Decision 599
Harmonization of Substantial and Procedural
Aspects of Value Added Type of Taxes
THE ANDEAN
COMMUNITY COMMISSION IN EXTENDED MEETING
WITH MINISTERS
OF ECONOMY, FINANCE AND TREASURY,
HAVING
REVIEWED: Article 3, items a), b), e);
Article 54, Item e); and Article 58 of the
Cartagena Agreement. Articles 3 and 4 of the
Treaty for the Creation of the Court of
Justice of the Andean Community. Decision
388 and Article 13 of Decision 330; and, in
the exercise of the attributes prescribed in
Items a), b) and f) of Article 22 of the
Cartagena Agreement;
WHEREAS: The
2nd Meeting of the Advisory Council of
Ministers of the Treasury and Finance,
Central Banks and Individuals Responsible
for Economic Planning of the Member
Countries, held in October 1998, requested
the Andean Community’s General Secretariat
to begin studies related to the issue of
indirect taxes within the framework of the
Andean Integration process, particularly
with respect to value added type of taxes;
In the 11th
Andean Presidential Summit, held in May
1999, the Presidents of the Member Countries
set a goal for the establishment of a Common
Market by 2005;
The Advisory
Council of Ministers of the Treasury and
Finance, Central Banks and Individuals
Responsible for Economic Planning, in its
4th Meeting, held in June 2000, ratified its
mandate to deal with the indirect taxes
issue, within the framework of Andean
Integration;
The
harmonization of tax policies will not only
guarantee competition conditions between the
Member Countries, preventing the
introduction of obstacles to intra-community
trade currents, but also offer greater legal
security and stability to domestic tax
systems;
Value added
type taxes exist in all Andean countries and
they can be considered as being consolidated
in their tax systems;
Technically,
it is advisable to promote the neutrality of
the value added type of tax, so as to not
cause distortions in the economy;
The
harmonization of value added type of taxes
must be understood as a gradual process,
which must be administered by each Member
Country within the terms defined in this
Decision;
Not included
in the scope of application of this Decision
are tax free zones and regimes, or any
geographical or regional benefits or regimes
included in each country’s internal
legislation, which will be governed by
domestic laws and other special regulations;
Any
differences in the fiscal treatment
procedures for indirect taxes in the Andean
countries, may produce distortions in the
intra-community market;
A current
regulation on procedural matters,
substantiated by an analysis based on
studies and proposals of the different
Andean countries, could be very convenient
for tax collections in each of the Member
Countries;
DECIDES:
Chapter I
Scope of application and definitions
Article 1.-
Scope of application.
This Decision
regulates the substantial aspects and the
procedures applicable to the value added
type of taxes to be harmonized in the Member
Countries’ tax systems, in order to
facilitate compliance with the objectives
and commitments of the Andean Community.
Any matters
not regulated in this Decision will be
governed by the internal laws of each
country.
Article 2.-
Definitions:
For the purposes of this Decision, and of
the rest of the community provisions
regulating matters associated with the
harmonization of indirect taxes of the
Member Countries, the following terms will
have the following meanings:
Cause:
This is the moment when the tax obligation
is produced by the generating act described
in the legislation. The occurrence of the
generating act for the value added type of
taxes subject matter of this Decision, is
instantaneous, even if its determination,
settlement and payment take place during
periods.
Right to
deductions or tax credits: The right of
a debtor to deduct from any taxes generated
by the taxable transactions carried out, any
taxes repercuting or transferred due to the
purchase or import of goods or the use of
services.
Right to
repercussion or transfer: The right of a
debtor to transfer the tax to the buyer or
user of the subject matter good or service.
Demandable
tax debt: This is the total amount
determined by the debtor or by the Tax
Authority, which the debtor must pay after
the expiry of the term granted for
compliance with the tax obligation and which
is not under dispute.
Domiciled
or Resident: This will be defined
according to the definitions prescribed in
each internal legislation.
Exclusion:
Not being subject to, or being exempted from
the tax established or permitted by law,
with respect to a given good or service,
according to which, the rebate or deduction
of repercuted taxes is not permitted.
Export of
Goods: The actual and permanent transfer
of goods sent abroad from the customs
territory.
Zero Rate
system: Tax exemption established by law
with respect to a given good or service,
according to which, the rebate or deduction
of repercuted taxes is permitted.
