Category: Interviews

Introduction

As the COVID-19 pandemic creates significant uncertainty and unique challenges in the global investment environment, its impact on Latin America presents several opportunities for private equity funds. In navigating the new investment landscape with respect to their Latin American investment programs, there are number of corporate, finance and tax issues PE funds should consider before proceeding with Latin American acquisitions or increasing investment in existing portfolio assets. This article discusses certain tax structuring, transfer pricing, and tax compliance considerations relevant for PE funds holding Latin American portfolio assets or expanding their investment in Latin America.

Tax Structuring Considerations

Acquisition of Distressed Latin American Companies

PE funds are seeking acquisitions of distressed Latin American companies or those requiring capital infusions to survive the economic downturn. For example, targets include, among others, family-held companies with shareholders seeking liquidity or diversification, companies unable to restructure their debt or continue with an existing IPO plan, and real estate holding companies with immediate cash needs but steady revenue flows.

In structuring acquisitions of Latin American targets, PE funds must identify the appropriate vehicles through which to invest. For example, a PE fund might analyze whether it should establish a tax treaty structure to effect an acquisition. In a private equity context, the primary tax consideration for most fund managers is taxation on exit (ie capital gains tax). For example, among others, Argentina, Brazil, Chile, Colombia and Mexico generally impose, with some exceptions, tax upon the sale of shares by nonresident investors. Accordingly, funds might establish a Spanish or Dutch investment structure because of Spain and the Netherlands’ significant tax treaty network in Latin America, or structures with transparent investment vehicles such as Canadian limited partnerships (eg Alberta or Ontario) and certain Luxembourg entities. Funds might also consider establishing local investment vehicles to mitigate taxation on exit, such as Brazilian Fundos de Investimento em Participações (FIPs), which can eliminate Brazilian capital gains tax on exit (although such structure has been scrutinized by the Brazilian tax authorities in recent years). Fund sponsors are rightly concerned that exit taxes in Latin America can reduce a fund’s IRR, especially if some taxes are not creditable against taxes of fund investors.

Tax due diligence is as important as ever. Among other things, deal teams should carefully examine items such as operating loss carryovers, permanent establishment risk for multinational targets, tax compliance, accrued and outstanding income, payroll, and VAT tax liabilities etc. Also, a target’s receipt of government subsidies, credits, or other assistance in response to the global pandemic could restrict its ability to pay dividends or even alter the timing of a future exit. If indeed a target has received such assistance, funds must consider whether the proposed acquisition will jeopardize continued assistance or if a sale or change of control will require immediate repayment of such assistance.

Debt Restructuring and Acquisition of Portfolio Company Debt

Dealing with portfolio company debt is another area that has recently received significant attention. In order to preserve cash to meet operational needs, leveraged portfolio companies have developed strategies for managing their debt service, including working with lenders to obtain a combination of additional borrowings, forbearance and standstill agreements, and debt covenant waivers.

In order to ease the process with lenders, some PE funds have chosen to request capital calls to fund their struggling portfolio companies, while others have lent to their Latin American portfolio companies. Other PE fund groups have instead opted to acquire their portfolio companies’ third party debt. In certain cases, funds seek to acquire the debt at a discounted price and sell it at a premium when market conditions improve, while in other cases, the motivation is simply to maintain some modicum of control over a portfolio company’s debt service. Some funds have considered raising credit funds and/or establishing a special structure for that purpose, such as an Irish intermediation structure.

PE funds must address the Latin American tax consequences arising from each alternative for both the fund and the portfolio company. Some key considerations include:

• Cancellation of debt considerations. As part of a debt restructuring, portfolio companies must consider whether income or other taxes are imposed on any amount of cancelled debt.
• Deductibility of interest payments. To the extent a PE fund lends to a portfolio company or acquires its third party debt, the fund should consider whether the interest paid by the portfolio company is a tax deductible expense, particularly if the fund and the portfolio company are considered to be related or if the fund is organized in a low-tax jurisdiction as determined by local law.
• Withholding taxes. Withholding taxes imposed on interest payments must also be analyzed. Most Latin American jurisdictions, including Argentina, Colombia, and Mexico, impose withholding tax on interest paid to nonresident lenders. An income tax treaty may reduce the withholding tax rate for PE funds using a treaty platform for their Latin American investments. Spain and the Netherlands, for example, are jurisdictions commonly used by PE funds (and other investors) for investing in Latin America.

In addition to the considerations listed above, PE funds must also address transfer pricing concerns, particularly as it relates to whether the terms and conditions of related party debt is arm’s-length and otherwise compliant with local transfer pricing rules.

Transfer Pricing

Reviewing, updating and, if needed, revising transfer pricing arrangements is a method by which portfolio companies may preserve cash and otherwise manage tax positions. For instance, adherence to the arm’s-length principal, in conjunction with contractual provisions in intercompany agreements (e.g., force majeure), permits related parties to adjust their intercompany arrangements to reflect economic reality. For example, in the absence of an advantageous income tax treaty, many Latin American jurisdictions impose significant withholding taxes on service payments, royalties, and management/monitoring fees paid abroad. Analyzing existing arrangements may yield opportunities to mitigate or otherwise restructure the payments, resulting in potential tax savings.

In any case, as Latin American governments seek to raise revenue through taxes and increased tax audits, portfolio companies should ensure their transfer pricing documentation and cost-sharing policies are compliant with local country transfer pricing requirements and of course, reality. They should examine whether their transfer pricing has reacted to supply chain and operational changes brought on by the pandemic, and whether such changes require remedial changes to internal pricing of goods and services. While Chile, Colombia, and Mexico are the only Latin American members of the OECD, the domestic legislation of a number of Latin American jurisdictions contain many of the same or similar principles set forth in OECD transfer pricing guidance. For those Latin American jurisdictions that do not explicitly adopt OECD transfer pricing principles, such principles may serve as secondary or supplemental guidance in interpreting domestic transfer pricing legislation (eg Brazil).

In assessing transfer pricing risk, portfolio companies should examine their current intercompany transaction flow and supply chain and corresponding intercompany agreements. Mature portfolio companies with older transfer pricing policies may discover their intercompany transaction flow and supply chain has evolved over time, such that their intercompany agreements do not accurately reflect current reality. For example, the method of compensation (eg profit split, cost-plus etc) originally provided for in an agreement may no longer be appropriate. Similarly, an intercompany agreement may not describe services actually provided between related parties. Because it is common for government auditors to request intercompany agreements in connection with a transfer pricing audit, such auditors can seize on the fact that intercompany agreements are not being followed, are otherwise inconsistent with reality, or do not even exist.

