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Decision 40
Approval of the Agreement among Member
Countries to avoid double taxation and of
the Standard Agreement for executing
agreements on double taxation between Member
Countries and other States outside the
Subregion
The COMMISSION of the
CARTAGENA AGREEMENT,
HAVING SEEN: Article 89
of the Agreement of Cartagena and Article 47
of Decision 24 of the Commission,
WHEREAS:
The Commission should, at
the proposal of the Board, approve an
agreement aimed at avoiding double taxation
between Member Countries; and
It should likewise
approve a standard agreement for executing
agreements on double taxation between Member
Countries and other States outside the
Subregion;
DECIDES:
Article 1.- To
approve the Agreement to avoid double
taxation among Member Countries which
appears in Annex I to this Decision.
Article 2.- To
approve the Standard Agreement for avoiding
double taxation between Member Countries and
other States outside the Subregion, which is
set out in Annex II to this Decision.
Article 3.- The
Member Countries shall take the necessary
measures before June 30, 1972, to put into
effect the Agreement to avoid double
taxation among Member Countries so that it
may become effective as stipulated in
article 21 of that Agreement.
Article 4.- If
any difficulties or doubts exist as a result
of the application of the Agreement to avoid
double taxation among Member Countries, that
cannot be resolved through the consultation
procedure referred to in Article 20 of that
Agreement, the respective facts of the case
shall be submitted to the Fiscal Policy
Council for consideration.
If the Council’s
intervention fails to lead to the settlement
of the problem, the Member Countries may
avail themselves of the procedures
established in Chapter II, Section D of the
Cartagena Agreement.
For purposes of this
article, the Fiscal Policy Council may meet
at the request of any Member Country.
Article 5.- Such
agreements to avoid double taxation as the
Member Countries may sign with other States
outside the Subregion, shall be guided by
the Standard Agreement referred to in
Article 2 of this Decision.
Each Member Country shall
consult with the others, within the Fiscal
Policy Council, before signing those
agreements.
Article 6.-
Member Countries that have signed agreements
to avoid double taxation prior to the date
of this Decision, shall seek to harmonize
the provisions of those agreements with the
Standard Agreement.
ANEX I
AGREEMENT TO AVOID DOUBLE
TAXATION
BETWEEN MEMBER COUNTRIES
AGREEMENT TO AVOID DOUBLE
TAXATION
BETWEEN MEMBER COUNTRIES
CHAPTER I
SUBJECT-MATTER OF THE
AGREEMENT AND GENERAL DEFINITIONS
Article 1:
Subject-matter of the Agreement
This agreement is
applicable to persons residing in any of the
Member Countries with regard to their income
tax and property taxes. It is applicable
mainly and specifically to the following:
In Bolivia, to the income
tax created by the law of May 3, 1928 and
its subsequent amendments, to the "total
income" tax created by Supreme Decree No.
8619 of January 8, 1969, and to the
additional income taxes.
In Colombia, to the
national income tax and the complementary
property and excess profits taxes governed
by Law No. 81 of December 22, 1960 and its
amendments and addenda contained in Law No.
21 of 1963, Decree No. 1366 of 1967, Law No.
63 of 1968 and Law No. 27 of 1969.
In Chile, to the taxes
governed by the Income Tax Law contained in
Article 5 of Law No. 15564 of February 14,
1964 and the Property Tax established by Law
No. 17073 of December 31, 1968, amended by
Law 17416 of March 9, 1971.
In Ecuador, to the
general tax on total income and to the
proportional and complementary taxes
governed by Supreme Decree No. 329 of
February 29, 1964 and its subsequent
amendments.
In Peru, to the income
tax, equity tax and real estate tax governed,
respectively, by Titles I, II and III of
Supreme Decree No. 287-HC of August 9, 1968,
and its amending, complementary and related
provisions.
