Summit Mining International Inc.

Tax and social security consequences over payments to expatriates

Summit Mining International Inc.

Tax and social security consequences over payments to expatriates

Content

Background
Technical framework
Conclusions

Exhibit I – Contingency estimation

Acronyms

AFP = Pension Fund Administrator

APS = Social security control and audit entity
Bs = Boliviano
BTC = Bolivian Tax Code
CIT = Corporate Income Tax
CSS = Social Security Code
CTB = Bolivian Tax Code
EY = Ernst & Young (Auditoría y Asesoría) Ltda.
IRS = Bolivian Internal Revenue Service
LT-SSC = Long term – social security contribution
MSC = Minera San Cristóbal S.A.
PIT = Personal Income Tax (RC-IVA by its Spanish acronym)
SD = Supreme Decree
SSC = Social Security Contribution
ST-SSC = Short term – social security contribution
SUMI = Summit Mining International Inc.
TT = Transaction Tax
TIN = Tax Identification Number
VAT = Value Added Tax
 Ernst & Young Ltda. Telf.: 591 2 2434313
Avenida 20 de Octubre # 2665 FAX: 591 2140937
Edif. Torre Azul – Piso 16 ey.com
La Paz, Bolivia

Mr. May 13, 2020

Satoshi Naruse EY LPZ 255/20
VP Business Development
SUMI Mining International Inc.
8055 East Tufts Avenue Suite 800, Denver 80237 CO, US

Tax and social security consequences over payments to expatriates

According to your requirement, this report includes the conclusions of tax and social security
consequences over payments performed by SUMI and MSC to some of its expatriates working in Bolivia.
This report is referring to the Engagement Letter EY LPZ 481/19 dated on May 16, 2019.

I. Background
As part of its commercial activities, SUMI1 assigns some of its qualified personnel to perform work
activities for MSC, under the following structure:

1. From the review of MSC transfer pricing study report of FY18, it has been identified a Service
Agreement signed between SUMI and MSC, where some SUMI’s expatriates assigned to Bolivia,
provide several services such as: management, technical support, operative and tasks, and
other required to maintain, operate and administrate MSC operations in Bolivia. In other words,
SUMI assists with the mine administration, from a strategic and tactical point of view.

SUMI´s executive personnel have been fundamental for different MSC´s strategic initiatives 2,
cooperating on the following areas:

1
SUMI is property of SC Global Management of America (SGMA) and SCOA, it is located in Denver, Colorado (US) and it is a
subsidiary of Sumitomo Corporation. SUMI is not a shareholder of MSC; but they are considered related parties based on Bolivian
transfer pricing regulation.

2
SUMI´s operations head is a technical engineer of mines, who initially joined MSC as Vice President and General Manager in
2008 during the time of financial difficulties and led the 52k ton project in which the productivity of the San Cristóbal mine was
increased by 30 percent from 40k ton / day. SUMI´s highest administrative officer is also a former MSC executive, who has
several operational and administrative projects, including IT and human resources projects. In addition, the SUMI payroll includes
one geologist in charge of calculating reserves for the life of the project.
 a) Human resources recruitment.
b) Health, security and environmental service assistance.
c) Exploration support service.
d) Support on public and commercial relationships with investors.

Yearly, the fee paid for the above detailed services arises to USD11.4 million, which is subject
to 12.5% withholding by MSC, in order to pay the respective CIT.

2. The expatriates have a dual labor relationship, and because of this, they entered into a labor
relationship with MSC, earning a portion of the total salary in Bolivia. This last one is subject to
Bolivian PIT and SSC.

3. The expatriates are temporally assigned to Bolivia and their return to their home country is
expected to occur in some years. Based on this, there are some committed benefits, such as
retainment bonus and home return travel expenses, among others.

The following points describe the relevant characteristics of the benefits paid to the expatriates.

a) Benefits

From the
From May From
beginning of
Payment 2019 to January
Detail Details the Project
periodicity December 2020 and
and until
2019 onwards
April 2019
This is the amount that covers the
Paid by MSC Paid by Paid by
Base salary Monthly regular activities performed by the
and SUMI MSC MSC
employee for the employer.
Short Term
Paid by Paid by
Incentive - Yearly Paid based on performance at MSC. Paid by SUMI
MSC MSC
STI
Paid only to two expatriates, with the
Long Term purpose of retaining qualified personnel
Paid by Paid by
Incentive - Yearly in the Company (the KPI applied to Paid by SUMI
SUMI SUMI
LTI determine the benefit is the MSC’s net
income).
It was a benefit equals to 50% of the
Replaced
base salary, granted for working in
with sign
another country under different Paid by
Uplifts Monthly Paid by SUMI on bonus.
environmental, economic and political SUMI
Paid by
conditions than those of their home
SUMI
country.
Replaced
with sign
Travel Reimbursement for travel expenses to Paid by
Monthly Paid by SUMI on bonus.
funds home country SUMI
Paid by
SUMI
This concept replaced travel funds and
Sign on Not Not Paid by
Yearly uplifts and consists of yearly payments
bonus applicable applicable SUMI
from the beginning of the assignment.

