International: Arbitrary Tax Administration Breached Fair and Equitable Treatment Despite Rejection of Other Treaty Claims

In SMM Cerro Verde Netherlands B.V. v Republic of Peru (ICSID Case No ARB/20/14), an award dated 31 August 2026 was issued by a tribunal comprising Juliet Blanch (President), Oscar M. Garibaldi (claimant’s appointee) and Claus von Wobeser (respondent’s appointee).

The claimant, a Dutch holding company, owned a 21% shareholding in Sociedad Minera Cerro Verde SAA (“SMCV”), which operated the Cerro Verde mine in Peru. The dispute concerned whether a tax stability agreement between Peru and SMCV extended to a copper-processing facility, the Concentrator Facility, or covered only the earlier Leaching Project. It also concerned the treatment of SMCV by Peru’s tax authority (“SUNAT”) and the Peruvian courts when assessing royalties, penalties and interest.

Umbrella Clause and Scope of the Stability Guarantees

The tribunal unanimously held the umbrella clause in article 3.4 of the Netherlands–Peru bilateral investment treaty (“BIT”) imposed neither:

a privity requirement: the relevant obligation did not have to be owed directly to the claimant;
a temporal requirement: the obligation could pre-date the investment.

Nevertheless, a majority concluded the tax stability guarantees applied only to the Leaching Project, rejecting the umbrella-clause claim. The majority referred to Peruvian Supreme Court Judgment No 5212-2016, which found the stability agreement covered the Leaching Project as described in a feasibility study.

That study was treated as a technical management instrument defining the agreement’s scope. Although the tribunal was not bound by the judgment, it considered the decision supported its own analysis.

Fair and Equitable Treatment

The tribunal unanimously found that Peru had breached the fair and equitable treatment (“FET”) standard under article 3.1 of the BIT.

It did not find that imposing royalties on the Concentrator Facility itself breached FET. Instead, the breach arose from serious deficiencies in the administration of the relevant measures. Peru had:

failed to act transparently by leaving uncorrected SMCV’s misunderstanding that the Concentrator Facility would benefit from the stability guarantees;
denied SMCV an opportunity to be heard, contrary to SUNAT and Tax Tribunal procedures;
imposed penalties and interest contrary to the Tax Code and failed to address SMCV’s waiver request; and
misapplied the Mining Regulations, treating the same assets inconsistently from one year to the next.

Non-Impairment Claim and Compensation

A majority rejected the separate non-impairment claim under Article 3.1 of the BIT. It considered that the conduct constituting the FET breach was already being compensated and did not require a separate assessment under the non-impairment provision. The tribunal awarded the claimant USD141.2 million, plus interest and costs.

Significance

The award illustrates the distinction between the substantive interpretation of a tax obligation and the manner in which a state administers it. An investment tribunal may find treaty breaches arising from the handling of tax assessments, penalties, interest and stability commitments without concluding that the underlying tax interpretation or levy was unlawful.