PROTOCOL ON THE VALUE ADDED TAX

The certain principles relating to Taxes contain in the Contract on Sovestny Development and the Equity Section of Production on Azeri's Fields and Chirag of the Deep-water part of the Field of Gyuneshli in the Azerbaijani Sector of the Caspian Sea concluded on September 20, 1994 between the State Oil Company of Azerbaijan Republic and the Contract parties and which came into complete legal force about December 12, 1994 (Contract). 

The Cabinet of Ministers of the Azerbaijan Republic published the Order number 50 of March 7, 1995 about creation of the Commission under the leadership of the Deputy Minister of Finance consisting of representatives of the Ministry of Finance, Ministry of taxes, the State Customs Committee of the Azerbaijan Republic and the State Oil Company of Azerbaijan Republic ("Commission") for establishment of the administrative rules necessary for implementation of the Contract provisions connected with taxes approved with the Contract parties.

In connection with the clauses for the taxation applicable to the right, economic stability and arbitration, for the purpose of ensuring sequential and fair control according to provisions of the Government providing specified in Appendix 6 to the Contract, in "Minutes on the Value added tax" for more detailed clearing of the existing interpretation of the Contract changes are entered, and the this Protocol about the Value added tax replaces "The protocol on the Value added tax" of April 24, 1995.

The commission and the Contract parties agreed to conclude the this Protocol of January 1, 2002 about the Value added tax ("Protocol") for establishment of these rules. In connection therewith the this Protocol determines their mutual understanding of the Contract and procedures which will be used in case of determination of the amount and administration of the VAT for goods, the works or services provided in connection with Hydrocarbonic activities in the Azerbaijan Republic.

If goods, works or services will be entered for the purposes of others, than accomplishment of Hydrocarbonic activities, provision of such goods, works, services will be assessed with the VAT according to the legislation of the Azerbaijan Republic.

1. Collection of the Tax

1.1. Each Contract Party, Operating Company and their Subcontractors are free from the Value added tax in connection with Hydrocarbonic activities (on zero tax rate (0%)). It is applied to the following:

1.1.1. the goods, works and services transferred to each of them or provided to one of them;

1.1.2. export of Hydrocarbons;

1.1.3. import and purchase of goods (except tobacco products and alcoholic beverages), works and services.

1.2. In addition each supplier providing to the Contract party, Operating company and its Subcontractors any goods, works or services in connection with Hydrocarbonic activities shall consider such goods, works and services exempted from the VAT (zero interest rate (0%)).

2. Procedure of receipt of the Certificate of the VAT for zero rate (0%)

2.1. Each Operating Company and the Contract parties for receipt of the Certificate on tax exemption meaning provision of powers on deduction of the VAT on zero rate (0%) according to the Contract and the this Protocol files in the Ministry of taxes the written application. For receipt of the certificate on release from the VAT meaning provision of powers on deduction of the VAT on zero rate (0%) according to the Contract and the this Protocol, any Subcontractor which signed the contract with any Operating company, the Contract party or other Subcontractor is allowed to file in the Ministry of taxes petition in the form given in Appendix 3. The application written by the Subcontractor in the Ministry of taxes confirms that the signed the contract with it the Contract party, Operating companies or its Subcontractors signed the contract with this Subcontractor for delivery of goods, works and services according to the Contract and the this Protocol and except it for issue of taxes of the certificate by the Ministry no additional document is required.

2.2. The ministry of taxes during thirty (30) days after receipt of the written application stated above in Item 2.1., issues to the Contract party, Operating company and its Subcontractors the numbered Certificate of the VAT on zero rate (0%) about tax exemption in the form given in Appendix 2.

2.3.1. The certificate of the VAT on zero rate (0%) issued to each Operating company and the Contract party is valid during the term established in the Contract. If the duration of the contract is extended, the Ministry of taxes on this prolonged term issues the new Certificate of the VAT on zero rate (0%).

2.3.2. The certificate of the VAT on zero rate (0%) issued to each Subcontractor is valid from the date of its issue during the agreement specified in Appendix 3 terms signed with the Subcontractor, but no more than three (3) years from date of issue of the Certificate. Date of the introduction of the Certificate in force registration date of the statement of the Subcontractor in the Ministry of taxes is considered. If the term of the agreement is prolonged or constitutes more than three (3) years from date of issue of the Certificate, the Subcontractor addresses to the Ministry of taxes behind issue for this prolonged term of the new Certificate of the VAT on zero rate (0%). The ministry of taxes issues the new Certificate of the VAT on zero rate (0%) no later than thirty (30) days from the date of receipt of the statement on renewal of the Certificate.

2.4. After completion of Hydrocarbonic activities the existing certificate of the VAT on zero rate (0%) immediately is given in the Ministry of taxes.

2.5. No certificate of the VAT on zero rate (0%) can be transferred to another for use.

3. Procedure of use of certificates of the VAT

3.1. According to the above-stated Article 1 suppliers of goods, works and services holding the VAT on zero rate (0%) by delivery of such goods, works and services receive from the face to which delivery, the copy of the numbered Certificate of the VAT on the zero rate (0%) given in appendix 2 is transferred.

3.2. Such copy of the Certificate of the VAT on zero rate (0%) is the firm certificate of availability at the supplier of permission to deduction of the VAT on zero rate (0%).

4. Provision to the Parties exempted from the VAT, the rights of concession and the order

4.1. If goods, works and services according to Article 1 were imported into the Azerbaijan Republic without deduction of the VAT and sold, transferred, transfertirovana, are leased or otherwise realized to any party having the certificate, the document or the right to release from the VAT (on zero interest rate (0%), then the VAT does not keep and is not paid.

4.2. In all other cases of the VAT is calculated on the amount of purchase or the right to purchase from the seller and increases to it. Such VAT is transferred into the Government budget of the Azerbaijan Republic in Manats to the twentieth (20) the date following date of implementation of payment or delivery of goods, performance of works or rendering services (from date to which before others it was carried out any of these transactions).

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