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 b) Nature of the benefits

Regarding some benefits (i.e. LTI, uplifts, travel funds and sign on bonus) the management
stated that these concepts correspond to incentive benefits for the expatriates to leave
their home countries and to accept an assignment in a foreign country (i.e. Bolivia).
Otherwise, the base salary and the STI might be benefits related to the work performed in
Bolivia.

SUMI's original concept was to have the current relationship not only with MSC but also with
other mines or mining projects, so SUMI had originally set up its own base salary and STI to
its expatriates dispatched to MSC, which had regarded as first example for SUMI towards
future. However, it has not realized to be involved in projects other than MSC as of now. In
short, the present circumstance of SUMI has been far from the original figure.

According to the management, SUMI's payroll to expatriates (independently with MSC's

payroll) has still been seen reasonable because SUMI has not yet declined to approach to
the original concept but considering also the passing time from the establishment.
Consequently, SUMI has decided under a conservative basis, to change its payer to MSC at
this time.

c) Past fixes and future fixes

According to management statements:

► MSC has kept paying salaries and bonuses to SUMI expatriates in Bolivia in accordance
with the contracts between MSC and each expatriate and their positions /
responsibilities in MSC, these concepts are deemed as Bolivian source income;
therefore, the relevant PIT / SSC have been paid.
► On the other hand, base salaries and bonuses from SUMI had been paid to SUMI
expatriates based on the agreements between SUMI and the individuals, in accordance
with SUMI’s original concept.
► Therefore, SUMI had considered it would be possible to regard all benefits (including
base salaries and bonuses) paid by SUMI to SUMI expatriates as non-Bolivian source
income.
The benefits detailed in point I.3.a) paid by SUMI were charged back to MSC through the
service fee detailed in point I.1., which amount is basically composed by those benefits plus
an arm’s length margin.
As of the date of this report, the management has analyzed the tax and social security
consequences of the past and future fixes, receiving support from EY:

► To identify the Bolivian PITs and SSCs applicable to the benefits detailed in point I.3.a),
considering its nature and frequency.
► To estimate the contingencies raised from the past fixes.
It should be noted that EY’s work was focused exclusively on analyzing this case considering the
information previously mentioned and the regulatory framework effective in Bolivia. Consequently,
the assessment did not include any detailed review of documentation supporting the
Management’s assertions or relevant tax settlements. Therefore, this is a general study.

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II. Technical framework

1. Economic reality

To understand tax consequences on transactions, it is relevant to consider the economic reality

principle. Under this principle, the real purpose of the operations shall prevail over any legal
form adopted by the parties.

This concept provides a solution to the distortions created by the divergence between the legal
forms chosen by the parties in contrast with the reality of the operations that given their
complexity, could allow more than one interpretation.

Hence, most of countries had decided to incorporate this principle on their legal systems, and in
Bolivia’s case the relevant quote on fiscal matter relies on the article 8° of CTB, that states that,
when a rule related to the taxable event refers to situations defined by other legal areas, the
interpretation should be held under the area that better suits the economic reality principle.

Based on the above, it is understood that:

a) The economic reality principle must be accepted by all parties participating in a

transaction.

b) The nature of a transaction must be evaluated according to the real intention of all
joining parties, without taking into account the formalities (i.e. the place of salaries
payment, the labor/service contract writing, etc.).

c) For the case of analysis, to define the application of PITs and SSCs, it can be
considered the:

► Existence of Bolivian source income.

► Labor relationship with the local and the foreign company.
► Connection between payments with the performed activities in Bolivia.

2. Source principle

It is an important concept for domestic taxation, which states the following provision for PIT
(article 20° of Act N° 843):

“The total incomes from Bolivian source are subject to this tax, despite the nationality, domicile
or residence of the taxpayers of this tax... (…)”.

The relevant fact to determine a Bolivian source income, relies on the place where the economic
activity is performed and the relation with the profit. In other words, if the work performed by
expatriates in Bolivia, generates incomes, then those incomes will be taxed in Bolivia, no matter
the place of payment, the place of signed contracts nor the domicile of the expatriates.

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 3. Labor relationship and PIT

To qualify who is an employee, it is needed to consider the labor relationship which is achieved
when following conditions are met simultaneously (article 2° of the SD N° 28699):
a) Subordination of the worker with respect to the employer.

b) Provision of work on behalf of the employer.

c) Perception of remuneration or wages, in any of its forms and manifestations.

