RESTRICTED

World Trade G/SCM/N/3/CRI

L/7611/Add.17

Organization 4 September 1995

(95-2543)

Committee on Subsidies and Countervailing Measures

 

 

 

SUBSIDIES

Notifications Pursuant to Article XVI.1 Of the GATT 1994

and Article 25 of the Agreement on Subsidies and

Countervailing Measures

COSTA RICA

 

The following notification, dated 18 August 1995, has been received from the Permanent Mission of Costa Rica.

In view of the decision taken by the CONTRACTING PARTIES of the GATT 1947 on Avoidance of Procedural and Institutional Duplication (L/7582, dated 13 December 1994) this notification is deemed to be also a notification under Article XVI:1 of the GATT 1947.

_______________

 

NOTIFICATION PURSUANT TO ARTICLE 25.2 OF THE AGREEMENT ON

SUBSIDIES AND COUNTERVAILING MEASURES AND

ARTICLE XVI OF THE GATT 1994

 

A. EXEMPTION FROM COMPANY TAX

1. Exemption from company tax for enterprises that signed an export contract before 3 April 1992.

1. Description of subsidy

Enterprises that signed an export contract before 3 April 1992 are 100 per cent exempt from tax on the part of net profits earned during the period by the declaring party, solely from the export of non-traditional products to third markets.

2. Period of notification

The period covered by the notification is three years from 30 June 1995.

3. Policy objective

The policy objective is to promote non-traditional exports to third countries and to attract foreign investment.

4. Background and authority

Company tax exemption for enterprises that signed an Export Contract before 3 April 1992 is set forth in paragraph 60(a) of the Company Tax Act, No. 7092 of 21 April 1988 and amendments thereto, published in Official Gazette No. 96 of 19 May 1988. The National Council for Investment and Export Promotion administers export contracts.

5. Form of the subsidy

Tax relief along the lines described above.

6. Beneficiaries and mechanism

All enterprises that signed an export contract before 3 April 1992 are entitled to exemption from company tax. An export contract may have been signed by any national or foreign natural or legal person who undertook to produce and/or export non-traditional goods to third markets (markets in countries with which there are no agreements granting free-trade treatment with regard to the exported goods).

The mechanism consists of an exemption from the payment of company tax as described above.

7. Estimated amount of the subsidy

No amount is budgeted for this subsidy in view of the kind of tax exemption involved.

8. Duration of the subsidy

In the case of enterprises that have signed an export contract, the subsidy begins on the date on which the Executive Agreement approving the Export Contract is published in the Official Gazette. The subsidy began in 1984 and was scheduled to last for 12 years (until the last day of the 1996 fiscal period). There are no plans to extend this time-limit. However, this particular subsidy was eliminated as from 3 April 1992 and is not included in export contracts signed after that date, although it still is for those signed before then. On that date, the Act Regulating All Current Exemptions, Waivers and Exclusions, Act No. 7293 of 31 March 1992, which was published in the Official Gazette No. 66 of 3 April 1992, abolished most tax and tariff exemptions in force before that date.

9. Trade effects of the subsidy

There is no information on the effects of this subsidy. Such information will be supplied as soon as it is available.

B. GRANTING OF TAX CREDIT CERTIFICATES (CATs)

1. Granting of tax credit certificates

Description of subsidy

Tax credit certificates (CATs) are a subsidy included in all export contracts signed before 2 December 1992. A CAT is a bond that is payable to the bearer. It is freely negotiable, no interest accrues, and it expires 24 months after the date of maturity. These certificates are issued by the Central Bank of Costa Rica in national currency and are used to pay direct or indirect taxes, collected by the Central Bank, as the State Treasurer.

The granting of a CAT depends on whether the exporting enterprise that has signed the Export Contract has a specific percentage of the national content in the product. In general, the higher the national content, the higher the amount of the CAT. The amount is set as a percentage of the f.o.b. value of the exports by the enterprise that has signed the contract.

In the early years, CATs were sometimes as high as 25 per cent of the f.o.b. value of the products exported if the products' regional content was 50 per cent or more. Now, under domestic measures aimed at reducing it gradually, the maximum CAT that can be granted is 14 per cent, in very special circumstances, in cases where the national content of the product exported is over 50.51 per cent.

2. Period of notification

The period covered by the notification is three years from 30 June 1995.

3. Policy objective

The purpose of the subsidy is to promote non-traditional exports to third countries.

4. Background and authority

CATs were introduced and granted under the Tax Act, Act No. 7092, and the amendments thereto mentioned above, and are also regulated by the Rules on the Profits, Time-Limits and Conditions of Export Contracts of 17 October 1994 issued by the Ministry of Foreign Trade's National Council for Investment and published in Official Gazette No. 229 of 1 December 1994. The National Council for Investment is responsible for administering export contracts. CATs are issued by the Central Bank of Costa Rica.

5. Form of the subsidy

The subsidy consists of a direct transfer of funds under the National Budget, which are non-refundable, to enterprises that have signed Export Contracts and are entitled to CATs. They are granted in accordance with the national content of the commodity, as pointed out above. They are used to pay direct or indirect taxes collected by the Central Bank, as the State Treasurer.

