YEREVAN (REF/RL)–The Greek owner of the ArmenTel company will pay the Armenian government $8.2 million as part of a deal to settle a tax dispute related to the sell-off of Armenia’s telecommunication monopoly last year.
Lawyers representing the two parties told an Armenian court on Thursday that the government will get the compensation from Greece’s OTE firm in exchange for dropping its claims about allegedly unpaid taxes.
The government last June brought a lawsuit against OTE and ArmenTel’s former American shareholder–Trans-World Telecom–seeking a total of $18 million in compensatory damages.
In March 1998–the Greek firm paid $142 million to buy a 90 percent stake in ArmenTel–then a joint venture between the government and TWT. Yerevan claims that TWT–an offshore company owned by US citizens–failed to pay a profit tax on proceeds from the sale of its 49 percent stake to OTE.
Having invested $11.7 million in Armenian telecoms–TWT got $64.6 from ArmenTel’s sell-off. The government side demanded that 15 percent of the resulting $52.9 million "passive profit" be paid to state treasury in line with Armenia’s tax legislation.
TWT lawyers have insisted that under the terms of the 1998 deal with the Greek firm–it is the buyer’s responsibility to pay any taxes and duties. The government counters that tax issues in Armenia are regulated by its legislation and judiciary only.
"This is a tax dispute and not a contractual one," said Nikolai Hakobian–a senior lawyer from the ministry for state revenues.
Under pressure from Yerevan–Greece’s OTE last December froze paymen’s of the remaining $12 million to the American-owned firm for the purchase of its ArmenTel shares. In parallel proceedings–the Arbitration Court of the International Chamber of Commerce in London has been considering TWT’s demand to reverse the freezing.
Under the terms of Thursday’s settlement–the $8.2 million compensation will be paid from the frozen sum. It also emerged that the California-based law firm Manatt–Phelps $ Phillips that counseled the Armenian government during the court proceedings will get nearly half a million dollars. Manatt lawyers said earlier they will petition the London court to declare the Armenian government’s participation in the litigation irrelevant.
The TWT side–on the other hand–has said that only the London court is authorized to resolve disputes regarding ArmenTel’s sell-off–pointing to a clause whereby the parties "shall submit to [its] exclusive jurisdiction."
OTE will therefore strive to prove to the international arbitration body that its decision to settle the dispute at TWT’s expense did not breach the ArmenTel deal.
The settlement with OTE represents a major success for the cabinet of Prime Minister Vazgen Sargsyan which has taken austerity measures to cope with a larger-than-expected budget deficit. The first $3.25 million tranche of the Greek compensation is to be made available within a month–with the remaining $5 million to be disbursed by the end of next year.
Despite agreeing to pay the extra money–OTE said it was not responsible for the tax dispute arguing that the government should have informed the parties of their tax liabilities when the deal was sealed. However–government representatives–including a former deputy minister of finance and economics who testified in the court as a witness–objected that tax authorities are not obliged to remind businesses of their tax amounts in advance.