Based on a labor relationship, all benefits are taxes according article 19° of Act N° 843, which
states: “whit the purpose of complementing the Value Added Tax regime, it has been created a
tax on individuals and the indivisible heritages’ incomes, originated from capital investment,
labor activities or the joint application of both factors.

The following concepts are considered incomes, whatever the name or payment form.

(…)
d) Salaries, daily payments, over salaries, extra hours, categorizations, partnerships,
assignations, emoluments, profit bonus, any kind of bonus or denomination, allowances,
gratifications, bonification, commission, compensation on money or sort, including
assignations for rent, housing and other, travel expenses or any other ordinary or
extraordinary retribution…”.

These benefits should be taxed with the PIT at a rate of 13%, allowing deductions.

Commonly PIT discussions are related to the nature of the payments to employees and if they
are categorized as benefits subject to PIT or not. To clarify this, in next lines a relevant
preceding.

The Hierarchical Resolution STG/RJ/0707/2007, of November 29th, 2007, confirmed the

charges made by IRS, regarding the employer’s obligation to perform PIT withholdings over the
benefits paid to its employees (i.e. vacations), under the following criterion:

a) Regarding the difference in vacation payments to retired personnel, it should be noted that
from review of the evidence presented in the appeal instance, it is evident that the
employer elaborated a summary table for vacation payments to its dismissed/retired staff
according to the severance payments.
b) From the review of tax payrolls from January to December 2002, it is observed that the
employer did not apply the withholding tax to the vacation’s payments made to its
employees.
c) Although the staff was dismissed or retired, this fact does not prevent the contributor from
performing its obligations as a withholding agent, since it had to include in the tax payrolls,
the paid amount for vacations in order the employees can pay the respective tax amount or
compensate it with the accumulated tax credit.
d) The IRS correctly observed that the vacation’s payments constitute an income taxed with
PIT in accordance with article 19°, section d) of Act N° 843 and it should be subject to tax
withholding.

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 It is relevant to mention that this Hierarchical Resolution was confirmed in last judicial instance
by the Supreme Resolution S-0365-2014, of December 16th of 2014.

4. SSC consequences

Contributions are triggered for the work performed in Bolivia with a similar source criterion
defined in point II.2. In summary the mandatory contributions are:

a) ST-SSC

These are aimed to provide medical insurance to the employees because of any labor risk
they are exposed, and it has been extended also to their dependents. Their payment
corresponds exclusively to the employer, with a monthly contribution of 10% of complete
active employee’s benefits (article 8° of SD N° 21637).

Contribution amounts are calculated from the global employee’s remuneration paid on last
month, applicable over any form of payment or amount, including special remunerations like:
percentage, extraordinary work, commission, over salaries, and other concepts that may be
part of employee’s total income (article 57° of Presidential Decree N° 13214).

The only concepts exempted from this determination are:

► Annual Christmas bonus, and

► Up to two annual profit bonuses or incentives (SD N° 20218).

In summary, ST-SSC are applicable exclusively to one labor relationship with an employer
Company dully incorporated in Bolivia (i.e. expatriates’ labor relationship with MSC) and
must be calculated with a 10% over all monthly income received by the employee.

This contribution duty relies on the employer, and until 2009, it used to have a five years
period of statute of limitation, which could be extended to seven years if the employee had
not been registered to any healthcare entity (article 2° of SD N° 25714).

This provision was changed in February of 2009 by the issuance of the new Political
Constitution of Bolivia, which states that all social benefits consisting in: accrued salaries,
labor rights, social benefits and social security contributions that haven’t been paid, have
paying preference over any other debt, and they have no statute of limitation (article 48°).

Due to this collision of rules, the jurisdictional authorities, through Supreme Resolutions N°
187, of April 7, 2015, and N° 383/2016, of October 17, 2016, among others, argued that it
is not appropriate to apply a lower rank regulation (SD N° 25714) over the Political
Constitution. Therefore, on legal basis, SSCs have no statute of limitations since February
2009 and onwards.

Despite this legal limitation, it is no less relevant to take into account that, the ST-SSC are
collected by:

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 ► A govern entity (Caja Nacional de Salud or CNS by its Spanish acronym).
► Private entities (e.g. Caja de Salud Cordes, Caja Petrolera de Salud, Caja de Salud de la
Banca Privada, etc.). These entities are authorized to collect ST-SSC.

In case of private collector, the audit inspection procedures are performed every two years
according to the articles 573° to 575° of the SD N° 5315 (regulatory framework of SSC).

Based on the detailed above, in practical terms, if the Company is registered and it is paying
ST-SSC to a private entity. Therefore, it should be advisable to take into account the
mentioned two years period in order to consider a possible statute of limitations.

