February 11. Intership has neither paid the taxes nor filed a lawsuit, and the SRSG has not issued an executive order. The assessment and tax lien remain, barring the Amos W from leaving East Timor.

[Update, not in media release: In early May 2002, the SRSG lifted the lien and the Amos W. was allowed to leave East Timor without paying the balance of its taxes. Privately, Mr. de Mello regretted that his responsibility as "Representative" of the UN Secretary-General took precedence over his role as Transitional Administrator of East Timor.]

- end -

Bahasa Indonesian version

see also UNTAET position on tax controversy

The East Timor Institute for Reconstruction Monitoring and Analysis
1a Rua Mozambique, Farol, Dili, Timor Lorosa’e
P.O. Box 340, Dili, East Timor (via Darwin, Australia)
Tel: +670(390)325013 or +61(408)811373
email: laohamutuk@easttimor.minihub.org
Web: http://www.laohamutuk.org