6. Beneficiaries and mechanism

This is a general measure. The criterion for allocating CATs is that the beneficiary signed an export contract. Any national or foreign natural or legal person engaged in exporting products with a specific national content can sign an export contract with the State of Costa Rica and, if it was signed before 2 December 1992, was issued with a CAT as an incentive. At present, contracts are still being signed, but as of the above date, CATs were no longer granted as a constituent element.

The exporter furnishes proof to the Central Bank of Costa Rica of the amount of the export. The Central Bank, on the basis of the information provided to it by the National Council for Investment, issues the CAT for the relevant amount, in the name of the exporter. CATs mature in a year, i.e., in general terms, they can be cashed until the time-limit expires.

7. Estimated amount of the subsidy

The amount of the subsidy per unit depends on the product's national content. At present, the maximum CAT is 14 per cent, where the product's national content is 50.51 per cent or more. A copy of CAT tables is enclosed as Annex I.

Since CATs mature in one year, the National Budget is prepared on the basis of information sent by the Central Bank to the Ministry of Finance's Planning Department, and on the CATs issued. These amount may vary from year to year, depending on the amount exported by the enterprises issued with a certificate.

8. Duration of the subsidy

CATs have been issued since 1988, when the Tax Act, Act No. 7092, came into force. CATs are not granted to enterprises that signed export contracts after 2 December 1992 because it was decided that the subsidy would be abolished as of then. However, with regard to contracts signed before that date, CATs are granted up to 1996, as expressly provided for under the Act. Nevertheless, since 7 January 1992, enterprises that have signed export contracts and requested CATs may opt for a reduction of the CAT amount against an expiry date of 1999. In other words, at any time before 1996, if an enterprise wants to obtain a CAT up to 1999 it can do so, but the percentage of the CAT percentage amount, calculated on the f.o.b. value of the exports, will be cut by 30 per cent and, what is more, the enterprise will have to pay the 5 per cent tax differential of the full CAT as compared with the reduced CAT.

There are no provisions on further extensions of export contracts or CATs beyond the last day of the 1999 company tax period. On that date, the contracts that have been extended, along with the benefits, will expire once and for all. The others expire on the last day of the 1996 tax period.

9. Trade effects of the subsidy

There is no information available on the trade effects of the subsidy. Such information will be supplied as soon as it is available.

 

ANNEX I

CAT TABLES APPROVED BY THE NATIONAL COUNCIL FOR INVESTMENT

Original Table

 

National Value Added

NVA % CAT % Markets

From 35 to 50.50 15 United States, Puerto Rico and other third markets,

Honduras and Panama.

From 50.51 and above 20 Third markets (except United States, Puerto Rico, Honduras and Panama.

 

 

CAT TABLES FOR CONTRACTS APPROVED BETWEEN

1 JANUARY 1990 AND 8 MAY 1990

NVA/Year

1992

1993

1994

1995

1996

From 35 and 39

10.00

9.00

8.00

7.00

7.00

From 40 to 44

10.50

9.50

8.50

7.50

7.50

From 45 to 49

11.00

10.00

9.00

8.00

8.00

From 50 or above

11.50

10.50

9.50

9.00

9.00

 

 

CAT TABLE FOR CONTRACTS APPROVED BETWEEN

8 MAY 1990 AND 14 JUNE 1992

NVA/Year

1992

1993

1994

1995

1996

From 35 to 39

7

5

3

3

3

From 40 to 44

8

6

4

3

3

From 45 to 49

9

7

5

4

3

From 50 to 54

10

8

6

5

4

From 55 to 100

11

9

7

6

5

 

CAT TABLE FOR CONTRACTS APPROVED BETWEEN 15 JUNE 1990 AND

1 DECEMBER 1992 AND FOR PRODUCT INCREASES AFTER 1 DECEMBER 1992

WHICH DID NOT CALL FOR A CHANGE IN THE PRODUCTION LINE

NVA/Year

1992

1993

1994

1995

1996

From 35 to 44

7

5

3

3

3

From 45 to 54

8

6

4

3

3

From 55 to 64

9

7

5

4

3

From 65 to 69

10

8

6

5

4

From 70 to 100

11

9

7

6

5

 

 

CAT TABLE FOR BENEFICIARIES ACCEPTING THE EXTENSION PROVIDED FOR

IN ARTICLE 60 OF ACT NO. 7092 AND AMENDMENTS THERETO

(IN FORCE AS OF 7 JANUARY 1992)

NVA % CAT %

From 35 to 50.50 10.5

From 50.51 and above 14.0

 

Exports to the United States and Puerto Rico and exports to Panama of products not included in the Bilateral Free-Trade Treaty whose percentage of NVA is over 35 per cent will be entitled only to 10.5 per cent of CAT.

 

CAT TABLE FOR CONTRACTS APPROVED AS OF 2 DECEMBER 1992: O PER CENT