Services:
Any activity, task or job carried out by an
individual or legal entity, or by a de facto
association, without an employment
relationship with whomever contracts the
execution, which turns into an obligation to
perform, without consideration to the fact
that it encompasses the predominance of the
material or intellectual factor and which
generates a consideration, either in money
or in kind, regardless of its name or form
of remuneration, including leasing of
movable and immovable property and any other
assignment for use, for a fee, of trademarks,
patents, copyrights and similar, among
others
Debtor:
This is the debtor of the substantial tax
obligation. It includes the terms “taxpayer”
and “person responsible or substitute”, with
the latter term including earnings and
withholding agents.
Article 3.-
Andean harmonization system concerning
indirect taxation on consumption.
The
harmonization system of indirect taxes on
consumption for the Member Countries
consists of the following taxes:
1. Value added
type of taxes, and
2. Excise type
of taxes.
Article 4.-
Terms.
For the
purposes of this Decision, terms will be
counted as follows:
a) Year terms
and month terms will be continuous - or
calendar – ending on the equivalent day of
the respective year or month. Any term
ending on a day which the month does not
have, will be understood to end on the last
day of such month.
b) Terms
expressed as number of days will be counted
as business days, unless specified that they
are continuous or calendar days.
c) In all
cases, any terms ending on a non-business
day will be extended until the immediately
following business day.
TITLE I
THE
SUBSTANTIAL ASPECTS OF VALUE ADDED TYPE OF
TAXES
Chapter II
Generating Act
Section I
Material Aspect of the Generating Act
Article 5.-
Taxable goods and services.
Value added
type of taxes are generated when there is a
sale or transfer of goods, a provision or
use of services within the country, in
accordance with Article 12 of this Decision,
and import of physical movable property.
Temporary
Provision.- Member Countries applying as
of the effective date of this Decision, a
different rule for taxing services, may
continue to do so up to ten (10) years after
the effective date of this Decision.
Article 6.-
Business Reorganization.
Value added
type of taxes will not be produced as a
result of the merger, take over, split or
transformation of companies and other forms
of corporate reorganization.
Article 7.-
Sale or transfer de businesses, successions,
assignment or transfer of securities and
contributions of property to economic
entities.
Value added
type of taxes will not be produced:
a) In the sale
or full transfer of businesses;
b) In the
transfer of property by succession;
c) Assignment
or any other type of transfer of shares
actions, units, or securities;
d)
Contribution of property to companies being
incorporated by persons not subject to such
tax; and,
e) Temporary
contribution of assets to consortiums, joint
ventures and other business associations or
similar economic entities and their return
to the contributing entities.
Temporary
Provision.- Not withstanding the
provision of the previous paragraph, any
Member Countries which on the effective date
of this Decision tax some of the
transactions stipulated in this Article, may
continue to do so.
Article 8.-
Responsibility for VAT in the provision of
services by non-resident or non-domiciled
parties.
In the case of
taxable services provided by persons who are
non-resident or non-domiciled in the country
where the service is used, the user or
beneficiary of the service will be
considered a debtor.
Article 9.-
Removal of property.
With regard to
the removal of property by a VAT debtor, for
any purposes different than the taxed
activity, the tax will be applied over a
taxable base consisting of the commercial
value of the property. The removal of
property which is useless or which is not
subject to be sold, due to any justified
reasons, according to the internal
legislation of each country, will not be
taxed.
Article 10.-
Construction services and sale of immovable
property.
The legal
systems of each Member Country must
implement adequate mechanisms for the
determination of the taxable base
corresponding to the provision or use of
construction services.
Value added
type of tax may only be applied to the first
sale of the immovable property.
Temporary
Provision.- Notwithstanding the
provisions of the previous paragraph, any
Member Countries which as of the effective
date of this Decision taxed the second and
subsequent sales of immovable property, may
continue to do so.
Section II
Personal Aspect of the Generating Act
Article 11.-
Economic Combinations.
For the
purposes of this Decision, the economic
combinations listed below, among others,
will be liable to tax in the event of
carrying out transactions subject to the tax:
1. Joint
ownerships.
2. Consortiums
or temporary partnerships.
3. Association
agreements, joint ventures and other
business cooperation agreements.
4. De facto
associations.
5. Illiquid or
non-divisible successions.
6. Separate
assets existing by virtue of trust deeds.
7. Funds of
any nature.
Section III
Territorial Aspect of the Generating Act
Article 12.-
Rules for the definition of the territory of
the services.
For the
purposes of the value added type of taxes
regulated by this Decision, for services
which provision or execution crosses
national boundaries and which are listed
below, the following rules must be taken
into account:
1. The
following services will be deemed to have
been provided or used in the place where
they are physically carried out:
a) Loading and
unloading, transfer, stevedoring and storage
of goods;
b) Artistic,
sport and culture related services.