Tax Compliance

As Latin American governments continue developing strategies for battling the pandemic, they are also developing strategies for an economic recovery. While the pandemic’s true cumulative economic impact is still very much unknown, past economic downturns show us that PE funds can expect to see increased audit activity within their portfolio of Latin American companies.

Accordingly, PE funds should work closely with the management of their Latin American portfolio companies to ensure they have a robust tax compliance program in place such that they are well positioned to defend against potential tax audits or avoid potential penalties of lax internal pricing and arm’s-length documentation. They should consider and reassess material uncertain tax positions that, if successfully challenged, could result in significant tax liability and substantial penalties.

Conclusion

The COVID-19 pandemic will continue to generate significant challenges for many Latin American businesses, some of which sought additional funding and credit facilities from their shareholders and lenders, while others concluded filing for reorganization or bankruptcy is their only viable alternative. PE sponsors with Latin American investment programs face substantial challenges, but many others find investment opportunities notwithstanding the current economic environment. Addressing tax structuring, transfer pricing, and tax compliance considerations in Latin America is an important part of overcoming inevitable obstacles and seizing on new investment opportunities.

Cuestamoras Salud is a pharmaceutical distribution company. We have a portfolio of distribution assets that not only cover pharmacy, but also medical equipment. We serve the two biggest markets in Costa Rica: the public market – which consists of hospitals, clinics and the whole public health sector – and the private sector, which also includes hospitals, clinics and pharmacy outlets. I have legal oversight for compliance functions, regulatory affairs and value protection (formally known as asset protection).

Since COVID-19 our workload has increased significantly, especially in the areas of regulatory compliance, contracts, customs and public health bidding. Public health bidding has been a huge area for us, and in recent times it has obviously increased. The pharmacy and health sector have to buy products from the market, during a time when everybody is trying to buy the same products. This has been a really big challenge for us.

However, the biggest challenge in the last few months has been uncertainty. This is a fairly new disease and there is little known statistically and scientifically about the virus. So there are a lot of questions to consider, in terms of how to act and how to react. I believe keeping calm during this time can be just as contagious as the virus.  You need to make a proper assessment of all the information you have at hand and try to keep focused on goals. Our goals are keeping our employees safe, whilst continuing business operations.

One of our biggest regulatory hurdles has been getting the government to approve private testing. At first, health authorities in Costa Rica said no because they wanted to be in control of confirming who is a COVID patient and who is not. In order to get private testing approved we had to do some lobbying. We pressed the government with evidence of what had been happening Europe – in places such as Spain and Italy – to show that you need the private sector to help minimize and contain the spread of the virus alongside public officials.

Finally, authorities permitted private testing, providing the private sector with the tools to determine at an early stage who may be sick and who is not. From that we could determine who might need to be isolated. There was a business continuity incentive here, but it also had a public health component. It allowed us to stop and isolate a person, and ultimately minimise the spread of the virus within our warehouses.

With this we have moved forward on our proactive testing. This does not mean we are going to be testing everyone: we cannot test all 1900 of our personal. Instead we used statistical analysis and assessed the risk factor of employees. Data on where they live and how they travel to work were used to profile everyone in the company. This was done by experts in virology and statistical analysis. We had a separate team determining who was going to be tested based on their risk factor and exposure. In the end we did both reactive testing and proactive testing. Proactive testing is testing people who, though not showing systems may have a higher epidemiological risk. We have had proven results through this method.

From a legal standpoint, this testing involved a lot of negotiations. We had to negotiate with the service provider and our employees. The testing program was voluntary and as a result required consent from individuals. We also had to manage privacy issues surrounding access to and handling of employees’ private medical information.

Nevertheless, we obviously have inter-regulatory obligations with the government. When we determine through private testing that someone is positive with COVID, we need to inform the health authorities immediately. There is a lot going on.

Uplifting our digital capabilities on all fronts of the business has also been key. We have had to enhance our processes, and are currently going through a digital transformation right now. COVID has confirmed to us that this is the right way to go. We started the project at the end of the third quarter last year, but recent events made us move faster in order to take advantage of that opportunity.

The changing role of the workplace is also another area that needs to be defined. It is important to comply with a new normal. Working from home has shown there has been no impact on productivity in terms of results. If you are going to open your central offices, they have to serve a different purpose than what you are doing at home. The workplace has to become a beacon of corporate culture. That means developing and enforcing culture, so that people feel compelled to go to work.

We also need to facilitate interdisciplinary collaboration spaces, whilst keeping in mind all the regulations in terms of interactions. This is especially important when talking about innovation. We need to be able to provide space for creative opportunities, for the conversations you have with fellow colleagues in the hallways. Those spontaneous conversations that generate interesting ideas may be important for the company. That is one of the biggest burdens about working from home, you do not have those spontaneous opportunities to discuss anything with anyone else. Innovation does not happen when you plan it to happen. Going forward this is one of the things we are trying to deal with. We are working and trying to design what our idea of ‘offices of the future’ will be. This has enormous legal implications all-round.

Part of managing a crisis is providing emotional support to employees, and this has been a top priority. We set up a program within which our human resource team followed up with employees. This entailed picking up the phone and speaking to each and every member of staff who was working from home. It was important as a company to hear their worries and hear their concerns. Accordingly, we developed a program to address all the challenging aspects of working from home, from creating a proper physical space to task programming, organisation and leadership skills. By doing this we found our employees were more motivated. This is how we have managed to stay focused and deliver results.

Our mission is to keep access and supply of medications open for all. This is a goal that motivates our teams, because they understand the importance of what they are doing. Considering all challenges we have experienced during this pandemic, we have managed to maintain company results because of the effectiveness and productivity of our people. 

During COVID-19, the Peruvian government has approved transitory regulations that, by making the management of labor relations more flexible, have allowed the continuity of labor relationships. For example, the Emergency Decree extraordinarily allows employers to apply leave without payment to its employees, provided that it is approved by the Ministry of Labor. In addition, regulations for remote work have been issued, which have allowed employers to vary form face-to-face provision of services to home office, with a less rigid regulation than that of telework, which already existed in our legislation.

In any case, this flexibility has a temporary scope. Labor relations in Peru are mainly ruled by the provisions contained in the Labor Productivity and Competitiveness Law and by the labor case law. Peruvian labor laws and, above all, labor case law, have quite a protectionist slant toward employees. For example, according to Peruvian legislation, temporary hiring is an exception and, as such, it has various requirements for its validity, which are also strictly controlled by the authorities. In addition, the constitutional case law has determined that an employee can request his or her replacement in the event of an unjustified dismissal.

In fact, this is confirmed by the results of the World Economic Forum. The Global Competitiveness Report 2019, in which, of the 141 countries analyzed worldwide, Peru is in position 134 in terms of job placement and employees’ dismissal.

