OAS

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 Councilís 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.



ANNEX I

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 

TITLE OF THE AGREEMENT

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.