This agreement shall be
applicable as well to any changes that may
be made in the cited taxes and to any other
tax that, because of its tax base, may be
essentially and economically analogous to
those cited above and that any Member
Country may establish after the signing of
this agreement.
Article 2:
General Definitions
For purposes of this
agreement and unless the text states
otherwise:
a) The terms "one of the
Member Countries" and "another Member
Country" shall be used to designate Bolivia,
Colombia, Chile, Ecuador or Peru without
distinction.
b) The terms "territory
of one of the Member Countries" and "territory
of another Member Country" shall mean the
territories of Bolivia, Colombia, Chile,
Ecuador or Peru without distinction.
c) The term "person"
shall be used to designate:
1. An individual or
natural person.
2. A legal entity.
3. Any other entity or
group of persons, whether associated or not,
that are subject to the payment of taxes.
d) An individual shall be
considered a resident of the Member Country
where his habitual residence is located.
An enterprise is
understood to be a resident of the country
stated in its articles of incorporation. If
such articles of incorporation do not exist
or if they do not stipulate a legal
residence, the enterprise is considered to
be a resident of the place where actual
management is located.
If, despite these
regulations, it proves impossible to
identify the legal residence, the competent
authorities of the interested Member
Countries shall settle the matter by common
agreement.
e) The term "source of
production" refers to the activity, right or
good that produces or that could produce an
income.
f) The term "business
activities" refers to the activities carried
out by an enterprise.
g) The term "enterprise"
denotes an organization consisting or one or
more persons that is engaged in gainful
activity.
h) The terms "enterprise
of a Member Country" and "enterprise of
another Member Country" refer to an
enterprise with residence in one Member
Country or another.
i) The term "royalty"
refers to any gain, value or sum of money
paid for the use or for the privilege of
using copyrights, patents, industrial
drawings or models, exclusive procedures or
formulas, trademarks or other intangible
goods of a similar nature.
j) The term "capital
gains" refers to the profit obtained by a
person from the transfer of ownership of
goods that it does not normally acquire,
produce or transfer within its regular line
of business.
k) The term "pension"
denotes a periodic payment made in
consideration of services rendered or
damages sustained; and the term "annuity"
refers to a given sum of money paid
periodically over the life of the
beneficiary or during a set period under
gratuitous title or in compensation for a
service rendered or one with a cash value.
l) The term "competent
authority" refers to the following:
- In the case of Bolivia, the Finance
Minister
- For Colombia, the Minister of the
Treasury and Public Credit
- In the case of Chile, the Treasury
Minister
- For Ecuador, the Minister of Finance
- In the case of Peru, the Minister of
Economy and Finance.
Article 3:
Scope of undefined terms
Any term that is not
defined in this agreement shall have the
meaning given to it in the legislation that
is in effect each Member Country.
CHAPTER II
INCOME TAX
Article 4 :
Tax Jurisdiction
Irrespective of the
nationality or residence of the persons,
such income of any kind as they may obtain
shall be taxable only in the Member Country
where the source of production of that
income is located, save in the exceptional
cases provided for in this agreement.
Article 5:
Real estate income
Income of any kind
produced by real estate shall be taxable
only by the Member Country in which those
properties are located.
Article 6:
Income from the right to exploit natural
resources
Any earnings received
from leasing or subleasing, or transferring
or granting of the right to exploit or to
use in any way the natural resources of one
of the Member Countries shall be taxable by
that Member Country only.
Article 7:
Business
earnings
Earnings from business
activities shall be taxable only by the
Member Country where these were obtained.
An enterprise is
considered, among other cases, to perform
activities in the territory of a Member
Country when it maintains the following in
that country:
a) An office or a
management site;
b) A factory, plant or
industrial or assembly workshop;
c) A construction site;
d) A site or facility
where natural resources are extracted or
exploited, such as a mine, oil well, quarry,
plantation or fishing vessel;
e) A sales agency or
office;
f) A procurement agency
or office:
g) A warehouse,
storehouse or similar facility for receiving,
storing or delivering products;
h) Any other locale,
office or facility whose purpose is to
prepare for or help with the activities of
the enterprise;
i) An agent or
representative.