In addition, during the employment relationship, Peruvian legislation has provided several benefits to which employees in private activity are entitled:

(i) Remuneration: Employees shall receive a minimum wage of S/ 930.00 (Nine Hundred and Thirty and 00/100 Soles) if rendering services for an ordinary working day, (not exceeding of eight daily hours or 48 monthly hours). Reduced working hours shall be proportionally paid.

(ii) Family allowance: Family allowance shall be paid to employees having children under 18 years old or until the age of 24 if they are studying at college or university. The employees are entitled to receive an amount equivalent to 10% of the minimum wage (currently S/ 93.00), irrespective of the number of children the employee has).

(iii) Compensation for length of services: The purpose of this benefit is to serve as coverage in case of termination of employment. It is equivalent to 9.72% of the monthly remuneration approximately. It shall be paid in May and November by the employer in a bank account in the name of the employee.

(iv) Legal bonuses in July and December: Employees are entitled to the payment of two bonuses during the year, each one equal to one monthly salary. The bonuses are paid one in July and one in December, proportionally to the full months worked during the period.

(v) Extraordinary bonuses: Employees are entitled to the payment of two extraordinary bonuses each year, payable on July and December, equivalent to 9% of the monthly salary.

(vi) Profit sharing: This benefit is mandatory for employers with twenty employees or more.

Employees have the right to receive a percentage of the annual income before taxes of the employer.

Depending on the economic activity of each employer the percentage to be distributed among the employees of a company varies between 5% and 10%. The annual amount to be received by each employee may not exceed 18 monthly remunerations.

(vii) Mandatory life insurance: A life insurance policy must be hired by the employer at its cost and expense in favor of all its employees.

Employees are also entitled to paid leave such as weekly rest, maternity leave, paternity leave, sick leave, and vacations. Regarding vacations, employees are entitled to 30 calendar days of paid vacations per year. Once a complete year of service is achieved, the employee must use his or her 30 days of vacations within the subsequent year of accruing the right.

Otherwise, if this does not occur, the employee will earn the right to an additional remuneration and a severance as a compensation for not having taken vacations on time, equal to a monthly remuneration for each one.

On the other hand, employers also have important obligations regarding safety and health at work. Indeed, employers have a legal prevention duty and therefore must devote all their efforts to preventing occupational accidents or diseases, complying with obligations such as training of employees, establishment of a committee on safety and health at work, and risk assessment, among others. Safety and Health at Work is a fundamental aspect for organizations in Peru.

Accordingly, an employee can only be dismissed if there is a cause established by law, related to his/her conduct or capacity, and duly proved. In addition, a formal procedure provided by law must be carried out. In that sense, if a dismissal without a proven cause is carried out, according to our labor case law, the employee could claim: (i) his/her reinstatement to his/her job position; or, (ii) the payment of the mandatory severance for arbitrary dismissal, at their sole discretion.

The authorities in charge of verifying that employers comply with their obligations are SUNAFIL (for its acronym in Spanish) and the judiciary. Indeed, SUNAFIL, through an inspection procedure verifies whether there was a breach and, if applicable, can impose a fine on the employer. Also, employees can pursue a claim to the judiciary to assert any right that has been violated. It is important to note that both are independent routes and it is not necessary to go to one before the other; however, it is usual for employees to request an inspection from SUNAFIL before going to court, since SUNAFIL’s final resolution could serve as a means of proof with important institutional support.

According to our migratory and labor regulations, in order for a foreigner to provide services in Peruvian territory, he or she requires a work visa issued by the migratory authority and an employment contract duly registered before the Ministry of Labor. For this, prior to the effective provision of services in Peru, an immigration procedure must be initiated before the immigration authority (either from Peru or from abroad). It is important to mention that there are certain countries with multilateral agreements with Peru (Argentina, Brazil, Paraguay, Uruguay, Bolivia, Chile, Colombia and Ecuador) and, therefore, there are particular rules for obtaining a work visa.

Finally, in Peru, unionization and the right to strike are constitutionally recognized rights. In this sense, labor unions activity has special protection and is increasingly active in Peru. Unions are representative, especially in sectors such as mining or the industrial sector, and increasingly, they are affiliated with federations that seek to act as interlocutors.

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See more from Vinatea & Toyama at: www.vinateatoyama.com

This article aims to show the legal environment that El Salvador is experiencing, both before the pandemic, at the present time, and how it might look in the future once COVID-19 is learned to live with.

Amidst the COVID-19 pandemic, the smallest country in Central America is being threatened with an economic recession like never before, but the legal market may be on its way to thriving this year. Before COVID-19, legal markets were stable, the majority of legal teams were working in-office, had a normal 8-hour working day, had a regular amount of contentious issues and disputes, any changes in regulations were made occasionally, tax benefits were predetermined, and an increase in technological advances and resources were not a priority or being used as well as they should.

Nonetheless, for many, the pandemic has transformed the legal markets into a helping hand that has allowed many industries and companies to keep up with the new normal and hold their pillars stable. El Salvador’s GDP growth reached 2.3% last year, but the country is still suffering from previous persistent low levels of growth, and this year that number might not change in a positive way. COVID-19 struck hard enough that it is expected that the country’s level of growth will change to a negative number.

Low levels of growth of the economy were ‘the normal’ panoramic for El Salvador, but a pandemic of this size has caused an enormous amount of uncertainty, reaching the point where the ‘new normal’ has brought with it a new modern way of working for many – if not all – private companies and public entities. Many legal teams all over the country have been dealing with numerous questions from clients on a daily basis regarding employment matters, new and provisional regulations on any legal subject, tax advice, new working protocols, contract compliance and migration; and it is these matters that have kept the legal market flourishing in these hard times.

In a matter of days, the world stopped, and change came with it; a change not many people were open to but have been obliged to digest. There is no question fear has taken over many minds, and Salvadorans are no exception. Fear for the country’s levels of public debt has increased (as the country has never been prepared to deal with a pandemic, much less one this size and length) leading to even more placement of bonds and loans through multilateral organizations, and leaving us with foreign interest in investment at its lowest point.

Although a reduction in moderate poverty has been reported, with COVID-19 still living among us and the death toll rising on a daily basis, the poverty rate is expected to rise again; both moderate and extreme poverty. This has led various start-ups and low-level income companies to stop their businesses or even shut down. Unemployment has increased, working contracts have been suspended in numerous companies, and although there have been new laws placed in action during the last four and a half months to help these small businesses (and the informal working class) there is still a lot of uncertain ground to discover. The question is whether there is a chance of the economy opening back up, and therefore, if employment will rise to where it was before COVID-19. If not, the new normal brings more difficulties than those projected.

