Microsoft word - morocco_ amendment to tax agreement execution version_2_.doc

EXECUTION VERSION
FIRST AMENDMENT TO TAX AGREEMENT
This FIRST AMENDMENT TO THE TAX AGREEMENT dated as of September 15,
2008 (this “Amendment”), is entered into by and among the Millennium Challenge Corporation,
a United States government corporation (“MCC”), the Government of the Kingdom of Morocco
(the “Government”) represented by the Ministry of Economy and Finance of the Kingdom of
Morocco (the “Ministry of Finance”), and Agence du Partenariat pour le Progrès, a public
entity established under Moroccan law to assume certain rights and responsibilities of the
Government under the Compact (“MCA-Morocco”). MCC and the Government will be deemed
to have executed this Amendment as of the Effective Date. MCA-Morocco will become a party
to this Amendment as of the date that MCA-Morocco executes and delivers this Amendment.
MCC, the Government and MCA-Morocco (when it joins this Agreement) are referred to herein
collectively as “Parties,” and each individually as a “Party.”
WHEREAS, the United States of America, acting through MCC, and the Government
executed that certain Millennium Challenge Compact on August 31, 2007 (the “Compact”),
which sets forth the general terms and conditions on which MCC will provide funding of up to
US$697,500,000 to the Government for a program to reduce poverty in Morocco through
economic growth (the “Program”);
WHEREAS, the Government established MCA-Morocco by Law 35-07 published in the
Official Bulletin on March 6, 2008, to act as an agent of the Government to implement the Program and to perform the Government’s rights and responsibilities to oversee, manage and implement the Program; WHEREAS, the Parties executed that certain Tax Agreement dated February 13, 2008
(the “Tax Agreement”), that further specifies the terms and conditions relating to how the
Government shall implement Section 2.7 of the Compact;
WHEREAS, Paragraph 2 of the Tax Agreement states that within ninety (90) days after
the effective date of the Tax Agreement, the Government will provide to MCC written evidence, satisfactory to MCC, of the existence of specific operational procedures the Government will use to ensure that each Tax MCC identifies in writing is not applied to the Section 2.7 Items, along with a description of the legal basis for Government use of such procedures; WHEREAS, the Government agreed pursuant to Paragraph 2 of the Tax Agreement, if
requested by MCC, to amend the Tax Agreement to document any such procedures and legal bases developed within that ninety day timeframe; WHEREAS, MCC has requested that the Tax Agreement be amended to document
procedures and legal bases developed within that ninety day timeframe pursuant to Paragraph 2 of the Tax Agreement; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Parties hereby agree as follows: Amendment.
Subject to the limitations contained in Section 2 of this Amendment, the Parties hereby amend the Tax Agreement as follows: Paragraph 2 of the Tax Agreement is hereby amended and restated as follows: “Implementation; Legal Basis. Taxes that could apply to one or more of the Section 2.7 Items as of the date hereof but for the provisions of Section 2.7 of the Compact include, but are not limited to, those identified on Attachment I to this Agreement. Set forth on Attachment II are procedures that the Government will implement to ensure that each of the Taxes identified on Attachment I is not applied to the Section 2.7 Items, along with a description of the legal basis for such treatment. To the extent that there are Taxes not identified on Attachment I, whether currently in force or established in the future, that MCC determines, in its sole discretion, may become applicable to the Section 2.7 Items, the Government hereby agrees that it will implement appropriate procedures (approved in writing by MCC) to ensure such additional Taxes are not applied to the Section 2.7 Items, and the Government shall provide MCC the legal basis for such procedures. For the avoidance of doubt, the identification (or lack of identification) of Taxes on Attachment I or otherwise in this Agreement, or the identification (or lack of identification) on Attachment II of procedures to implement such exemption from Taxes, shall in no way limit the scope of the tax free treatment anticipated by Section 2.7 of the Compact.” Paragraph 5 of the Tax Agreement is hereby amended and restated as follows: “Program Reimbursement Method; Government Payment Obligation. MCC and the Government hereby agree that the Program Reimbursement Method will apply with respect to the Taxes described in Schedules C and D of Attachment II. Thus, the Government will be permitted to collect such Taxes subject to the obligation of the Government to pay to MCA-Morocco the amounts described in Paragraph 5(b) hereof. In implementing the Program Reimbursement Method, the Government will pay to MCA-Morocco, for the benefit of the Program, the
amounts set forth on Attachment III on the terms set forth in Attachment III (each,
a “Government Payment,” collectively, the “Government Payments”). The
Government will ensure that annual provision in the annual national budget of the
Kingdom of Morocco is made as long as is necessary to enable the Government to
meet its Government Payment obligations described herein. In accordance with
Attachment III, the Government will deposit an amount sufficient to cover the full
amount of the then accrued and unpaid Government Payments obligation into one
or more bank accounts acceptable to MCA-Morocco, with the prior written
consent of MCC. No MCC Funding shall be used by the Government in making a
Government Payment.