In the event that an
enterprise carries out activities in two or
more Member Countries, each of them may tax
the earnings produced in their territory. If
the activities are performed through
representatives or by using facilities like
those cited in the previous paragraph, then
the earnings obtained shall be attributed to
those persons or facilities as if they were
totally independent of the enterprise.
Article 8: Transport
company earnings
The earnings obtained by
air carriers and overland, ocean, lake or
river transport companies shall be subject
to taxes only in the Member Country where
those enterprises have their legal residence.
Article 9:
Royalties
from the use of patents, trademarks and
technologies
Royalties earned from the
use of trademarks, patents, unpatented
technical know-how or other intangible goods
of a similar nature in the territory of one
of the Member Countries shall be taxable
only in that Member Country.
Article 10:
Interest
Interest earned on loans
shall be taxable only in the Member Country
where the loan funds were used.
Unless proven otherwise,
it is assumed that the loan will be used in
the country where the interest is paid.
Article 11:
Dividends and equity investments
Dividends and equity
investments shall be taxable only by the
Member Country where the enterprise that
distributes them has its legal residence.
Article 12:
Capital gains
Capital gains may be
taxed only by the Member Country in whose
territory the goods were located at the time
of their sale, with the exception of those
obtained from the transfer of:
a) Ships, aircraft,
buses and other transport vehicles,
which shall be taxable only by the
Member Country in which they were
registered at the moment of their
transfer, and
b) Bonds, stock and
other securities, which shall be taxable
only by the Member Country where they
were issued.
Article 13:
Income from personal services
Payments, fees, salaries,
wages, earnings and similar compensation
received in return for services provided by
employees, professionals, technicians or for
personal services in general shall be
taxable only in the territory where those
services were rendered, with the exception
of salaries, wages, pay and similar earnings
received by:
a) Persons that
provide services to a Member Country in
the exercise of duly accredited official
functions, which may be taxed only by
that country, although the services may
be rendered in the territory of another
Member Country.
b) Crews of ships,
airplanes, buses and other vehicles that
provide international transport, which
shall be taxed only by the Member
Country where the employer has its
residence.
Article 14:
Companies Providing Professional Services
and Technical Assistance
The income earned by
companies that provide professional services
and technical assistance shall be taxable
only in the Member Country in whose
territory those services are rendered.
Article 15:
Pensions and annuities
Pensions, annuities and
other similar periodic income shall be
taxable only by the Member Country in whose
territory the source of production is
located.
The source shall be
considered to be located in the territory of
the country where the contract that produced
the periodic income was signed and, if no
contract exists, in the country from which
that income is paid.
Article 16:
Public entertainment activities
Income from the exercise
of artistic and public entertainment
activities shall be taxable only in the
Member Country in whose territory the
activity was performed, irrespective of the
length of time spent in the territory in
question by the persons performing those
activities.
CHAPTER III
PROPERTY TAXES
Article 17 :
Property taxes
The assets of individuals
or enterprises located in the territory of a
Member Country shall be taxable only by that
country.
Article 18:
Situation of transport vehicles, leans and
securities
For purposes of the
previous article, the following is
understood:
a) Aircraft, ships,
buses and other transport vehicles and
the movable property used in their
operation are located in the Member
Country where their ownership is
registered; and
b) Loans, shares and
other securities are located in the
Member Country where the debtor or the
issuing enterprise, as the case may be,
has its residence.
CHAPTER IV
GENERAL PROVISIONS
Article 19 :
Tax
treatment applicable to persons residing in
other Member Countries
None of the Member
Countries shall give less favorable
treatment to persons residing in other
Member Countries than that which they apply
to persons residing in their own territory
with regard to the taxes that are the
subject-matter of this agreement.
