URUGUAY – TAX TREATMENT ON CERTAIN PRODUCTS
Document: Request for Consultations by Chile
Date: 26 June 2002
Document codes: WT/DS261/1; G/L/555
Complainant: Chile
Respondent: Uruguay
Third parties: EU, Mexico, U.S.
Dispute stage: Mutually Agreed Solution
Agreements cited: Art. I, III  GATT 1994

URUGUAY – TAX TREATMENT ON CERTAIN PRODUCTS
Request for Consultations by Chile
The following communication, dated 18 June 2002, from the Permanent Mission of Chile to
the Permanent Mission of the Eastern Republic of Uruguay and to the Chairman of the Dispute
Settlement Body, is circulated in accordance with Article 4.4 of the DSU.
I have been instructed by my Government to request consultations with the
Eastern Republic of Uruguay under Article XXII of the GATT 1994 and Article 4 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes in connection with
Uruguay's tax treatment on certain products.
The Specific Internal Tax ( Impuesto Específico Interno – IMESI) is levied on the first
alienation and the import by non-taxpayers of certain specified goods, including beverages (alcoholic
beverages, juices, mineral water), tobacco and cigarettes, automobiles, and lubricants and fuels. The
IMESI tax scheme is contained in a number of different provisions, including Chapter 11 of the
Harmonized Text of 1996, Decree 96/990 of 21 February 1990 of the Ministry of the Economy and
Finance, and bimonthly resolutions of the Direct orate-General of Taxation (DGI), and was recently
amended, for cigarettes, by Decree 200/002 of 3 June 2002.
This tax is applied in various ways, most of which involve the use of notional prices to
determine the tax assessment base. As a result, the base is raised with respect to the actual sales price,
more notably so in the case of goods of foreign origin. In some cases, not only does this lead to
discrimination and violation of Uruguay's internati onal obligations with respect to national treatment,
but it amounts, in practice, to an import prohibition.
A closer look at the situation with respect to beverages and to cigarettes and tobacco
illustrates this point:
Beverages. The legislation establishes the following differential rates according to the
product:
Product Rate in %
Wines (including champagne) 20.2
Liqueurs (gin, grappa, rum, tequila, whisky, etc.) 80
Beer 23.5
Non-alcoholic beverages (including mineral water) 10.5
Malts 13
Other 21.5
However, the tax base for these products varies considerably and differentially according to
their origin.

Wines and liqueurs are divided into two, three or four categories depending on their actual
sales price. For each category, the Uruguayan authority establishes a notional price on the basis of
which the tax payable is calculated. In other words, the rate of 20.2 or 80 per cent is applied to the
notional price fixed by the authority every two months for each one of the categories, regardless of the
actual sales price (which is only used to place the product in one of the categories and apply the
corresponding notional price). In establishing the categories of products and their corresponding
notional prices at its discretion, the Uruguayan authority discriminates, in practice, against imported
products. Chilean wines, for example, are generally classified in the second category, for which the
notional price is almost double that of the first ca tegory (which includes most of the wines produced
in Uruguay).
In the case of other beverages (beer, mineral water, juices), the authority fixes a notional price
every two months to which it applies the corresponding rate. For imported products, the tax base
corresponds to the notional price multiplied by a factor of 2. This is known in Uruguay as the "double
IMESI". In other words, the tax base for domestic products is not only determined arbitrarily by the
authority, but it corresponds to half the base applied to imported products.
Tobacco and cigarettes. For these two products the tax is the same regardless of their origin:
30 per cent for tobacco and 68.5 per cent for cigarettes. However, as in the case of beverages and
other products, notional prices are used to determine the tax base. In the case of tobacco, although
Regulatory Decree 96/990 stipulates that the notional price shall be fixed on the basis of the sales
price multiplied by a certain factor (depending on whether it is tobacco or frontier zone tobacco and
whether it is sold to a distributor or a retailer), the bimonthly resolutions fix these notional prices
arbitrarily according to the brand (and ultimately, the origin), with differences of up to 100 per cent.
For cigarettes, the notional price is fixed on the basis of the sales price multiplied by a factor which
varies depending on the origin of the product. For domestic cigarettes, the factor is 4.61 per cent or
4.39 per cent depending on whether they are sold to a wholesaler or a retailer. For cigarettes from
neighbouring countries, the notional price corresponds to the notional price of the highest-category
domestic cigarettes multiplied by a factor of 1.3; in the case of cigarettes imported from other
countries, such as Chile, that factor is 2. This means that the IMESI tax base for cigarettes from
neighbouring countries is one third higher than for highest-priced Uruguayan cigarettes, while for
cigarettes imported from other countries, it is double the Uruguayan tax base. In other words, the
taxes paid on foreign products are considerably higher than the taxes paid on domestic products with
the result that in many cases, it is economically impossible to market imported products on the
Uruguayan market.
On 3 June 2002, Decree 200/002 establishing a minimum tax base for all cigarettes was
promulgated. This minimum base is added to the difference with the notional price established
according to the mechanism described above. In other words, while the taxable amount does not
change, and the discrimination between domestic and imported products (differentiated between
border zone and other imports) is maintained, domestic products whose sales price is below the
minimum tax base are penalized. This illustrates how the authority arbitrarily establishes the
conditions for access and marketing of these products.
In the case of the other products affected by the IMESI, there are various degrees of
discrimination between domestic and foreign products.
In view of the above, Chile considers the Sp ecific Internal Tax (IMESI), introduced through
Chapter 11 of the Harmonized Text of 1996, regulated by Decree 96/990 of the Ministry of the
Economy and Finance of 21 February 1990, and amended by Decree 200/002, as well as its bimonthly
implementation through DGI resolutions, to be contrary to Articles I and III of the GATT 1994, in
that they establish a tax scheme based on notional prices to determine the tax base, which
discriminates between domestic and imported products and, in certain cases, between imported

products according to their origin. For certain products this discrimination amounts, in practice, to an
import prohibition.
It should be recalled that this system was already questioned by the WTO in 1998 during the
Trade Policy Review of Uruguay. The Uruguayan representation stated at the time that Uruguay was
preparing legislation that would ensure equality of treatment for all products, regardless of their
origin.
Chile reserves the right to raise other issues of fact and law during the consultations.
I await your reply to this request for consultations in order to establish a mutually convenient
date for holding them.