In the event any Government Payment is not paid in full when due, interest shall be paid on such past due amount at the one-month LIBOR rate in effect on the date such payment is due, calculated on a daily basis from the due date of such payment until such amount is paid. The Government Payments received shall be used by MCA- Morocco in a manner to be agreed upon by MCC and the MCA-Morocco, and shall be subject to the limitations on the use and treatment of MCC Funding set forth in the Compact. Either Party, by written notice to the other Party, may request reconsideration of the timing of the Government Payments. Either Party, by written notice to the other Party, may request reconsideration of the amounts of the Government Payments if the actual corporate income taxes and individual income taxes paid by companies and individuals in connection with work performed under the Program (as anticipated by Schedules C and D of Attachment II) differ in a material way from the amounts that the Parties anticipated would be paid in determining the amounts of the Government Payments.” An Attachment I of the Tax Agreement is hereby created and appended to the Tax Agreement as set forth in Attachment I to this Amendment. An Attachment II of the Tax Agreement is hereby created and appended to the Tax Agreement as set forth in Attachment II to this Amendment. An Attachment III of the Tax Agreement is hereby created and appended to the Tax Agreement as set forth in Attachment III to this Amendment. Limitations.
Except as expressly amended by this Amendment, all of the terms, covenants and conditions of the Tax Agreement shall remain unchanged and in full force and effect. Agreement References.
On and after the date hereof, each reference in the Tax Agreement to “this Agreement,” “hereof,” ‘herein,” “herewith,” “hereunder” and words of similar import, and each reference to the “Compact,” “thereunder,” “thereof” or words of like import in any Supplemental Agreement or in any other document or instrument delivered pursuant to the Compact or any Supplemental Agreement, shall mean and be construed to refer to the Tax Agreement as amended hereby. No reference to this Amendment need be made in any instrument or document at any time referring to the Tax Agreement; a reference to the Tax Agreement in any such instrument or document shall be deemed to be a reference to the Tax Agreement as amended hereby. Attachments.
Any annex, exhibit, schedule or other attachment expressly attached hereto is incorporated herein by reference and shall constitute an integral part of this Amendment. Effective Date.
This Amendment shall become effective as of the date first written above. Counterparts.
This Amendment may be executed in counterparts, each of which shall constitute an original, but when taken together, shall constitute one instrument. Governing Law.
The Parties agree and acknowledge that this Amendment is entered into for the purpose of implementing the Compact and, as such, shall be interpreted in a manner consistent with the Compact and shall be governed by the principles of international law. Further Assurances.
Each Party hereby covenants and agrees, without necessity of any further consideration, to execute and deliver any and all such further documents and take any and all such other action as may be reasonably necessary or appropriate to carry out the intent and purpose of this Amendment. SIGNATURE PAGE BEGINS ON THE NEXT PAGE.
ATTACHMENT I
ATTACHMENT II
TAX SPECIFIC EXEMPTION MECHANISMS
SCHEDULE A
VALUE ADDED TAX (VAT)
Legal Basis for Exemption.
Section 2.7 of the Millennium Challenge Compact dated August 31, 2007, by and between the United States government, acting through the Millennium Challenge Corporation,
and the Government of the Kingdom of Morocco, the parliamentary ratification of which, was
approved by Law No. 34-07, published in the Bulletin Officiel March 6, 2008. (the “Compact
Law”)
The 1957 Agreement between the United States and the Kingdom of Morocco on Economic, Technical and Related Assistance (affected by exchange of notes) (the “1957
Treaty”)
Articles 92 (Paragraph 1-21) and 123 (Paragraph 20) of the General Tax Code (“CGI”)
The VAT Implementing Regulations (decret d’application de TVA) (Decree 2-06- 574 of 10 hija 1427 (December 31, 2006)) Beneficiaries of Exemption.