Article 20:
Consultations and information
The competent authorities
of the Member Countries shall hold
consultations with each other and shall
exchange the information that is necessary
to resolve by mutual agreement any problem
or doubt that may result from the
implementation of this agreement and to
establish the administrative controls needed
to avoid fraud and tax evasion.
The information that is
exchanged pursuant to the stipulation of the
previous paragraph shall be considered
confidential and may not be transmitted to
any person other than the authorities
responsible for the administration of the
taxes that are the subject-matter of this
agreement.
For purposes of this
article, the competent authorities of the
Member Countries may communicate with each
other directly.
Article 21:
Duration
The Member Countries
shall deposit with the Secretariat of the
Board of the Cartagena Agreement the
instruments that put this agreement into
effect.
This agreement shall
become effective:
a) For individuals in
regard to the income they receive or
earned starting on the January 1st
following the date of deposit of the
cited instruments, by all Member
Countries.
b) For legal entities,
in regard to the income received or
earned during the first accounting
period starting after the referred date
of deposit.
c) For the tax on tax,
starting on the January 1st
following the cited date of deposit.
ANNEX II
STANDARD AGREEMENT TO
AVOID DOUBLE TAXATION BETWEEN
MEMBER COUNTRIES AND OTHER
STATES OUTSIDE THE SUBREGION
STANDARD AGREEMENT TO
AVOID DOUBLE TAXATION BETWEEN
MEMBER COUNTRIES AND
STATES OUTSIDE THE SUBREGION
TITLE OF THE AGREEMET
Agreement between (State
A) and (State B) to avoid double taxation
with regard to income tax, capital tax and
net worth or corporation tax.
PREAMBLE
(It shall be drawn up in
accordance with the procedures and rules and
regulations in effect in the Contracting
States.)
CHAPTER I
SUBJECT-MATTER OF THE
AGREEMENT AND GENERAL DEFINITIONS
Article 1 :
Subject-matter of the Agreement
The taxes that are the
subject-matter of this agreement are:
In (State A) . . . .
In (State B) . . . .
This agreement shall be
applicable as well to any changes that may
be made in the cited taxes and to any other
tax that, because of its tax base, is
essential and economically analogous to
those cited above and that any Member
Country may establish after the signing of
this agreement.
Article 2:
General
Definitions
For purposes of this
agreement and unless the text states
otherwise:
a) The terms "one of the
Contracting States" and "another Contracting
State" shall be used to designate (State A)
or (State B) without distinction.
b) The terms "territory
of one of the Member States" and "territory
of another Contracting State" shall mean the
territories of (State A) or (State B)
without distinction.
c) The term "person"
shall be used to designate:
1. An individual or
natural person.
2. A corporate body or
juridical person.
3. Any other entity or
group of persons, whether associated or not,
that is subject to the payment of taxes.
d) An individual shall be
considered a resident of the Contracting
State where his habitual residence is
located.
An enterprise is
understood to be a resident of the State
indicated in its articles of incorporation.
If such articles of incorporation do not
exist or if they do not stipulate a legal
residence, the enterprise is considered to
be a resident of the place where its
effective administration is located.
If, despite these
regulations, it proves impossible to
identify the legal residence, the competent
authorities of the Contracting States shall
settle the matter by common agreement.
e) The term "source of
production" refers to the activity, right or
good that produces or that could produce an
income.
f) The term "business
activities" refers to the activities carried
out by enterprises.
g) The term "enterprise"
denotes an organization consisting or one or
more persons that is engaged in gainful
activity.
h) The terms "enterprise
of a Contracting State" and "an enterprise
of another Contracting State" refer to an
enterprise residing in one Contracting State
or another.
i) The term "royalty"
refers to any gain, value or sum of money
paid for the use or for the privilege of
using copyrights, patents, industrial
drawings or models, exclusive procedures or
formulas, trademarks or other intangible
goods or goods of a similar nature.
j) The term "capital
gains" refers to the profit obtained by a
person from transfer of the ownership of
goods that it does not normally acquire,
produce or transfer within its regular line
of business.
k) The term "pension"
denotes a periodic payment made in
consideration of services rendered or
damages sustained; and the term "annuity"
refers to a given sum of money paid
periodically over the life of the
beneficiary or during a set period under
gratuitous title or in compensation for a
service rendered or one with a cash value.
l) The term "competent
authority" denotes in the case of (State A)
. . . . and in the case of (State B) . . . .