Consequently, for practical purposes of this report and considering this last provision, ST-
SSC contingency calculation will be performed taking into account the concepts paid during
the last two years. This means January to December of 2018 and January to December of
2019.

b) LT-SSC

The total monthly income perceived by an employee on a regular basis, is subject to LT-SSC,
aimed to contribute to his / her personal social security account. The following concepts are
part of LT-SSC determination, according to their nature and destination:

Employer Employee
Concept
contribution % contribution %
Housing fund3 and 4 2
Professional risk4 and 5 1,71
Solidary contribution4 and 6 3 0,5
Retirement fund4 and 7 10
Common risk4 and 8 1,71
Administration commission4 and 9 0,5
National Solidary Contribution on higher salaries10 1, 5, 10

Regarding this, it should be noted that:

► Individuals can perform additional contributions to increase the individual capital for
retirement purposes, for this a formal request to the employers is required or they can
file the extra SSC directly (article 9° of SD N° 778); in this case, the contributions are
voluntary.

3
Based on this contribution, employees can obtain credits for the purchase or construction of a house.
4
These contributions are mandatory paid on a basis of 60 national minimum wages, equivalent to Bs127,320 (USD18,293).
5
Based on this contribution, employees receive full or partial coverage for disability and death in accidents at the workplace.
6
This concept is aimed to distribute funds among the less favored insured.
7
Mandatory contribution to support employee’s retirement.
8
Based on this contribution, employees receive full or partial coverage for disability and death in accidents out of their workplace.
9
This contribution is aimed to reward the Pension Fund for managing and administrating the collected contributions.
10
This concept is aimed to accumulate funds that are then distributed among the less favored insured. It operates as the following
percentages:
► 10% of the difference amount between the total earned and Bs35,000
► 5% of the difference amount between the total earned and Bs25,000
► 1% of the difference amount between the total earned and Bs13,000

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 ► According glossary of definitions included in Act N° 65, individuals working under a
labor relationship, should pay LT- SSC over monthly benefits; consequently, any
extraordinary type of payment, such as bonuses, incentives or others, should not
trigger contributions.

Because of long-term provision are aimed to cover future employee’s benefits, social
security contributions have no statute of limitations. Given this provision, pension funds are
indivisible, and cannot be affected by any taxes or measures. The statute of limitations for
this duty is considered always as open (articles 6°, 64° and 117° of Act N° 065).

5. Different base salary (discriminatory treatment)

For Bolivian legislation, all kind of discriminatory act or treatment is forbidden, on any way,
based on sex, skin color, age, sexual preferences, sexual identification, origin, culture,
nationality, citizenship, language, religion political or philosophical views or preferences, among
others (article 14° of Political Constitution).

Likewise, non-discrimination principle is stated on Bolivian labor legislation, as the

differentiation of employees under inferior or more favorable treatment with respect to other
employees, that perform same labor activities or have similar responsibilities (article 4° of SD
N° 28699).

From this principle, labor standards have defined the following definitions and rules:

a) A job position is defined as a logical match between a salary scale with a specific
experience, responsibility and qualification of the employee (article 2° of SD N° 19464).

b) In order to define a job position, there will be needed to consider the following aspects
(article 4° of SD N° 19518):

► Job position / work name category implies to assign a salary amount to an employee,
taken from the salary scale previously defined by the Company.
► Job position, besides of being determined on the responsibility it requires, it
corresponds to the qualification and expertise of the employee. In other words, the
ability acquired throughout the work development.
► Based on this criterion, on every company a salary scale must be settled, distributing all
job positions according to their category and consequently their salary level. This scale
should be set between the company and the union (if there is any). Despite there is no
sanction for not complying with this duty, this omission may be used as evidence for
discrimination claiming.

Furthermore, it should be noted that:

a) Bolivian laws are applicable equally for national and foreign people (employees), subject to
same rights and responsibilities.
b) It is not possible for an equal or lower job position employee, to receive a salary higher
than same or higher category co-workers, (supervisor / boss). Otherwise, this treatment
would trigger a discrimination filing case to the Labor Ministry.

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 c) Labor discrimination cases for differentiated salaries, usually conclude with a wage
leveling, increasing income for employees who receive lower wages (e.g. local employees).
This result might also generate additional consequences in tax and social security areas
(higher contributions).

Jurisdictional authorities analyzed this matter in the past and relevant preceding are:

a) Salary increase challenge

Supreme Resolution N° 569/2013, of September 18, 2013, arguing that: “II.1.2. Rights to
equalization or leveling of salary.