MCA-Morocco, other Public Entities, and Vendors, including prime contractors Purchases by MCA-Morocco
On a per purchase basis, MCA-Morocco prepares and signs a letter on behalf of itself (i) attesting to the purchase being transacted in connection with the Program (attestation de don), (ii) listing what is being purchased, (iii) the supplier’s name and the supplier’s tax identification number, and (iv) listing how the purchase will be used in connection with the Program. MCA-Morocco submits the attestation de don letter, together with pro forma invoices with “APP” in the address field, to the tax authorities (Direction Générale des Impots or DGI) for action. Without prejudice to MCA-Morocco’s rights under this Amendment, MCA-Morocco will endeavor to submit the information described in this Section 3(a) as it makes the purchases related thereto. Within fifteen days of receipt of the complete information described in Section 3(a) of this Schedule A, DGI then prepares in duplicate a letter specific to the purchase that
exempts the purchase from VAT (that can be relied upon by (i) the purchaser to justify non-
payment of VAT on the purchase and (ii) by the supplier to justify why VAT was neither
collected on the purchase nor is payable to DGI on the relevant transaction) (“VAT exoneration
letter”). DGI then submits both VAT exoneration letters to MCA-Morocco. MCA-Morocco
transacts the purchase exempt of VAT, gives one copy of the exoneration letter to the supplier
and keeps another copy of the exoneration letter for its records.
Purchases by Other Public Entities
On a per purchase basis, the purchaser/beneficiary public entity (“Purchaser”)
submits to MCA-Morocco information regarding the purchase it is seeking to complete exempt of VAT. Information should include a letter listing (1) the contract with MCA-Morocco or a MCA-Morocco contractor giving rise to the need for the purchase, (2) what is being purchased, (3) the supplier’s name and the supplier’s tax identification number, and (4) how the purchase will be used in connection with the Program. The letter should be signed by a duly authorized official of the Purchaser, and it should be accompanied by related pro forma invoices from the selling vendor specifying “APP” in the address field. MCA-Morocco then prepares and signs a letter on behalf of the Purchaser attesting to the purchase being transacted in connection with the Program (attestation de don), and submits the attestation de don letter together with the Purchaser’s package (Purchaser letter and pro forma invoices) to DGI for action. Without prejudice to MCA-Morocco’s rights under this Amendment, MCA-Morocco will endeavor to submit the information described in Section 4(a) and 4(b) on a rolling basis as such information is received. Within fifteen days of receipt of the complete information described in Section 4(a) and Section 4(b) of this Schedule A, DGI then prepares in duplicate a VAT exoneration letter specific to the purchase and submits it to MCA-Morocco. MCA-Morocco than transmits to the Purchaser who conducts the purchase exempt of VAT and keeps the letter for its records. Purchases by Vendors Working on the Program.
The purchaser/beneficiary vendor, who during a given month acquired goods and services in relation to the Program, can deduct the VAT due from VAT collected during the following month. This deduction is automatic. However, when the purchases concern capital goods subject to amortization the deduction can be taken within the same month. If owed VAT after deducting against what was collected, a contractor in privity of contract with the Government or a government affiliate (including, but not limited to
contractors in privity of contract with MCA-Morocco) in connection with the Program (each, a
“Prime Contractor”) should use this method for all local purchases made in connection with the
Program.
Preparation of Reimbursement Package: The Prime Contractor prepares quarterly a reimbursement package as follows: In accordance with the article 25 of the VAT Implementing Regulations, the Prime Contractor must submit the request for refund, prepared using or based on the printed form prepared by the DGI, accompanied by the following supporting documentation: For direct imports by Prime Contractors for which they are entitled a copy of the import declaration and receipt for payment of the corresponding VAT, a statement indicating, for each import, the import declaration number, the number and date of the customs release evidencing definitive payment of duties and the precise nature of the merchandise, the value used for calculation of the VAT, and the amount of VAT paid; For purchases of goods and services, deliveries, goods manufactured and works performed in Morocco: copies of invoices or bills establishing eligibility for refund a reference to the invoices or bills and the identification number(s) assigned by the tax office appearing on them; the precise nature of the merchandise, goods, services, manufactured goods or works; the amount of the corresponding bills or invoices; and, if applicable, the rate and amount of VAT indicated on the invoices or bills; a reference and terms of payment relating to the invoices or bills. The statements described above must also include, in a separate column, the entry number of the invoices for purchases and manufactured goods, or customs documents serving the same purpose, in the account books. The amounts indicated on the above statements should be totaled by category, and the amounts should correspond to the amounts of imports, purchases of goods and services, deliveries, manufactured goods and works appearing on the sales declaration(s) attached to the refund request. Prime Contractor having