2. Services
provided from abroad, which are used or
enjoyed by residents or persons domiciled in
a Member Country, will be considered to have
been provided in this country’s jurisdiction;
such as those mentioned below:
a) Licenses
and permits for use and exploitation, in any
manner, of physical and intangible assets;
b)
Professional services such as consultancy,
advisory and auditing;
c) Leasing of
physical movable property used in the
territory of the Member Country;
d) Services
related to translation, text correction or
composition;
e) Insurance
services related to assets located in the
territory of the Member Country;
f) Services
carried out on physical movable property,
which remain or operate in the territory of
the Member Country;
g) Services
associated with satellite connection or
access, regardless of the location of the
satellite;
h) Satellite
or cable television services enjoyed in the
Member Country;
i)
Telecommunication services.
3. Services
carried out over immovable property will be
deemed to have been provided in the place
where they are located.
Article 13.-
Exports of Services.
In addition to
the requirements set forth in the internal
legislation of each Member Country, for an
operation to be considered as an export of
services, the following conditions must be
met:
a) The
exporter must be domiciled or be a resident
in the exporting country;
b) The user or
beneficiary of the service is not domiciled
or is a resident in the exporting country;
c) The use,
taking advantage or exploitation of the
services by the user or beneficiary fully
occurs abroad, even if the provision of the
service takes place in the exporting
country;
d) The payment
made as a consideration for such service is
not charged as a cost or expense in the
exporting country by the companies or
individuals carrying out activities or
business therein.
For the
purposes of the value added type of taxes
regulated in this Decision, services exports
will be subject to the Zero Rate system.
Temporary
Provision.- Notwithstanding the
provisions of the previous paragraph, any
Member Countries which as of the effective
date of this Decision, impose taxes on
exports services or subject them to a regime
other than the Zero Rate system, may
continue to do so up to six (6) years after
the effective date of this Decision.
Article 14.-
Transport Services.
The following
rules will apply to transport services:
1.
International freight transport services,
including the transport of parcels,
packages, documents or correspondence,
will be subject to the zero rate system.
2. In the
case of international passenger transport
services, the tax will only occur in the
country of original embarkation and in its
favor, according to the rate and other
rules in effect therein at the time of
embarkation.
3. Domestic
freight transport and air passenger
transport will be taxable with the value
added type of tax.
4. Other
types of domestic passenger transport
services will be subject to the internal
regulations of each Member Country.
Temporary
Provision.- In international freight
transport services, including the transport
of parcels, packages, documents or
correspondence, any Member Countries which
as of the effective date of this Decision
have different rules, may continue to apply
them. Any reform conducted with respect to
the treatment of this service will be done
to apply the zero rate system.
Nevertheless,
any Member Countries which as of the
effective date of this Decision exclude
international freight transport services
from the ambit of the tax, may tax such
services with a regime other than the zero
rate system. Subsequent reforms will
institute the zero rate system.
Any Member
Countries which as of the effective date of
this Decision, have different rules for the
cases prescribed in Points 2 and 3, may
continue to apply them up to ten (10) years
following the effective date of this
Decision.
Section IV
Temporary Aspect of the Generating Act
Article 15.-
Cause of the tax.
Value added
type of taxes will be instantaneously
produced, and at the following times:
1. In the
sale or transfer of goods and provision of
services, except in the case of the public
utilities, with the full delivery of the
good or completion of the service.
Nonetheless, Member Countries may have the
tax to be produced at the time of the
issuing of the respective receipt for the
total amount or at the time of the full
payment total for the good or service,
whichever occurs first. In cases of
partial delivery, partial payment or
issuing of receipts for partial amounts,
the legislation of each country will
regulate the time of occurrence of the tax
obligation.
2. In
successive chain of title agreements, as
each canon or installment is demandable
and in proportion thereto. Yet, the Member
Countries may prescribe for the tax to be
caused at the time of the issuing of the
respective receipt or at the time of
payment for the good or service, whichever
occurs first.
3. In the
case of the public utilities, in
accordance with the provisions of the
internal legislation of each Member
Country.
4. In
imports, when the goods are cleared into
the country.
5. In the
use in the Member Country of services
provided by persons who are non-domiciled
or non-resident, at the time of the
provision of the service, on the date of
registration of the respective receipt by
the beneficiary of the service or on the
date when the consideration is paid,
whichever occurs first.
Article 16.-
Amendments to the current system.
Regulatory
amendments implying changes to the amount of
tax to be paid, may only be applied as from
the fiscal period following the date when
the corresponding fiscal regulations were
passed.
Temporary
Provision.- Any Member Countries which
as of the effective date of this Decision
have regulations considering different
methods for implementation, than those
prescribed in this Article, may continue to
apply them.