(…)

In the contract for the provision of services, the amount of Bs.6,300 was agreed between
the parties.- as remuneration, which was fully known to the actor who signed it with capacity
and consent, an aspect that under the principle of the primacy of reality is fully
demonstrated that, there is no action by which, the actor, had requested the employer to
level his salary according to the Salary Scale, especially if as we warned he was assigned
Level “8” of the VPACF Salary Scale, Since the SD Nº 29509 of April 9, 2008, allows the
Executive President of YPFB to restructure the state oil company including the salary scale,
an aspect that makes us conclude that what was denounced as a discriminatory act, is not
related to the principles of non-discrimination established in Article 4. I. e) of SD Nº No.
28699 of May 1, 2006, since the claimant, during the term of his contracts, he did not have
any co-worker of the same position who had a salary higher than his own, which is why the
leveling of the salary does not correspond, nor does it adjust the average salary.

This case was won by the employer company and main allegations to highlight are:

Arguments demanded by the employee Entity’s defense arguments

► In contrast with the appellant, its ►
predecessor and later of the position,
received a salary of Bs11,700, generating a
discriminatory treatment, because he did
not perceive the same salary in equal
conditions.
► The first instance appealing court did not
respect the right to equality, given a person
cannot suffer any kind of legal
discrimination. By this way, the Court
violated the articles 19° and 52° of General ►
Labor Law and articles 11° of SD N° 3641,
39° of SD N° 224 and 11° of SD N° 1592
and finally article 4. I. e) of SD N° 28699
that establishes the Principle of no
discrimination among workers.
From the review of Memorandum PRS-
3202/208 of October 29, 2008, Executive
President of YPFB requests the DNRH to
temporarily hire the actor, assigning him
Level “8” of Salary Scale. Likewise, the
Fixed Term Work Contract states in its Fifth
Clause (Remuneration) that the employee
would receive a salary of Bs6,300
according to the current salary scale of the
entity.
The salary of Bs6,300 was agreed between
the parties, which was fully known by the
employee who signed the contract.
Therefore, under the principle of primacy of
reality is fully demonstrated that, there is
no action by which, the actor, had
requested the employer to level his salary
according to the Salary Scale, especially if
as it is stated he was assigned Level “8” of

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 Arguments demanded by the employee Entity’s defense arguments
Salary Scale. Therefore, there is no
discriminatory treatment since this case is
not related to the principles of non-
discrimination established in Article 4. I. e)
of SD N° 28699. Likewise, the claimant,
during the term of his contract, did not
have any co-worker with the same position
who had a salary higher than his, which is
why the leveling of the salary does not
correspond.

b) Payments non-related to the salary

This subject was also analyzed by the Supreme Resolution N° 569/2013, of September 18,
2013, stating that:

“II.2.4. About the illegal payment of refreshment and transportation.

Article 58 of SD Nº 21060, establishes the consolidation of all existing bonuses to the basic
salary, also recognizes only three types of bonuses, and in none of them is lunch and
transportation, so that there is no express rule that binds to the employer to grant the
payment of these benefits to its employees whether they are indefinite or eventual, we
consider that it is a discretionary incentive that the employer has as liberality and as
such, it cannot constitute a discriminatory element or characteristic established in article
4 of the SD Nº 28699 of May 1, 2006, especially if said principle does not specify what are
the differences that imply discrimination leaving the criterion of a logical and coherent
interpretation that makes a labor relationship.

So, we can emphasize that, although in Labor law, due to its protectionist nature in favor of
the worker, we understand that we also must apply the principle of equality between
parties, which allow a reasonable balance, given by the economic and social difference
between the employer and the worker, a protective principle embodied in articles 157 and
162 of the Political Constitution should not be neglected… (…).”

This case was won by the employer and main allegations are:

Arguments demanded by the employee Entity’s defense arguments

► In contrast with the appellant, its
predecessor and later of the position,
received a salary of Bs11,700, generating a
discriminatory treatment, because he did
not perceive the same salary in equal
conditions.
► The first instance appealing court did not
respect the right to equality, given a person
cannot suffer any kind of legal
discrimination. By this way, the Court
violated the articles 19° and 52° of General
Labor Law and articles 11° of SD Nº 3641,
► There is an erroneous assessment of Letter
URRH-358-09 / 2010, because its point 4
clearly certifies that refreshment and
transportation payments were limited to be
granted only to personnel subject to an
indefinite contract.
► There is no difference or discrimination
because there is no labor regulation that
requires the employer to pay for refreshment
and transportation to their employees or
workers, whether they are indefinite or
eventual.

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 Arguments demanded by the employee
39° of SD Nº 224 and 11° of SD Nº 1,592
and finally article 4. I. e) of SD Nº 28699
that establishes the Principle of no
discrimination among workers.
Entity’s defense arguments
► There is an erroneous interpretation of the
principle of NO discrimination established in
article 4° of SD Nº 28699. This principle does
not specifically refer to what kind of
differentiation should be applied, as YPFB,
dispenses refreshments and transportation
as an incentive for those who contributed to
the state company for years and not
temporary work.

