URUGUAY – TAX TREATMENT ON CERTAIN PRODUCTS
Document: Request for the Establishment of a Panel by Chile
Date: 4 April 2003
Document codes: WT/DS261/4
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 the Establishment of a Panel by Chile
The following communication, received on 3 April 2003, from the Permanent Mission of
Chile to the Chairman of the Dispute Settlement Body, is circulated pursuant to Article 6.2 of the
DSU.
I am writing to request the establishment of a panel, in accordance with Articles 4 and 6 of the
Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU), concerning the
Specific Internal Tax ( Impuesto Especifico Interno - IMESI) applied by Uruguay. The IMESI is
levied on the first alienation, in any form, by taxpayers (manufacturers and importers), and the direct
import by non-taxpayers, of certain specified consumer goods, including beverages (alcoholic
beverages, juices, mineral water), tobacco and cigarettes, automobiles, and lubricants and fuels. This
tax scheme is contained in a number of different provisions, including Chapter 11 of the 1996
Harmonized Text of Laws in Force relating to taxes under the responsibility of the Directorate-
General of Taxation ("Harmonized Text of 1996"), as amended by Decree No. 200/002 of
3 June 2002, Regulatory Decree No. 96/990 of 21 February 1990 of the Ministry of the Economy and
Finance, and bi-monthly resolutions of the Dire ctorate-General of Taxation (DGI) adjusting the
notional prices fixed every six months.
On 18 June 2002, pursuant to Article XXII of the General Agreement on Tariffs and Trade
1994 (GATT 1994) and Article 4 of the DSU, Chile requested consultations with Uruguay in order to
find a solution to this issue. That request was circulated in document and
Although the consultations, which took place in Montevideo, Uruguay, on 23 July 2002, enabled the
parties to acquire a better understanding of each other's position, unfortunately, in spite of the time
that has elapsed, they have not led to a mutually satisfactory solution.
The IMESI is applied in various ways, most of which involve the use of notional prices .
These notional prices are fixed every six months by the Executive as basic prices, and are adjusted
every two months by the DGI in order 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 international
obligations with respect to most-favoured-nation and national treatment, but it amounts, in practice, to
an import prohibition.
A closer look at this situation with respec t 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 also adjusts every
two months a notional price fixed every six 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 non-frontier zone tobacco and 20 per cent for frontier zone tobacco. For cigarettes, the
tax is 68.5 per cent. 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 or not it is frontier zone tobacco and whether it is sold to a distributor or a
retailer), the six-monthly decrees and the bimonthly resolutions respectively fix and adjust 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 4.68
or 4.45 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 – i.e. once again, the "double IMESI" is applied. 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 December 2002, Decree No. 460/02 of the Ministry of the Economy and Finance,
stipulating that the notional price for Paraguayan cigarettes would be determined in the same way as
for domestic cigarettes, was published in the Official Journal. This was in response to a MERCOSUR
arbitral tribunal ruling according to which the Ur uguayan legislation discriminated against cigarettes
of Paraguayan origin in relation to cigarettes from Argentina and Brazil. For the purposes of the
IMESI, Argentina and Brasil fall within the category of neighbouring countries, and their notional
price in fact corresponds to the notional price of domestic cigarettes multiplied by a factor of 1.3. In
other words, as of last December, the INESI tax scheme established a new category of imported
cigarettes – foreign cigarettes, cigarettes from neighbouring countries and Paraguayan cigarettes
(assimilated to domestic cigarettes). This simply reaffirms the discretion and arbitrariness with which
the authority applies the IMESI, thereby fixing the conditions of access and marketing of the products
in question.
In view of the above, Chile considers the Sp ecific Internal Tax (IMESI), introduced through
Chapter 11 of the Harmonized Text of 1996, amended by Decree No. 200/002 of 3 June 2002, and
regulated by Decree No. 96/990 of the Ministry of the Economy and Finance of 21 February 1990, as
well as its six-monthly implementation through decrees issued by the said Ministry and bi-monthly
implementation through DGI resolutions, and other supplementary provisions and/or amendments, to
be contrary to Articles I and III of the GATT 1994, in that they establish a domestic 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 in fact amounts, in practice, to an import prohibition. The IMESI
established and applied by Uruguay causes nullification and impairment in respect of Chilean
products.
Consequently, Chile requests the establishment of a panel with the standard terms of
reference set forth in Article 7 of the DSU, and to that end asks that this request be included in the
agenda of the next meeting of the Dispute Settlement Body, scheduled to take place on 15 April 2003.