Moreover, new regulations have been placed since March in order to alleviate the tax burden in a series of industries, especially those concerning tourism. The current environment of uncertainty on the duration and control of the coronavirus, implies that more and more doubts and queries will rise on ‘how to proceed’ from now on. This is hope that ‘uncertainty’ will lead legal markets to thrive this year.

The expectations of having an increase in contentious issues and disputes are rising, as well as litigations. There is a basic need for this area of expertise right now, specifically in areas like labor, insurance, tax, regulations in general, and contract compliance, but projections can change from one day to another as a result of any change in the spread of the virus; changes that are being monitored continuously, for example, another outbreak further in the year, which could again paralyze the execution of economic activities and, therefore, cause even more uncertainty.

Regarding technology, both the government and private organizations have implemented digital solutions in order to deliver services; they have joined the use of new technologies, implementing the use of online banking, electronic signatures, digital deliverables, home office, client meetings, rapid response via emails; and have taken into account that the new normal has brought with it new technologies that are here to stay.

There is no question that social distancing is an obligation in order to slow down the curve, but time has told us that mental health issues are also rising, and resources around these issues are still not being taken as seriously as they should. There are many appropriate resources, but still not enough, and the legal market has not taken this issue into account.

Although the legal market in El Salvador expects to continue thriving during COVID-19 and after, there is still a lot to tackle in the months to come.

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See more from EY at: www.ey.com

Funding Landscape in Latin America

A lot is different in Latin America, compared to the Anglo-American world. This is also the case as regards litigation or arbitration funding. The language to start with, civil law v common law, duration of court proceedings, popularity of arbitration, the price of legal advice and much more. Whereas litigation funding has a long history in the UK and in the United States, its twin brother – arbitration finance – is still in its infancy in Latin America.

However, the trend in many (not all) Latin American jurisdictions is obvious. Arbitration has become more interesting as proceedings appear to be more reliable, duration more predictable and international enforceability – relatively –easy. The legal skillset is also at hand.

All this led to the establishment of local third party funders in the past years like Leste in Brazil, Lexfinance in Peru or specialised Carpentum Capital operating out of Switzerland but with lawyers on the ground in LatAm. Most recent Hakamana was set up in Chile. These funders are perfectly suited to serve growing local demand and complement or replace bigger Anglo-American investors, usually only funding investor state disputes or other very pricy cases.

Whereas demand is increasing, awareness of arbitration finance in Latin America is still very low. And even if the very basics are known, there are a couple of misconceptions around.

The biggest being that arbitration funding would only be required by clients, lacking of resources to finance a legal proceeding. This is a very traditional view of third party funding and may indeed be the case in jurisdictions who have a very young market in that respect. In the US according to a study on litigation funding from 2019, less than 30% of clients revert to litigation funding for that reason. The vast majority makes use of it as a financing tool in order to hedge litigation risks, outsource legal costs or free up working capital.

Another common misunderstanding is that a funder would acquire the litigation rights, which is not the rule (but it is possible under certain circumstances, eg by way of monetizing an award). Funders usually assume the cost risk. All expenses relating to arbitrators, arbitral institution, experts or law firms are borne by the funding partner up to an amount of committed capital, which is agreed beforehand. In case of a successful outcome, the result is shared – it could be a percentage of the result, or a multiple of the investment or a combination. If the case is lost, investment is also gone. Hence the risk is high, which is why only a fraction of cases will pass the scrutiny.

The Process

In order to survive this process, you should first know, how it works. Each investor may break its process in to various stages, but it always comes down to three crucial steps:

At the outset confidentiality will be agreed, conflicts must be cleared and the funder will check whether a potential investment would be in line with internal guidelines or appetite. Specific proceedings may be ruled out, minimum or maximum investments set and ethical standards applied. That’s the easy part.

In a second round essential documentation is shared, such as basic contracts, correspondence, legal opinions, financial information of counterparty, expert valuations etc. Also important: the budget of the case with an anticipated cash-flow. This phase is the internal due diligence or ‘first level’ review. The funder will decide, if it can invest in the case and calculate on what terms it would do so potentially. If positive, a non-binding offer is made and the client signs a term sheet. At this stage the investor gains exclusivity to pursue the investigations for a certain time frame. Most cases won’t pass this stage either because the probability of success is not high enough, realistic outcome is lower than expected, the counterparty not sufficiently solvent or the case may take too long.

If terms are agreed in principle and no smoking gun detected, the funder will spend even more time and money on an external due diligence or ‘second level’ review. Another lawyer than the client’s one will opine on various aspects of the case. If claim evaluation is an issue, an additional expert may be required to review damage reports, or arbitrators for a specific industry may be asked to share their view on custom and practise in that industry. All this should happen in a speedy and transparent fashion, as the client will be eager to get the final approval for his arbitration finance.

In theory the whole process should take a couple of weeks only, but depending on the complexity and value of the case it may easily take months. Don’t be shy to ask your funder for transparency and commitment to timelines.

The Funder’s View and How to avoid Pitfalls

On the other hand, you can also accelerate the process of arbitration finance in Latin America, if you know what the investor will look at.

You may be surprised, but the merits of the case are not the core issue. It will just be assumed that you don’t come around with a hopeless case, invented stories or a useless lawyer.

It’s the economy of the case. Starting with the collectability and ending with the cost-to-demand ratio. Your case may be as good as it gets on paper, but if you pursue this against a soon to become insolvent party, it does not really help. The quantification of a realistic outcome, rarely equalling the demand, comes next.

The funder will also look at a worst case budget and how it will be paid out. Worst case in our world not being a lost arbitration or litigation, but a proceeding going through annulment and up to execution. Too many lawyers or general counsels omit to think beyond the first award.

Therefore and in order to shorten the time up to a positive funding decision, you should:

• target the right investor. Ideally someone with the appetite for your arbitration in terms of size and jurisdiction as well as understanding for the local legal culture;
• think twice (at least) about the economics of the case. Potential outcomes, realistic result, duration and cash-flows are to be considered;
• work with a capable lawyer having a good track record in the legal sector at stake;
• have crucial documentation at hand and avoid piecemeal production of documents;
• be transparent and disclose the good, the bad and the ugly. Rest assured that the investor will find the weak spots anyway.

If you understand the process and know that the investor tackles a claim from a slightly different angle, arbitration finance in Latin America or elsewhere will be no secret science, but an accessible tool of dispute resolution. 