Regarding additional retainer payments (i.e. LTI, uplifts, travel funds and sign on bonus)
made to expatriates, these benefits cannot be considered as a discriminatory labor
treatment given its compensation nature and necessity, and because these concepts are
not part of the base salary. Based on this, these concepts can be paid as part of the
Company’s own will and policy for expatriates and to respect this it should be advisable to
count with documents describing the compensation payment’s nature and composition.

6. Formalities to accomplish to protect labor challenges

Based on arguments and allegations exposed on previous preceding, it is relevant to consider

the formalities and publicity involved in salary/benefits assigned to the Company’s employees
(local and expatriates).

Therefore, it will be advisable to consider the following preventive actions to be taken at the
moment of assigning the salary and benefits to expatriate personnel under MSC’s payroll:

a) Job positions must be clearly described on internal policies.

b) All MSC’s employee (local and expatriates) must take knowledge of new job positions and
descriptions stated in internal policies (i.e. via physical or electronic format).

c) There should be enough evidence showing that employees took knowledge about new job
descriptions (i.e. signed acknowledgment documents).

These actions are aimed to guarantee all MSC personnel’ rights (local and expatriates) to have
equal conditions for accessing to new job positions, as long as they meet all describes
requirements (e.g. technical skills, English speaking, specific accounting features, etc.);
avoiding any labor claim for discriminatory treatment.

7. Protective principle

As most of legislations, Bolivian labor law is clearly aimed to grant protection to the weakest
(employee) element from a labor relationship, through the protective principle implementation.

This principle, also called as tuition, protectionist or favor principle, is based on the lack of initial
and consequent freedom of the worker, considering it is subject to private employer market
autonomy.

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 Because of its tutelary content, favoring the employee in case of doubt, all measures aimed to
implement the benefits to expatriate personnel stated in point 6, should be performed taking
into account the protective principle; given that in case of any controversy or claim before
public authorities, the Company must present enough evidence to distort the claims of local
employees.

8. Potential tax amnesty

Recently a Bill is being evaluated by the Bolivian Congress, including some modifications to the
articles 59°, 60° and 61° of Act N° 2492 (BTC), such as:

a) Decreasing of statute of limitation period, from eight years to four years, for:

► Controlling, investigating and determining the tax debt;

► Imposing administrative fines; and,
► Executing the tax debt.

The missing of declaring the tax event to the Revenue Authority, will cause an extension of
the statute of limitation period, from four to seven years.

Pursuant to article 150° of the BTC, tax regulations may not be applied retroactively, unless
they eliminate tax faults (tax contraventions and/or crimes), determine more favorable
sanctions, reduce the periods in the statute of limitations regime or, in any way, benefit the
taxpayers and/or responsible third parties. It can be inferred that the legislative authorities
that drafted the BTC, did not expressly restrict the application of article 150° only to the
punitive faculties of the IRS, which implies a blank norm of wide application, since it is not
detailed what are the rules that benefit to the taxpayer.

From the review and the analysis of regulations and public preceding (Constitutional
Resolution N° 0028/2005 of April 28, 2005 and Supreme Resolution N° 39 of May 13,
2016), it can be inferred that despite the classification of article 150° within the title of tax
faults of the BTC, it may be reasonable to infer that its effects would not only be extended to
the sanctioning faculties, but also to the faculties of control and supervision, as long as the
legal security and contributory capacity of the taxpayers of the State are not affected.

Based on the previous, as the proposed amendment to the BTC attempts to reduce the
statute of limitations regime from eight to four years (as it was in the past), taxpayers will
attempt to apply the Act retroactively and, therefore, benefit from said reduction. As the
statute of limitation period in the BTC has been amended several times in the past years,
different regimes apply to different times.

Consequently, as the proposed amendment to the BTC may not eliminate the past (as the
previous Acts have not been declared unconstitutional and taxable events were triggered in
certain periods of time), in order to have certainty on the latter, it is required to wait for the
final text of the proposed amendment to the BTC and confirm if, in its content, a specific
wording is detailed on how the Act would, could or should be applied in time (for the past) as
regards to the statute of limitation period.

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 Based on the stated above, despite it could be reasonable to that it would be possible to
apply the proposed Act retroactively, seeking to benefit from a reduction in the statute of
limitations regime, it will be required to review the final text of the proposed modification to
the BTC and its regulations in order to obtain a final conclusion. Every rule must comply with
a strict process of analysis and approval (i.e. review by the technical commission of the
Congress, review and discussion by the Chambers of Deputies and Senators, and its final
approval and promulgation by the President of the State), whereby the current Bill could be
modified, totally or partially approved, or rejected due to economic, political and social
analyzes carried out by the corresponding chambers.