operated in Morocco for less than two years To receive the exemption from VAT provided by CGI article 92 section I-6° for capital goods eligible for treatment as fixed assets (biens d’investissement immobilisables), taxpayers must request the exemption and provide evidence that they maintain a regular accounting system permitting such goods to be recorded in a fixed asset account resulting in depreciation. The aforementioned request must be prepared on a printed form provided by DGI and sent to the cognizant tax office for the taxpayer’s principal place of business or head office, accompanied by the following documents: a descriptive statement, in triplicate, providing the name and address of the suppliers, the nature and use of the goods to be purchased on the domestic market and exempt from VAT, their value in dirhams, and the account heading under which they will be recorded in the accounting system. The statement must also include the suppliers’ identification number assigned by the local tax office, and the rate and amount of tax from which the exemption is requested. Pro forma invoices or job estimates in triplicate. Based on the request, the local tax office prepares an exemption certificate (attestation d’exonération) in triplicate. The tax office retains the original and the other two copies are provided to the beneficiary, which provides a copy to its supplier. Invoices and all documents relating to such purchases must bear the notation “Exonération de la taxe sur la valeur ajoutée en vertu de l’article 92 (I-6°) du code général des impôts” (Exempt from value added tax pursuant to article 92 (I-6°) of the General Tax Code). The exemption for imported capital goods is subject to the importer’s providing an agreement, prepared in accordance with the printed model drawn up by the administration and bearing the tax identification number, whereby the interested party agrees to record the imported capital goods entitled to the deduction provided in CGI article 101 in a fixed asset account. Any direct supplier to a Prime Contractor that has sold to such Prime Contractor goods or services that are exempt from VAT by operation of the certificate/exoneration method described above shall be entitled to the offset method and the reimbursement method of any VAT paid by such direct supplier on all inputs purchased by such direct supplier that are used in creating the goods or services sold to such Prime Contractor. SCHEDULE B
CUSTOMS DUTIES
Legal Basis for Exemption
Article 190 of Decree 2-77-862 of October 9, 1977, Article 150 subparagraph 1bis of the Customs Code (Code des Douanes et Impots Indirects) Beneficiaries of the Exemption
MCA-Morocco and vendors importing goods to be used in the Program Procedures
Imports by MCA-Morocco
MCA-Morocco prepares and signs a letter on behalf of itself (a) attesting to the goods being imported in connection with the Program (attestation de don), (b) listing what is being imported, and (c) listing how it will be used in connection with the Program. MCA-Morocco submits the attestation de don letter together with pro forma invoices addressed to MCA-Morocco to the customs authorities (La Douane) for action. The Douane then prepares a customs duties exoneration letter specific to the imports and submits it to MCA-Morocco. MCA-Morocco imports the goods exempt of customs duties. Imports by Vendors importing goods to be used in the Program
The importer/beneficiary vendor (Importer) submits to MCA-Morocco information regarding the purchase it is seeking to complete exempt of customs duties. Information should include a letter listing (a) the contract with APP giving rise to the need for the imports, (b) what is being imported, and (c) how it will be used in connection with the Program. The letter should be signed by a duly authorized official of the Importer, and it should be accompanied by related pro forma invoices from the selling vendor specifying “MCA-Morocco” in the address field. MCA-Morocco then prepares and signs a letter on behalf of the Importer attesting to the goods being imported in connection with the Program (attestation de don), and submits the attestation de don letter together with the Importer’s package (Importer letter and pro forma invoices) to the tax authorities (Direction General des Impots or DGI) for action. DGI then prepares a Customs exoneration letter specific to the imports and submits it to MCA-Morocco. MCA-Morocco than transmits to the Importer who imports the goods exempt of customs duties.
SCHEDULE C
CORPORATE INCOME TAX
Legal Basis for Exemption
Tax Convention between the United States and the Kingdom of Morocco signed August 1, 1977 Other Double taxation treaties, as applicable Beneficiaries
All companies, other than those organized under the laws of Morocco, working under the Program. Procedures
The Program Reimbursement Method will be used to effect the economic equivalence to the Program of a corporate income tax exemption as such exemption would have applied to all companies, other than those organized under the laws of Morocco, working under the Program. Over the course of the Compact term, all companies working under the Program pay corporate income tax in accordance with their tax liabilities under Moroccan law.1 In accordance with the schedule set forth in Attachment III, the Government will pay into the budget for the Compact Program in Morocco an estimate of funds received from such corporate tax collection. Note: When bidding on a contract, vendors will be advised to price their contracts to include any
corporate tax liability under Moroccan law. Accordingly, no reimbursement will be owing to the
contractor for corporate taxes properly paid on revenue generated under the Program.