Chapter III
Taxable Base
Article 17.-
Taxable Base.
The taxable
base in value added type of taxes includes
the main expense as well as any accessory or
complementary expenses, even if the latter
are separately billed or agreed to and,
although independently considered, they are
not subject to the tax. Accordingly, among
others, the taxable base will consist of the
expenses related to hauling, transport,
installation, assembly, insurance, financing
expenses and arrears charges, as well as
fees, whether agreed, arranged or generated
as accessory or complementary elements of
the main operation.
Amendments to
the value of the operation and any
deductions which may be agreed upon
thereafter, as per normal commercial
practices, will cause the corresponding
adjustment to the taxable base, on the date
when they take place.
The taxable
base for imports will consist of the customs
value of the goods, plus the customs duties
and taxes to be paid, and any other expenses
incurred by the importer to clear customs
and which is shown on the import declaration
or equivalent document.
In any
cases not stipulated in this Article for the
determination of the taxable base, the
Member Countries will apply their internal
legislation.
Temporary
Provision.- Any Member Countries not
applying the adjustments to the taxable base
for deductions made after the business
transaction from which they originate, will
not be obliged to abide by the provisions of
the second paragraph of this Article.
Article 18.-
Taxable base in barter cases.
Value added
type of taxes will be produced for each one
of the parties to a barter. The taxable base
will correspond to the value assigned to
each of the bartered goods, value which, in
any case, may not be lower than the
commercial value. The same rule will apply
in the case of services.
Chapter IV
Rates
Article 19.-
Rates.
Value added
type of taxes will have a general rate,
which may not exceed 19%, including all
surcharges or extras, other than excise
taxes.
Member
Countries may fix a single preferential rate,
which may not be less than 30% of the
general rate, to tax any goods and services
which as of the effective date of this
Decision are excluded.
Temporary
Provision.- Member Countries will have a
term of ten (10) years, counted as from the
effective date of this Decision, to adapt
their legislation to the provisions of this
Article.
Chapter V
Exclusions and Zero Rate System
Article 20.-
Zero Rate System for the Tax.
The Zero Rate
system will only be applied for the export
of goods and services.
Temporary
Provision.- Member Countries must adapt
their legislation to this effect within five
(5) years counted as from the effective date
of this Decision.
Article 21.-
Nomenclature for the exclusion of goods.
The exclusion
of goods will be based on the Andean Tariff
Nomenclature, to at least eight (8) digits,
which could be coded, if necessary.
Temporary
Provision.- Member Countries must adapt
their internal legislation to this
methodology within two (2) years, counted as
from the effective date of this Decision.
Article 22.-
Principle for taxing goods
In all Andean
countries, the principle of “taxing in the
destination country” will prevail. Therefore:
a) All
imports of goods are subject to the tax,
unless they are excluded goods.
b) Exported
goods will be subject to the zero rate
system.
Article 23.-
Exclusion of goods.
As from the
effective date of this Decision, Member
Countries may not create new exclusions of
goods, or expand the existing list in their
internal legislation.
As from the
beginning of the eleventh (11th) year since
the effective date of this Decision, they
may only maintain the following exclusions:
a) Goods
imported by diplomatic or consular
missions, or by their duly accredited
diplomatic personnel, subject to
international agreements and to
reciprocity rules.
b) Goods
imported by international organizations
and their personnel with the rank of duly
accredited international officials, who
have signed immunity and privilege
agreements.
c) Imports
of donated goods deriving from abroad and
destined for the public sector and non-profit
private organizations, aiming at health,
education and common utilities; duly
verified and authorized by the competent
authority in each country.
d) Luggage,
whether accompanied or otherwise, as
typified in the national legislation.
Therefore,
Member Countries must gradually get rid of
all exclusions of goods which are not
included in the previous items.
Article 24.-
Principle for taxing Services.
In all Andean
countries, the principle of “taxing in the
destination country” will prevail, save for
the provisions of Article 13. Therefore:
a) Tax will
be applicable to the services referred to
in Point 2 of Article 12 of this Decision.
b) The Zero
Rate system will be applied to the
exported services referred to in Article
13 of this Decision.
Article 25.-
Exclusion of services.
As from the
effective date of this Decision, Member
Countries, may not create new exclusions of
services, or expand the existing list in
their internal legislation, save in the
cases noted in the following paragraph.
As from the
beginning of the eleventh (11th) year since
the effective date of this Decision, they
may only maintain the following exclusions:
a) Services
relating to education, health and national
passenger transport, except for air
services, according to the stipulations
contained in the legislation of each
Member Country; and,
b) Financial
brokerage services.