Article 3:
Scope of undefined terms
Any term that is not
defined in this agreement shall have the
meaning given to it in the effective
legislation of each Contracting State.
CHAPTER II
INCOME TAX
Article 4 :
Tax Jurisdiction
Irrespective of the
nationality or residence of the persons,
such income of any kind as they may obtain
shall be taxable only in the Contracting
State where the source of production of that
income is located, save in the exceptional
cases provided for in this agreement.
Article 5:
Real estate
income
Income of any kind
produced by real estate shall be taxable
only by the Contracting State in which those
goods are located.
Article 6:
Income from
the right to exploit natural resources
Any earnings received
from leasing or subleasing, or transferring
or granting the right to exploit or to use
in any way the natural resources of one of
the Contracting States shall be taxable by
that Contracting State only.
Article 7:
Business
earnings
Earnings from business
activities shall be taxable only by the
Contracting State where these were obtained.
An enterprise is
considered, among other cases, to perform
activities in the territory of a Contracting
State when it maintains the following in
that State:
a) An office or a
business management site;
b) A factory, plant or
industrial or assembly workshop;
c) A construction site
being worked;
d) A site or facility
where natural resources are extracted or
worked, such as a mine, oil well, quarry,
plantation or fishing vessel;
e) A sales agency or
office;
f) A procurement agency
or office:
g) A warehouse,
storehouse or similar facility for receiving,
storing or delivering products;
h) Any other locale,
office or facility whose purpose is to
prepare for or help with the activities of
the enterprise;
i) An agent or
representative.
In the event that an
enterprise carries out activities in both
Contracting States, each of them may tax the
earnings produced in their territory. If the
activities are performed through
representatives or by using facilities like
those cited in the previous paragraph, then
the earnings obtained shall be attributed to
those persons or facilities as if they were
totally independent of the enterprise.
Article 8:
Transport company earnings
The earnings obtained by
air carriers and overland, ocean, lake or
river transport companies shall be subject
to taxes only in the Contracting State where
those enterprises have their legal residence.
Article 8:
Alternative
The earnings obtained by
air carriers and overland, sea, lake and
river transport companies from their
operations in any of the Contracting States
shall be taxable in that Contracting State.
Article 9:
Royalties from
the use of patents, trademarks and
technologies
Royalties earned from the
use of trademarks, patents, unpatented
technical know-how or other intangible goods
of a similar nature in the territory of one
of the Contracting States shall be taxable
only in that Contracting State.
Article 10:
Interest
Interest earned on loans
shall be taxable only in the Contracting
State where the loan funds were used.
Unless proven otherwise,
it is assumed that the loan shall be used in
the Contracting State where the interest is
paid.
Article 11:
Dividends and equity investments
Dividends and equity
investments shall be taxable only by the
Contracting State where the enterprise
distributing them has its legal residence.
Article 12:
Capital gains
Capital gains may be
taxed only by the Contracting State in whose
territory the goods were located at the time
of their sale, with the exception of those
obtained from the transfer of:
a) Ships, aircraft,
buses and other transport vehicles,
which shall be taxable only by the
Contracting State in which they were
registered at the moment of the transfer,
and
b) Bonds, stock and
other securities, which shall be taxable
only by the Member Country where they
were issued.