Further, the reviewed Bill should also consider the provisions set forth by article 123° of the
State Political Constitution when carrying out final interpretation exercise on this matter.

b) Allowing the payment of tax debts as of December 2019 including only interests (i.e.
avoiding inflation adjustment and penalties). The Bill states that this plan will be available
from the issuing of the Act and until May 15 of 2020.

Regarding this potential benefit, it should be noted that it is very similar to the one defined in
previous tax amnesties.

9. Statute of limitation

a) According to article 59° of Act N° 2492 (Bolivian Tax Code) of August of 2003, the statute
of limitations if four (4) years.

b) Subsequently, through Acts N° 291 of September of 2012 and N° 317 of November of

2012, the statute of limitations was modified on a progressive basis, applying four (4) years
in 2012, five (5) years in 2013, six (6) years in 2014, seven (7) years in 2015, eight (8)
years in 2016, nine (9) years in 2017, and ten (10) years from 2018 and onwards.

c) Given the legal insecurity that these modifications were causing to the contributors and the
retroactive application of the law by the Bolivian IRS, finally, on June of 2016, it was issued
the Act N° 812 of June of 2016, fixing the statute of limitations on eight (8) years from
2016 and onwards.
In all cases, the term is counted from January 1st of tax event’s next year.
As mentioned before, the Bolivian IRS pretended to apply the above-mentioned changes on
retroactive basis; but against the inspection processes of expired periods, the taxpayers started
administrative and judicial plaints, obtaining recent rulings confirming that the modifications
should be applied on prospective basis.
Based on the above, the statute of limitation period should be counted as follows:

Statute of limitation Start of the Expiration

Month Due date Conclusion
period counting date
January 2013 February 2013 5 1-Jan-14 31-Dec-18 Closed
December 2013 January 2014 5 1-Jan-15 31-Dec-19 Closed
January 2014 February 2014 6 1-Jan-15 31-Dec-20 Open
December 2014 January 2015 6 1-Jan-16 31-Dec-21 Open

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IV. Conclusions

On a preliminary basis, it is relevant to state that, given the wide definition of Bolivian source
income in local legislation, causing several misinterpretations about this concept, the treatment
applied to the date by MSC, for base salaries and bonuses, cannot be clearly categorized as correct
or incorrect.

Therefore, based on several meetings, conference calls and emails exchanged between SUMI
management and EY from May 2019 to March 2020, SUMI management has finally reached to
have the results of the analysis and opinion, which were formulated under a conservative
perspective, considering carefully SUMI's original concept and the current circumstance stated by
SUMI management:

1. Bolivian PITs and SSCs applicable over the benefits to expatriates considering its nature and
frequency

The following summarizes the source of the benefits:

Concept Payment periodicity Source

Base salary Monthly Bolivian
Short Term Incentive – STI Yearly Bolivian
Long Term Incentive – LTI Yearly Foreign
Uplifts (replaced with sign on bonus) Monthly Foreign
Travel funds (replaced with sign on Monthly
Foreign
bonus)
Sign on bonus Yearly Foreign

Regarding this:

a) The amounts categorized as Bolivian source trigger the consequences detailed in above
points II.3 and II.4. Regarding extraordinary benefits, based on the restrictions detailed in
point II.4., they technically trigger PITs and ST-SSC (i.e. not LT-SSC).

On the other hand, the concepts categorized as foreign source income do not trigger PITs
nor SSCs (ST-SSC and LT-CCS) in Bolivia.

This conclusion is based on the assumption that SUMI and MSC will have enough
documents to support their assertions (i.e. the non-source incomes correspond to incentive
benefits to leave expatriates’ home countries).

b) The non-compliance with Bolivian rules, would be subject to inspections in the following
terms:

► Four (4) to eight (8) years for tax purposes11.

► No statute of limitations for LT-SSC

11
It should be considered the analysis quoted in previous point II.9.

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 ► No statute of limitations for ST-SSCs12. However, it can be notice that, for practical
matters, private ST-SSC’s collectors must perform audit controls every two years and
cannot perform audits over already audited FYs.

c) Some benefits (i.e. LTI, uplifts, travel funds and sign on bonus) would be understood as a
non-Bolivian source income, as long as it is demonstrated they are classified as incentive
benefits to leave expatriates’ home countries and to accept an assignment in a foreign
country (i.e. Bolivia).

Nevertheless, the payment frequency could allow the understanding that they are Bolivian
source incomes. This is because, commonly, the incentive benefits (to motivate decisions)
are granted once the decision is made (one shot payment).

