[asia-apec 1851] Media Release: Will the UN force East Timor to forgo needed tax revenue?

[John M. Miller]

Please embargo release until
12 March 2002  10:00 am Dili (Tokyo) time

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

Can the Rule of Law Prevail?

Pressure from UNHQ Exacerbates Amos W Tax Controversy

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.

.       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.

.       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.

.       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.

.       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.

.       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.

.       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.

.       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.

.       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.”

0.      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.”

1.      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.

2.      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.

- end -


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 at easttimor.minihub.org
Web: http://www.etan.org/lh





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John M. Miller         Internet: john at etan.org

Media & Outreach Coordinator
East Timor Action Network: 10 Years for Self-Determination & Justice

48 Duffield St., Brooklyn, NY 11201 USA
Phone: (718)596-7668      Fax: (718)222-4097
Mobile phone: (917)690-4391
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