Article 13:
Income from personal services
Payments, fees, salaries,
wages, earnings and similar compensation
received in return for services provided by
employees, professionals, technicians or for
personal services in general shall be
taxable only in the territory where those
services were rendered, with the exception
of salaries, wages, pay and similar earnings
received by:
a) Persons that
provide services to a Contracting State
in the exercise of duly accredited
official functions, which shall be
taxable only by that State, although the
services may be rendered in the
territory of another Contracting State.
b) Crews of ships,
airplanes, buses and other vehicles that
provide international transport, which
shall be taxable only by the Contracting
State where the employer has its
residence.
Article 14:
Professional Service and Technical
Assistance Companies
The income earned by
professional service and technical
assistance companies shall be taxable only
in the Contracting State in whose territory
those services are rendered.
Article 15:
Pensions and annuities
Pensions, annuities and
other similar periodic income shall be
taxable only by the Contracting State in
whose territory the source of production is
located.
The sources shall be
considered to be situated in the territory
of the State where the contract was signed
that produced the periodic income and, if no
contract exists, in the State from which
that income is paid.
Article 16:
Public entertainment activities
Income from the exercise
of artistic and public entertainment
activities shall be taxable only in the
Contracting State in whose territory the
activity was performed, irrespective of the
length of time spent in the territory in
question by the persons performing those
activities.
CHAPTER III
NET WORTH AND CORPORATION
TAX
Article 17 :
Net
worth and Corporation tax
The individual or
business assets located in the territory of
one of the Contracting States shall be
taxable only by that State.
Article 18:
Situation of transport vehicles, credits and
bearer securities
For purposes of the
previous article, the following is
understood:
a) Aircraft, ships, buses
and other transport vehicles and the movable
property used in their operation are located
in the Contracting State where their
ownership is registered; and
b) Credits, shares and
other bearer securities are situated in the
Contracting State where the debtor or the
issuing enterprise, as the case may be, has
its residence.
CHAPTER IV
GENERAL PROVISIONS
Article 19:
Consultations and information
The competent authorities
of the Contracting States shall hold
consultations with each other and shall
exchange the information that is necessary
to resolve by mutual agreement any problem
or doubt that may result from the
implementation of this agreement and to
establish the administrative controls needed
to avoid fraud and tax evasion.
The information that is
exchanged pursuant to the stipulation of the
previous paragraph shall be considered
confidential and may not be transmitted to
any person other than the authorities
responsible for the administration of the
taxes covered by this agreement.
For purposes of this
article, the competent authorities of the
Contracting States may communicate with each
other directly.
Article 20:
Ratification
This agreement shall be
ratified by the governments of the
Contracting States in keeping with their
respective constitutional and legal
requirements.
The instruments of
ratification shall be exchanged in . . . as
soon as possible.
Once the instruments of
ratification of this agreement have been
exchanged, it shall become operative and
shall be implemented:
a) With regard to the
income received by individuals, starting
on the January 1st of the
calendar year following that of
ratification.
b) With regard to the
income received by juridical persons,
during the fiscal year starting after
the ratification of this agreement.
c) With regard to the
other taxes, those that must be paid in
the calendar year following that of
ratification.
Article 21:
Duration
This agreement shall
remain in effect indefinitely, but either of
the contracting governments, from January 1st
through June 30th of any calendar
year, may notify the other contracting
government in writing, denouncing the
agreement and it shall cease to be operative:
a) With regard to the
income received by individuals, from
January 1st of the calendar
year following that of the notification.
b) With regard to the
income received by juridical persons,
after the close of the fiscal year which
began in the calendar year when
notification was given of the
denunciation of the agreement.
c) With regard to the
other taxes, starting on January 1st
of the calendar year following
that in which notification was given of
the denunciation of the agreement.
In witness whereof, the
respective plenipotentiaries sign and stamp
this agreement.
Signed in . . . . . . .
on the . . . . of . . . . in . . . . copies
. . . . in the . . . . language and . . . .
copies in the . . . . .language, the . . . .
and . . . . copies being equally authentic.
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