Refinery exempted from tax on profits

ORANJESTAD — Oil refinery Valero does not have to pay any tax on profits until January 2011. The Dutch Arbitration Institute (NAI) in Rotterdam announced this verdict . Regarding the conflict between the government and the refinery on the payment of tax on company turnover (bbo), the arbitration committee only judged that the Land Aruba had not acted in defiance of their contractual obligations by levying this tax.

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The institute does not wish to give a decision yet on the question whether the levying of bbo on the oil refinery is against the law. It first wants to obtain more information from both parties on their viewpoint. The procedure will be continued.
With this so-called ‘partial verdict’, it remains uncertain for the time being whether the more than 200 million florins of tax money owed by Valero will eventually end up in the treasury. The oil refinery had deposited the owed tax money into an escrow-account since the conflict on the bbo. That the arbitration committee judged that Valero does not have to pay any tax on profits until January 2011, is in conformity with the tax-holiday agreements, which the government had agreed upon at the time with Coastal Corporation, one of Valero’s predecessors. The demands of Valero regarding dividend tax and foreign currency provision have been denied.

Oil refinery Valero had disputed the levying of bbo on their exports and had presented their objections to the NAI in February 2007. In 1989, the Land Aruba had namely made an agreement with Coastal, the former owner of the oil refinery, which included the possibility to submit a dispute to the arbitral tribunal.
The arbitration verdict is binding for both parties. The government had namely decided to introduce the bbo per January 1st, 2007 and to reduce the tax on profits from 35 to 28 percent. The bbo for local turnover had been determined at 3 percent and 1 percent for deliveries abroad with the exception of the free zone.

The oil refinery had previously raised an objection to the Board of Appeal for Tax Affairs as well. Valero lost this case in April of that year as a result of which the company in any case owed an amount of more than 15 million florins on bbo for the months January and February 2007. Valero had submitted a separate objection for the next months. In a reaction, the tax department had announced that the judge would review these objections again. However, chances are that the judge will come up with the same verdict as it concerns the same objections, according to the tax department. This would imply that the oil refinery has to pay 1 percent bbo on the export turnover from March 2007 to date, which meanwhile amounts to more than 200 million florins.