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See more from Carpentum Capital at: carpentum-capital.com

The Promised Energy and Infrastructure Investment Opportunities

In the early months of this year before COVID-19 became a global pandemic, all indications were that 2020 would be another record-setting year for investment in energy and infrastructure throughout Latin America. Significant institutional capital was being raised by debt and equity funds with an increasing appetite for and interest in Latin America. More and more global companies and strategic investors were lining up to pursue the development of renewable energy and infrastructure projects throughout the region. Renewable generation was increasingly cost-competitive with other generation without government subsidies, distributed generation was expanding rapidly, and commercial and industrial (C&I) businesses in Latin America were increasingly interested in direct contracting for renewable power. Governments were proposing new policies and reforms: advancing the evolution and diversification of Latin American energy markets, addressing climate change concerns through various investments, tackling urban congestion and pollution with public-private partnerships (P3s) to increase the electrification of public transportation, and structuring a pipeline of P3s to address other infrastructure gaps. Investment returns were better and opportunities more plentiful in Latin America than in most advanced economies. A growing roster of commercial banks and other lenders offering financing for those projects followed, also drawn, in part, by the better returns.

The Aftermath of the Pandemic

Then, the global pandemic spread to the Americas and led to a rapidly cascading shutdown of economic and human activity across the region resulting in an unprecedented deceleration of ongoing construction and an indefinite pause in new projects and investment. Quarantines resulted in a dramatic drop in electricity demand and substantially disrupted logistics for the construction and operation of projects. Government orders mandating uninterrupted supply of essential services coupled with suspensions of payment to private operators and the overall emergency have led to disruptions across value chains, including widespread force majeure claims, all of which have raised questions about the financial health of companies in these sectors despite mitigating efforts by countries like Brazil, Chile and Colombia. In short, the pandemic has set the region back economically, brought about a number of challenges for private and public sector plans for energy and infrastructure projects, and created uncertainty about the post-pandemic future.

It remains to be seen how these various dislocations will be resolved. Force majeure claims, in particular, have been asserted by parties across value chains and may raise a number of questions given the legal intricacies of the provisions that need to be interpreted, the economic consequences of contract milestones, term extensions, performance metrics and related payments, and the impact of these disputes on future contracts. The litigation generally arising from the pandemic, including claims for increased costs due to the pandemic and for the suspension of private operators’ rights to charge tolls or exercise remedies for nonpayment, will take time to be resolved and may produce outcomes that are inconsistent from project to project. Most importantly, investors will be watching the outcomes of these disputes, particularly those associated with government actions requiring private owners and operators to continue to provide services without compensation, in order to reassess political risks and the strength of investor rights under contracts in the different countries in the region.

The Opportunities Remain with Challenges

As the Inter-American Development Bank stressed in this year’s Development in the Americas report, Latin America and the Caribbean should ‘invest more and better’. Countries there/in the region have historically invested much less in energy and infrastructure than other developing regions and closing that gap will require greater and more effective public and private investment to produce better quality public services. The pandemic may shift aspects of how we live our lives and conduct business – and by extension whether we invest more in technology, media, and telecoms (TMT) and digitalization of services – but the need for investment in energy and infrastructure in Latin America has never been greater. Per IRENA’s Global Renewables Outlook, recovery measures that employ technologies consistent with long-term climate sustainability, like renewable generation, flexible power grids, efficiency solutions, electric vehicles, energy storage, and ‘green’ hydrogen, can help drive socio-economic development and create new private sector investment opportunities while addressing climate change goals.

Certain Latin American governments have already adopted policies designed to attract foreign investment in energy and infrastructure and make it a centerpiece of economic recovery efforts. Chile has introduced major initiatives on renewables, green hydrogen and electrification of public buses. Brazil has even reversed decades of prohibitions on the dollarization of contracts to increase the bankability of projects. Additionally, the United States has expressly made it a foreign policy goal to promote investment in energy and infrastructure in Latin America and the Caribbean in order to encourage a geographic shift in key suppliers to the United States from China and Asia to the Americas.

Further, the fundamental factors that promised opportunities prior to the pandemic – availability of capital, appetite for greater returns and need for investment – remain. There has been a reassessment of risk among investors and lenders and recent reports estimate that only a small percentage of newly raised capital is earmarked for Latin American investments. The International Energy Agency has cautioned that sponsors and investors will find that governments have focused their attention and resources on addressing the immediate impacts of the pandemic. As a result, government sponsorship of projects will be limited and public sector processes, including tenders, permitting and regulatory procedures, will be subject to delays. Moody’s predicted in July that future financing of energy and infrastructure will come from multilaterals and institutional investors given governments’ fiscal constraints and commercial banks’ focus on strengthening their balance sheets. Consequently, financing projects will be more difficult, particularly projects viewed as being riskier.

Nevertheless, from the perspective of Latin American companies, investments to ensure more reliable and affordable supply of electricity and infrastructure are essential to competitiveness and profitability and by extension economic growth. The pandemic has also underscored, if not accelerated, the public’s focus on climate change, ESG and sustainability concerns, including environmental and social costs, the importance of a diversified, reliable supply of energy, and the broad impacts of choices made with respect to infrastructure. As IRENA and OLADE stated in announcing their expanded collaboration this past July, ‘accelerating the development of sustainable energy’ as part of the economic recovery following the pandemic ‘could provide the Latin American region with a long-term strategy to address social inequality, energy access and energy security’. Companies seeking to encourage investment can support broad adoption of renewable generation or contract directly with developers and project owners seeking creditworthy buyers for their electricity. They can also partner with those developers as has happened in the United States to provide capital while mitigating political risks in this uncertain time. Consequently, we remain optimistic that there will be good investment opportunities in Latin America and that Latin American companies with access to industry expertise and seasoned counsel experienced in structuring and negotiating successful investments can play an active role in ensuring these positive changes continue. 

 

Maria-Leticia Ossa Daza is a partner in the Corporate & Financial Services Department and head of the Latin America Practice at Willkie Farr & Gallagher LLP. Jorge Kamine is a partner and Matt Vitorla is an associate in the Corporate & Financial Services Department of Willkie Farr & Gallagher and both are members of the Latin America Practice focusing on the energy and infrastructure sector.

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The COVID-19 pandemic hit Paraguay’s economy very hard and just when the country was recovering after a period of stagnation (-3% year-to-date in the first half of 2019). 2019 wasn’t a good year for employment either, the combined unemployment and underemployment rate reaching 14.5% in the first half of the year and retracting to 12.9% in the second half. This favorable path continued during the first two months of 2020 but with the beginning of COVID in March, began to slow down. Social distancing measures have most severely affected the service sector although informal labor was also badly affected.

The Government and the Paraguayan Central Bank (BCP) adopted a series of exceptional measures to address the economic and financial needs of both individuals and companies. In this regard it’s worth mentioning the BPC’s decision to reduce the policy interest rate by 175 basis points to 2.25% and the temporarily relaxed provisioning rules not to penalize credit restructurings and prolongations as well as the Government’s anti-crisis fiscal package approved by Parliament.