Therefore,
Member Countries must gradually eliminate
any service exclusions not included in the
above items.
Member
Countries must establish in their
legislation the tax treatment granted to
administrative services provided with
respect to licenses, records, registration
and other similar services by government
institutions in compliance with their
purpose and duty, through which they earn
rates, fees, levies or other similar forms
of consideration. The said treatment may
consider such services as being excluded or
as transactions not generating value added
type of tax.
Chapter VI
Determination of the Tax
Article 26.-
Determination of Tax Payable.
The tax
payable en each period of reference:
a) In the
case of sale or transfer of goods,
provision or use of services, it will
consist of the difference between the
taxes caused in the period and the
repercuted taxes granting the right to tax
deductions or tax credits.
b) In
imports, it will be determined by applying
in each transaction the tax rate on the
corresponding taxable base.
Article 27.-
Right to Tax Credit.
Right to tax
credits are only earned from the purchase of
goods and services meeting the formal
requirements determined by each national
legislation and the following substantial
requirements:
a) They must
be necessary for the undertaking of the
debtor’s business, according to the
limitations or restrictions established by
each national legislation.
b) They must
be used in transactions on which value
added type of tax must be paid, or in
transactions subject to the zero rate
system.
Article 28.-
Tax credit from fixed assets or capital
goods.
In the case of
purchase or acquisition of fixed assets or
capital goods, repercuted taxes grant the
right to a tax credit for the debtor, in the
same conditions as those referred to in the
previous article, applying any of the
following options, as they may be prescribed
in the legislation of the Member Countries:
a) The
deduction in the period in which the
acquisition of the asset is verified, or
in general, in which tax credits from
repercuted taxes can be offset.
b) The
rebate of the repercuted taxes, which
could be carried out even if it did not
produce any operations, or if they still
are in the process of installation,
assembly or commissioning.
c) The tax
credit using the “prorrata temporis”
system, according to which, the repercuted
tax will be amortized throughout the
useful life of the asset, based on its use
by the debtor. If this deduction method is
used, the balance to be amortized will be
adjusted every month, according to
inflation.
In cases a)
and b), if the debtor disposed of the
subject matter asset for a price which is
lower than the purchase price, Member
Countries may demand reimbursement of the
portion of tax credit generated, as may be
set forth in their legislation.
Temporary
Provision.- Any Member Countries which
as of the effective date of this Decision do
not grant rights to tax credits for the
purchase or acquisition of fixed assets or
capital goods, may continue with this
practice up to six (6) years after the
effective date of this Decision.
Article 29.-
Proportion of deductible taxes.
A tax credit
originating from the acquisition of goods or
use of services fully destined to
transactions taxable at the general rate and
to transactions subject to the zero rate
system, may be deducted 100%.
Any Member
Countries applying preferential rates may
regulate the recovery of the tax credit in
accordance with their internal legislation.
When used
indistinctly in transactions taxed with the
general rate and transactions subject to the
zero rate system, or when excluded from the
tax, and it is not possible to tax them
directly to one another, the deduction will
be performed on the basis of the tax credit
component proportionally corresponding to
the transactions taxed at the general rate
and to the transactions subject to the zero
rate system or which are excluded according
to the legislation of each Member Country.
Chapter VII
Exceptions
Article
30.- Exceptions.
Notwithstanding the provisions of Articles
19, 23, 25 and 27 of this Decision, a Member
Country may adopt the corrective measures
required to deal with the existence or
threat of a serious fiscal crisis at the
Central Government level, or to handle
national emergency situations, subject to
prior authorization by the Andean Community’s
General Secretariat.
Whenever the
situation stipulated in the above paragraph
demands immediate action, the Member Country
may apply the corrective measures which it
may deem necessary, reporting them within a
maximum of five (5) days, counted as from
the date when the measures were adopted, to
the Andean Community’s General Secretariat,
which in turn will issue an opinion within
the following thirty (30) days, announcing
authorization, amendment, or suspension.
Corrective
measures applied in accordance with the
above paragraphs:
1. Will be
of a temporary nature and will be
gradually removed as the situation which
causes them improves;
2. Must not
discriminate between Member Countries of
the Andean Community;
3. Will not
be adopted or maintained to protect any
given sector.
TITLE II
PROCEDURAL
ASPECTS OF VALUE ADDED TYPE OF TAXES
Chapter VIII
Filing of Tax Return
Article 31.-
Filing of Tax Return.
Value added
type of taxes will be settled by the debtor
on the return forms made available to such
effect by the Tax Authority of each Member
Country.
The tax’s
fiscal period may not exceed two (2) months.
Filing and payment will be made as
