Multilateral Agreement: Telecommunication Expense Guidelines

On February 19, 2025, the Multilateral Agreement Arbitration Commission issued Resolution 01/2025, which set forth how telecommunications expenses should be distributed among the different jurisdictions for calculating the expense ratio of the general regime.

The Resolution exemplifies "telecommunications expenses” as those related to contracting internet services, telephone calls, mobile data services, and similar costs. It should be noted that the attribution of telecommunications expenses had given rise to some controversy regarding the determination of the jurisdictions in which they actually were made.

According to article 4 of the Multilateral Agreement, when expenses cannot be definitively attributed to a specific jurisdiction and cannot be considered "insignificant," they must be distributed based on a "reasonably well-founded estimation." General Resolution of the Multilateral Agreement 22/1984 establishes that expenses are considered insignificant if, in aggregate, they are less than 10% of the total computable expenses for the period and if individually they are less than 20% of that percentage.

Under the new Resolution, the Multilateral Agreement Arbitration Commission specified that a reasonable estimation for distributing telecommunications expenses must be made specifically based on how commercialization expenses are allocated. Thus, non-insignificant telecommunications expenses must be allocated among jurisdictions in the same proportion as commercialization expenses are distributed.

Finally, the Resolution adds that the provisions on the allocation of telecommunications expenses do not depend on the fact that such expenses may be taken into account for the purposes of article 1 last paragraph of the Multilateral Agreement in the jurisdiction of the acquirer. In this regard, the Arbitration Commission appears to be referring to the possibility that these expenses may provide territorial basis in cases of remotely-conducted transactions, which should be reviewed on a case-by-case basis in accordance with the rules established in the Multilateral Agreement. This has implications that will likely require clarification in specific future cases.

The Resolution has been appealed before the Multilateral Agreement Plenary Commission. This Commission is the review body for the resolutions of the Arbitration Commission and therefore, in this case, it will have to decide whether to confirm Resolution 1/2025 or leave it without effect.