Another measure to alleviate the crisis has been low interest loans granted by the National Development Bank (BNF) to finance MSME’s payroll during the outbreak; in line with this it is worth mentioning that in June credits granted to the private sector grew by 4.1% YtD and loans granted to MSMEs reached USD$217m in July, while in May they totalled USD£130m.

Nevertheless, in 2021-22 growth is expected to return to 4% due inter alia to consistent macroeconomic policies, anchored in inflation targeting and a gradual return towards the FRL ceilings. Another key role in economic recovery will and is being played by public investments particularly in public works.

Legal Updates

The pandemic has represented an opportunity to introduce major and necessary changes that have helped modernize the local legal framework.   

Corporate Law

The Executive Branch enacted Decree 3605/2020 allowing PLCs to hold their board and shareholders meetings through telematic means provided that a series of requirements are met such as, inter-alia:

a) Real time presence and participation of authorized participants is ensured;

b) Meetings are recorded and kept within corporate files for 5 years and;

c) Mechanisms for the accreditation of rights to participate are established.

This provision represents a breakthrough in Paraguayan corporate practice and a clear advantage for foreign investors and shareholders as they can now take part in company decisions avoiding delays and fines especially during the pandemic. This exceptional measure will remain in force until 31 December 2020 and we are confident it will become a definitive practice.

Another important provision enacted is the suspension until 15 September 2020 of the application of fines and sanctions for non-compliance with the mandatory requirement of converting bearer shares into nominative shares.

Labor Law

This may be the field that saw the biggest changes. These sought to help businesses and employees cope with the crisis and reduce the negative impact on employment. Some of the most important decisions adopted by the Government are:

a) Contributions to the Social Security Institute (SSI) may be refinanced without interest for up to 18 months.

b) During the pandemic and whenever the nature of their work allowed, employers are encouraged to implement home and teleworking so as to avoid the spread of the virus; this measure is provisional and will last until the 31 December, nevertheless a draft bill has been presented to Congress in order to make it definitive.

c) A new regulation aimed at simplifying the application process for requesting employees’ job suspension was enacted. The procedure will remain in force during the pandemic and will benefit MSMEs only.

Anti-Trust and Regulatory Law

As a consequence of the COVID-19 crisis a lot of effort was made by the Government as well as the media and citizens in general aimed at controlling the public expenditure and public bidding processes. As a result of this, the National Competition Commission (CONACOM) undertook a series of formal investigations under Paraguayan Competition Law.

a) One was aimed at determining if prohibited agreements practices had been performed; the investigation was focused on public bidding processes for the purchase of medicines and medical related goods.

b) In another, CONACOM’s Investigation Department initiated preliminary investigation proceedings in order to identify possible violations of the Competition Law in connection with the latest operation involving a concentration proceeding between the biggest meat processing company and one of its competitors.

This is the first time CONACOM has used its investigative powers and its power to initiate ex officio proceedings; we believe this will improve the level of transparency of our public system and, at the same time, will force local businesses to strengthen their compliance policies, in particular those businesses in a dominant position.

Tax Law

Along with labor, tax law was the other field to see the greatest number of significant changes. During the crisis the Government enacted a series of important tax relief measures such as, inter alia:

a) Tax Deferrals;

b) Exception of penalties for late filing;

c) Exception of import duties and VAT reductions on all goods qualified as of first need;

d) Deadline extensions for filing and payment of the Withholding Tax on Dividends, Corporate Income Tax, Income Tax on Individuals, Income Tax on Agricultural Activities and Income Tax on Commercial, Industrial and Service Activities.

Procedural Law

The Executive branch enacted the Law by which the Judiciary’s summer recess is suspended thus all judicial activities and deadlines remain.   

Bankruptcy Law

A draft bill to modifying the bankruptcy law is being studied by the Legislative branch. The current law dates back to 1969 thus its modernization is seen as being key to improving the country’s business climate; the new law will allow companies at risk of insolvency to swiftly put their accounts in order and hence re-emerge more stably while also benefiting creditors. This law will be particularly important in the aftermath of the pandemic crisis.

Data Protection Law

Currently Paraguay does not have a general Data Protection Law, however, as a result of the increase in social and commercial activity on the internet due to social distancing measures it became apparent that the country could no longer remain without such an important provision; as a consequence a bill is currently being studied in Congress and is expected to be enacted by the end of 2020 or the beginning of 2021.

Conclusion

We cannot ignore the negative effects produced by COVID-19. However, we believe that Paraguay will re-emerge stronger wherever we can capitalize on the opportunities arising from the crisis aimed at accelerating the modernization process and increasing transparency of institutions.

So far, our country has taken adequate measures and has better coped with the crisis than some of the other countries in the region. In truth, the pandemic’s impact has been less harsh than in those countries whether in respect to fatalities and infections or in economic terms.

As for opportunities for the years ahead these will certainly come from the public sector particularly public works (civil and road) and from telecommunications as both sectors have shown a very dynamic performance over this period. 

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It’s no surprise that the COVID-19 pandemic has forced human coexistence to rethink, revalue and reinvent itself in all aspects. Indacochea Asociados (IA) attorneys were no exception.

During this time, the Bolivian National Government issued a series of regulations in order to mitigate the impacts on our country. Regulations were focused mainly on labor matters, financial and tax compliance extensions, economic reactivations programs, enforcement of technology driven commercial mechanisms and most importantly, regulations regarding public health.

Due to quarantine, commercial and economic activities were practically paralyzed at a general level, which generated major uncertainty in the labor force where, despite the quarantine, employers were forced to take on a social burden while being limited or unable to continue commerce or cover day-to-day expenses. Adding complexity to this situation of uncertainty, Bolivian legislation provides high regulatory protection and labor stability for employees, which was reinforced by new regulations issued during the strict quarantine. Law No. 1309 established the prohibition to dismiss employees during the quarantine, a prohibition that would be applicable for a period of two months after the state of emergency had been concluded.

However, as the quarantine was constantly extended, some activities and restrictions have been partly lifted by the government, allowing the development of essential activities on-site. These measures have been regulated by Supreme Decree No. 4218, which establish guidelines, obligations and conditions for the execution of home office practices at a national level – work practice that has been highly encouraged by well-established companies. The implementation of these measures certainly upgrades labor practices in Bolivia.

Likewise, and as encouragement to taxpayers, the National Government through its National Tax Service issued several regulations aiming to provide payment facilities and extension deadlines for applicable taxes levied over personal and company obligations. These policies were reflected in programs that allow flexibility in the fulfilment of tax obligations, thus avoiding potential applicable sanctions by the National Tax Service. Similarly, these regulations provided various incentives for those taxpayers who complied with tax obligations in a timely manner or who performed donations directed to COVID-19 pandemic relief.