1 This should take into account, to the extent applicable, any provisions under Moroccan law (such as currently existing exemptions under Moroccan law; double taxation treaties; bilateral agreements; etc.), that might result in adjustment to such corporate tax liability. SCHEDULE D
INDIVIDUAL INCOME TAX
Legal Basis for Exemption
Tax Convention between the United States and the Kingdom of Morocco signed August 1, 1977 Other Double taxation treaties, as applicable Beneficiaries
All natural persons, other than Moroccan citizens, working under the Program. Procedures
The Program Reimbursement Method will be used to effect the economic equivalence to the Program of an individual income tax exemption as such exemption would have applied to all natural persons, other than Moroccan citizens, working under the Program. Over the course of the Compact term, all natural persons working under the Program pay individual income tax in accordance with their tax liabilities under Moroccan law.1 In accordance with the schedule set forth in Attachment III, the Government will pay into the budget for the Compact Program in Morocco an estimate of funds received from such individual income tax collection. Note: When bidding on a contract, vendors will be advised to price their contracts to include any
individual income tax liability for their staff under Moroccan law. Similarly, to the extent that
natural persons are negotiating contracts in connection with the Program, they will be advised of
the use of the Program Reimbursement Method so that they may properly consider the
implications that may have on their salary requirements. Accordingly, no reimbursement will be
owing to an individual person for individual income taxes properly paid on revenue generated
under the Program.
1 This should take into account, to the extent applicable, any provisions under Moroccan law (such as currently existing exemptions under Moroccan law; double taxation treaties; bilateral agreements; etc.), that might result in adjustment to such income tax liability. SCHEDULE E
Legal Basis for Exemption
Beneficiaries
Any fuel purchased for use exclusively in the Program. Procedures
A method will be used to effect the economic equivalence to the Program of a fuel tax exemption as such exemption would have applied to any fuel purchased for use exclusively in the Program. The principle is as follows: subsidized, taxed fuel will be deemed an economic equivalent to a tax exemption on fuel so long as the total cost to the program from such subsidized, taxed fuel is less than unsubsidized, untaxed fuel. Beginning in May 2008 and every six months thereafter during the Compact term, the Government furnishes written proof to MCC that the cost to the Program of subsidized, taxed fuel purchases is less than the same purchases would have been had they been unsubsidized and not taxed. This may be demonstrated, for example, by showing that the Government subsidizes gas purchases at a greater relative rate than it taxes such purchases. As long as there is a lower cost to the Program for subsidized, taxed fuel purchases than the cost would be for unsubsidized, untaxed fuel purchases, MCC will deem receipt of the subsidy by purchasers of gas as the economic equivalent of a fuel tax exemption as such exemption would have applied to any fuel purchased for use exclusively in the Program, and MCC will not require the Government to implement a different tax exemption mechanism. Note: MCC expressly reserves the right, at any time, to require the Government to implement a
different tax exemption mechanism other than the one described herein if MCC determines that
the total purchasing cost to the Program of subsidized, taxed fuel is greater than the total
purchasing cost to the Program of unsubsidized, untaxed fuel would have been.
ATTACHMENT III
ESTIMATED AMOUNTS OF GOVERNMENT CONTRIBUTION REGARDING
CORPORATE AND INDIVIDUAL INCOME TAXES
Pursuant to Attachment II, Schedules C and D of this Agreement, the Government has agreed to pay the Program the amounts shown in the table below, which represent the equivalent of revenues estimated to be generated over the Compact term from the collection of corporate and individual income taxes: 2008 2009 2010 2011 2012 Total
Government Total
6,000,000 6,000,000 2,000,000 17,000,000
Contribution (US$)

The Government shall pay MCA-Morocco in semi-annual installments in accordance with the payment schedule below which assumes an Entry into Force in late summer or early fall of 2008. In order to enable the Government to generate the revenue it must put back into the Program, payments are scheduled to begin only a year after the Compact’s entry into force and after the completion of the compact implementation funding period. In order to ensure that the Tax contribution amounts made by the Government will be available during the life of the Compact, the Government shall complete its contributions in July 2012, enabling those contributions to then be reprogrammed in the final year of the Compact. These US dollar amounts will be paid into an account specified by MCA-Morocco, with the prior written consent of MCC. PAYMENT TIMETABLE
Payment Due (on the 15th of the month)
Amount (US$)
September 2009
July 2010
September 2010
July 2011
September 2011
July 2012
Total over Compact term
17,000,000.00

Source: http://www.app.ma/uploads/pdf/Creation/7F6.pdf