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;

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

The following rules will apply to transport services:

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.

Value added type of taxes will be instantaneously produced, and at the following times:

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.

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.

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.

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.

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.

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.

In all Andean countries, the principle of �taxing in the destination country� will prevail. Therefore:

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:

Therefore, Member Countries must gradually get rid of all exclusions of goods which are not included in the previous items.

In all Andean countries, the principle of �taxing in the destination country� will prevail, save for the provisions of Article 13. Therefore:

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:

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:

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:

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:

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.

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.

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:

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 stipulated in the respective legislation without exceeding the calendar month following the fiscal period.

Notwithstanding the provisions of the above paragraphs, each Member Country may fix different terms for the filing and payment of excluded or special transactions.

In the case of transactions involving import of goods, value added type taxes will be filed and paid for in accordance with the stipulations of the internal regulations of each Member Country.

Without prejudice to the regime applicable to fixed assets and capital goods, those liable for the tax which, due to the application of the zero rate system, result in credit balances deriving from exports in their tax returns, will have the right to recover such balance, in accordance with the internal legislations of each Member Country.

Each Member Country�s legislation may establish the proportion with respect to the value of the exports subject matter of drawback.

The right to drawback of the value added type of taxes will be deemed to have been granted in cases where due to the method of contracting them with government, an alternative offsetting method has been agreed upon in agreements calling for the exploitation of non-renewable natural resources, paid in the acquisition of goods and services by the contracting company, whenever the Member Country so requires.

Temporary Provision.- Any Member Countries which as of the effective date of this Decision do not rebate the tax imposed on transactions relating to services used for exporting goods, may maintain this rule up to six (6) years after the effective date of this Decision.

Whenever in the internal legislation there is no term set forth for drawback of the value added type of tax to exporters, after two (2) months have elapsed since the date of determination of the amount to be rebated by the Tax Authority, the debtor will earn interest at a rate prescribed in the internal legislation.

Temporary Provision.- Notwithstanding the provisions of the previous paragraph, any Member Countries which as of the effective date of this Decision do not recognize arrears interest for late return of credit balances may continue with this practice up to five (5) years after the effective date of this Decision.

The regimes of each Member Country must precisely establish the grounds for the rejection of applications due to formal causes. When an application must be rejected, the Tax Authority will cite the reasons behind such rejection, in a precise manner, indicating the form, conditions and terms available.

The tax authorities of the Member Countries will refuse a drawback when the right to the said drawback has not been verified, especially if the respective export transaction was not carried out.

Drawbacks will also be refused, among other reasons, due to the following:

Debtor credit balances relating to value added type of taxes with the right to drawback, may be offset by the Tax Authority against demandable tax debts administered by the same institution and corresponding to the same tax creditor.

For a deduction of a tax credit corresponding to transactions associated with the purchase of goods or use of services in the domestic market to be viable, it must be detailed in invoices meeting the requirements prescribed by each Member Country, which must contain at least the following information:

Member Countries must implement control systems for the printing, issuing and use of invoices, as may be deemed appropriate.

The Member Countries may establish exceptions to the obligation of billing and the above prescribed requirements, as well as authorize the issuing of equivalent documents, or create alternative control mechanisms.

Notwithstanding the above item Three, Member Countries may ignore this requirement if they have a system which will make it possible to know the value of the tax generated in each invoice.

The Member Countries may establish systems for withholding value added type of taxes to include, among others, the following cases:

Notwithstanding the provisions of the preceding articles, Member Countries may introduce special regimes which will include value added type of taxes for small economic agents, simplifying their tax obligations, within the limits and conditions established by the Member Countries.

In accordance with the provisions of Article 3 of the Treaty for the Creation of the Andean Community�s Andean Court of Justice, this Decision will be incorporated to the internal laws of each Member Country whenever so prescribed by their constitutional legislation, coming into force on the first calendar day of the month immediately following the date of the last delivery of the corresponding instrument to the Andean Community�s General Secretariat.

Temporary Provision.- Follow up Mechanism.

Member Countries will establish a follow up mechanism, within a term of ninety (90) days counted as from the effective date of this Decision, to verify every two (2) years, any gradual progress made in terms of compliance with the provisions of Articles 23 and 25.

Given in the city of Quito, Republic of Ecuador, on July 12, 2004.