The Bolivian Registry of Commerce has issued a new Manual of Commercial Procedures which intends to reduce bureaucracy in all commercial acts that must be registered before this authority. This manual recognizes the digital signature as a valid way of securing certain commerce acts required by the Bolivian commerce code. Moreover, through new commercial regulations, it is now legally accepted that shareholders meetings may be held via communication technologies (prior to COVID, all shareholders meetings required shareholders to be physically present in the legal domicile of the company). Alongside this, the Bolivian Financial System Authority allowed for certain banking procedures to be executed with digital signatures, thus avoiding the physical presence of the interested party at financial offices.

In regards to welfare programs, the Bolivian Government provided economic support and relief to the general Bolivian population through various bonds. These bonds have been aimed at those whose economic or employment situation has been severely affected by the pandemic.

Taking into account the extended duration of the quarantine applied in Bolivia (In accordance to Supreme Decree No. 4199 strict quarantine started on 19 March and flexible and dynamic quarantine was established starting 1 June), the country’s economy will surely be impacted; experts predict anything from a 3% to 9% contraction in 2020.

In order to reverse these mid-2020 economic growth projections, the Bolivian government, through Supreme Decree No. 4216, Ministerial Resolution No. 159 and Ministerial Resolution No. 160  issued economic programs to support micro, small and medium enterprises, as well as programs to support employment and labor stability. These programs extended bank credits to micro, small and medium businesses bank credits in service of two main objectives: avoiding closure and maintaining jobs.

Additionally, and with the sole objective to reboost the national economy, a loan program was launched to promote the consumption and production of national goods and services. This loan has an historically low interest rate of 3% per year and intends to reactivate consumer buy-ins .

Despite the fact that economic support measures have become a reality, the current political scenario in Bolivia has made it difficult for them to materialize. A continuous struggle between the Executive Branch, which holds office, and the Legislative Branch, which holds a majority has seen the initiatives of one side opposed by obstacles from the other. This situation can be clearly identified with law projects in regards to international loans and sovereignty bonds proposed by the Executive Branch and blocked by Legislative Branch.

Although during the first months of the National Emergency the national economy was affected, as of June an increase in the labor market and in the generation of labor income could be witnessed, according to studies carried out by the National Institute of Statistics. Likewise, as a result of the implementation of virtual registries before the Trade Registry, there was an increase in the creation of small and medium enterprises, which implemented innovative business models and e-commerce in their offer of services and products. Also, because of the recently issued resolutions by the National Tax Service, tax incentive programs were created, implementing a system applicable to individual entrepreneurs and start-ups which offers access to a unique tax, as a replacement to traditional taxes applied to ordinary businesses.

We consider that despite the limitations COVID-19 brought to Bolivia and the world, it has given birth to what we call the Bolivian Legal System 2.0. This version comes with legal technology innovation, debureaucratization of public institutions’ procedures and new opportunities to reinvent business. It is necessary to adapt quickly to the new limitations and obstacles that are found in our reality, and to seek the effectiveness from the offer and customer satisfaction to provide the results that are sought.

The current situation has forced the state to adapt quickly, responding effectively with incentives that promote foreign investments likely to help the country’s continued economic growth. In this matter, new investments can count on a far higher level of legal protection than was offered by previous governments. The Government’s guidelines on new investments are certainly promising, and investors can have every confidence that legal protections are robust and will be enforced.

Thus, even though we are aware that much more needs to be done, COVID-19 certainly changed the rules of the game and government officials must continue to promote Bolivia as a promising emerging market, securing not only local but international investments. They must, they will.

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The Bayer legal and compliance express centre for LATAM and Canada is changing the way it provides compliance and data privacy services, as well as how it handles compliance investigations.

I started this new role at Bayer in March, just as the COVID-19 pandemic broke. As a result, I had to build a whole team remotely. The entire hiring process occurred virtually as I was not able to travel to regions such as Brazil and Costa Rica.

For me it was a very challenging experience. Building a new team, training new employees and taking them through the on-boarding process remotely is not typically the best way to start a new team. Yet, that was the situation and we all had to cope with. At the same time, we were developing a new digital platform, and I had to interact with developers and people in charge of that project virtually as well.

Additionally, time zones were a challenge as I had to schedule calls with Germany, Brazil, and Costa Rica. Managing my time and my agenda was very difficult, even though I had been working from home. I am based in Colombia and because of the pandemic I do not have the opportunity to travel. Therefore, hiring had to be been done in three different ways. For the first round we planned to hire 12 people, most of them located in Costa Rica and Brazil. I preformed 50 interviews virtually in the first wave. For some key positions I would have preferred to travel to Costa Rica or Brazil, but it was simply impossible. Overall, it was a very demanding process, but I am very happy with the outcome and with the people we were able to hire.

As a leader I like to empower and trust my team. This is not the first time I have had to manage people in other countries, so for me empowerment is key when leading a team.  In this case I have had to trust more as it is impossible for me to have a meeting in person with members of my team. I delegate more, and empower people to adjust and adapt to our new reality. We set up weekly goals, and we have follow-ups to see how tasks and activities are tracking. Although we do not have face to face meetings, we have been able to manage things effectively.

Travelling to other jurisdictions is one of the things that is going to be reviewed after the pandemic, because we have been able to prove that we do not have to travel to other countries to make things happen. I believe that every company is going to cut on their travel expenses. For example, I have not had to travel to Costa Rica or Brazil. I am managing teams in both countries and everything has been going well. Yet, if we have a serious or sensitive case to investigate we may need to travel thereto perform the investigation in person. Overall, companies realise that it is not necessary to be present in the country to make things happen.

External firms may need to reevaluate the way they deliver services as a result of the pandemic. Even before the pandemic, law firms in Latin America did not understand the necessities of clients and companies. They approach things in an ‘old school’ way. For example, if there is a new law  I need to know whether I am able to do something or not. External firms will prepare a 100 page legal opinion, citing all the articles of law, including any decisions from the Supreme Court that may pertain to that matter. This is very old school – maybe as legal counsel or as a lawyer that is something that I need to know and review – but the business does not need that volume of information. They just need to know if they can do something or not, and if they can, what would be the best way to do this, outlining the risks and consequences of the issue.

I am fed up with long legal opinions that do not say if our request is possible or not until the very end of the document. However, I think after this pandemic external firms will need to reinvent the way they provide services, and the way they interact with clients and think they will need to be faster in delivering services when providing advice to their clients. The world has changed, and the way firms interact with and provide services to clients will also need to evolve.

Another important aspect of changing times is managing the mental health of employees. At Bayer we have virtual actives for employees to relax and forget about the current situation. For example, we have yoga classes every week, we offer webinars with specialists in psychology, COVID-19 and a range of other topics. That is a very good way to offer employees alternatives to help them relax, and to think about something beyond work.

I have noticed that on team calls people ask how their peers are doing in their personal life, or about their family. This is useful to check in and talk about something that is not related to work, it is good to just check in, and see how people are and if they need anything from the company. One of the main things we need to be aware of is the ‘speak up’ mindset. Now everyone is at home, it is not possible to know what they are doing or be present at all times and we may miss some potential compliance infringements. We need to be closer to people because of this situation so they can raise any concerns. That is something important to keep in mind, especially in the legal and compliance teams. In the past, it was easier to interact directly with people, and preform training face to face, but now as you know that is not possible.

As a result, digital alternatives to interact with people are becoming more important. At Bayer, we are developing a digital platform to start a teaching the people to move from emails or phone calls to a more digitized solution. I think that is going to be the future. We are setting up teams and solutions in shared service centres around the world, for example in Costa Rica and Brazil. Overall, I think we are going to have to change our mindset on how we provide our services. We need to be more agile and we need to be more straight to the point.

This article contains an overview on Costa Rica, taking into account the impact of the Covid-19 pandemic in certain areas, coupled with the acceleration of trends that were already in motion before this pandemic started, all amid a ‘new normal’ stage that continuously triggers game-changing and challenging transformations.

Costa Rica, with its long-standing democratic tradition – having abolished its army in 1948; ranking at the top of the list of nations of the American continent in literacy, health and life expectancy; its wide-array of trade and commercial agreements with its major trading partners; and its long-standing and attractive investment programmes (such as the Free Trade Zone Regime) – now has to embrace and facilitate this period of transformation. It must redouble efforts to continue being a leader in the region, as a major hub for technological development, highly specialized shared services and manufacturing operations, while promoting a stable environment that enables the development of technological transformation and innovation.

Currently, Costa Rica is a major centre for the aforementioned added-value operations – headquartering subsidiaries for the Latin American operations of major transnational Fortune 500 corporations and other high-profile regional companies – and it is expected that these operations continue to increase as many companies recalibrate the supply chain seeking competitive nearshoring options in a new ‘decoupling’ setting.

To continue this path, the country has taken two major steps in the last two years to improve its finances and regulatory framework, the second taking place during Covid-19 times:

The first step consisted of a major and long-overdue overhaul of the tax legislation, albeit maintaining the tax territoriality principle. On 4 December 2018, Costa Rica enacted a major tax reform through the ‘Law for the Strengthening of Public Finances’, incorporating new rules regarding income tax, fiscal periods, permanent establishments and taxable events, taxation of capital income and capital gains and losses, and the Value-Added Tax (VAT) at a rate of 13%, excluding certain goods and services.

As will be the case in most countries in the world, further tax legislation is expected to improve the state’s finances, aggravated by the Covid-19 pandemic, all of which will increase the scope of reporting and compliance of tax and related regulatory obligations.

The second step was the culmination of the long process for being unanimously admitted into the Organization for Economic Cooperation and Development (OECD) on May 2020. For admittance, Costa Rica had to revamp its regulatory framework by approving specific legislation in areas such as investment, anti-corruption, corporate governance, financial markets, private insurance, competition, tax, public governance, statistics, economics and development, education, employment, health, trade and export credits, agriculture, fishing, scientific and technological policies, digital economy and consumer protection. It is expected that all the approved legislation required to become a member, in addition to future commitments, will pave the way for strengthening Costa Rica’s position in the global markets as a regional leader in many of these areas, pursuant to international practices and standards.

Even before being admitted to the OECD, Costa Rica had adopted the European Union’s General Data Protection Regulations (GDPR) as the basis for its legislation regulating protection of personal data and information under the self-determination, confidentiality, consent and use and protection of data principles.

The recent amendments to the competition law also follow OECD principles and practices, and in certain aspects, new rules are even more stringent for merger control and anti-competitive practices.

Moreover, as part of the public governance policies, the government is promoting and implementing through Mideplan-MEIC Guideline 085 a ‘digital government plan’ procuring the simplification of administrative procedures (in part to counter the increase of regulation), support to SMEs and business ventures, employability and investment in public infrastructure. This type of plan, along with strong public/private partnerships, is crucial for developing the necessary infrastructure to achieve digital transformation and maintain Costa Rica’s standing in the region.

In the labor law and practices realm, Covid-19 has reshaped the workplace, and the new trends in relation thereto are here to stay. As in other countries, the ‘new normal’ in Costa Rica will be working remotely on a permanent basis or, at least, applying a hybrid model that allows certain employees to work remotely, whilst others continue to work in the office. Setting rotating shifts as part of this hybrid model will allow using smaller office spaces, which will generate savings, not only in office space, but also on supplies, transportation, food and other costs related to physical work in the office.

Costa Rica has been ready to properly apply remote work or ‘work from home’ by timely approving legislation in September 2019. This legislation is quite flexible, as it allows the parties to negotiate the terms and conditions for each specific case, but seeking a proper balance by mandating employers to follow proper practices in its internal procedures to ensure the employee’s right to disconnect and avoid ‘burnout’ as a work-derived sickness. Employers must take a hands-on approach to ensure that employees have a proper office environment in their homes.

New labour legislation allows flexible work schedules and provides that an employee’s performance is measured based on the fulfilment of objectives and not just in the completion of daily shifts. The outsourcing of all tasks that are not related to the company’s core-business will become more common. Specialized and technical experience will be more relevant when selecting a service provider.

We also expect an increasing number of labour disputes to be solved through mediation and alternative dispute resolution centres.

Technology, as a major disruptive force on employment through artificial intelligence, is also continuously transforming the way standardized legal work is delivered, and we expect clients to seek solutions that improve the effectiveness of the contracting process and the contract life cycle management, the assistance and support to clients and GCs in the development of responses to regulatory events and business changes, regulatory response and compliance. We understand that GCs need to focus more on strategic matters, and providing the technological tools for such standardized legal work will be expected to be part of value proposals to clients. That is why at EY Law, we have spearheaded the legal managed services industry.

Other notable trends have been the increase in debt restructuring matters as the expected scope and duration of the Covid-19 emergency remain unclear, intensifying economic implications for many industries. This situation has increased the work related to debt restructuring, insolvency strategies and other ‘hibernation’ measures, the preservation of business continuity, along with liquidity and funding.

We have also been instrumental in advising retail clients on the implementation of e-commerce platforms as the region is experiencing a surge in online shopping.

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