Furthermore:

a) Because the driver to pay LTI relies on MSC's net income (measured under IFRS), it could be
potentially deemed as Bolivian source income. Thus, Bolivian PIT and SSC could be possibly
triggered.
b) Sign on bonus: it would be understood as a non-Bolivian source income, as long as it is
demonstrated that it is classified as an incentive benefit to leave the home country and to
accept an assignment in a foreign country. Nevertheless, the payment frequency could
allow potentially the understanding that this is a Bolivian source income. This is because,
commonly, the incentive benefits (to motivate decisions) are granted once the decision is
made (just one-shot payment upon the signature to contract).

c) Regarding payment scheme, it has been suggested to evaluate the possibility of splitting the
agreements in two different contracts in order to reflect the following:

► One payment related to the retainer policies (LTI) paid by SUMI and perceived under a
non-local labor relationship; and,
► Other payments made by MSC, related to the labor activities performed in Bolivia under
a local labor relationship.

This advice is aimed to identify and create support documents in order to separate the
incomes deemed as Bolivian source (paid by MSC) from the incomes deemed as non-
Bolivian source (paid by SUMI). SUMI should take this arrangement if seeks more
conservative case.

d) Considering that SUMI expatriates have been working in Bolivia since some years ago, and
no clear evidence of a double relationship (i.e. one with MSC and another one with SUMI)
and based on Bolivian source income principle, all benefits related to activities performed in

12
Due to this collision of rules (article 2° of SD N° 25714 and the article 48° of the new Political Constitution of February of
2009), the jurisdictional authorities, through the Supreme Resolutions N° 187, of April 7, 2015, and N° 383/2016, of October
17, 2016, among others, argued that it is not appropriate to apply a lower rank regulation (SD N° 25714) over the Political
Constitution. Therefore, on legal basis, SSCs have no statute of limitations since February 2009 and onwards.

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 Bolivia should be considered for the calculation of PIT and SSC. Consequently, under a
conservative option, base salary and STI should be taxed. Based on this assumption, the
estimation of the contingency is described in Exhibit 1, applying some dates defined by the
management.

2. Discrimination

The management confirmed that all SUMI expatriates working in Bolivia are in charge of
positions non-comparable with the ones performed by Bolivian local personnel. Thus, assuming
the accuracy of this statement (i.e. enough support documents available to attend all labor
suit), no discriminatory risks identified.

3. Contingencies estimation

The estimation was conducted for four different scenarios, which descriptions are:

a) Scenario 1: Assuming that tax amnesty is not approved.

b) Scenario 2: Assuming that tax amnesty is not approved; but the statute of limitations is
reduced to four years.
c) Scenario 3: Assuming that tax amnesty is approved, allowing the payment of tax debts only
with a 2% interest; but the statute of limitations in not reduced to four years.
d) Scenario 4: Assuming that tax amnesty is approved, allowing the payment of tax debts only
with a 2% interest and the statute of limitations in reduced to four years.
Based on this, the summary of amounts in USD thousand is:

Detail Scenario 1 Scenario 2 Scenario 3 Scenario 4

PIT 1.753 749 1.410 666
LT-SSC 4.525 4.525 4.525 4.525
ST-SSC 283 283 283 283
Totals 6.562 5.557 6.218 5.474

It should be noted that because of the restrictions in some information (e.g. interest rates,
inflation adjustments rates, among others), the estimated amounts may vary from the final
ones in +/-5%. To define the amounts of SSCs to be paid, it will be required to obtain specific
liquidations from collector entities.
The Exhibit to this document includes the assumptions, criteria and detailed amounts of each
scenario.

********************

The present report is confidential and was made out for exclusive use of Summit Mining International
Inc., our responsibility lies with this entity and not with third parties. We are not responsible for the
decision or steps that could be taken from the reading of the present document. The opinion and
interpretation are based on the information we obtained, and it is particular to the analyzed case. This
means our conclusion should not be generalized or applied to other cases, even if they seem similar in
nature

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In relation to what was detailed in the report, the Tax Authority and regulators interpretation can differ
from ours; however, we based our conclusions on the standards that we refer to, interpreting them
according to methods accepted in Tax Law.

We are at your disposal to accomplish extensions and explanations you may consider pertinent.

ERNST & YOUNG LTDA.

Member Firm of Ernst & Young Global

Juan Pablo Vargas

Partner

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Exhibit I – Contingency estimation

Following a summary of the included concepts:

Detail Scenario 1 - Without Tax Amnesty
a) Omitted Tax from January 2014
PIT b) Inflation adjustment
c) Interests 4%, 6% y 10%
a) Contributions since the
operations started
LT-SSC
b) Interest
c) Incremental interest
a) Contribution of 2018 and 2019 a) Contribution of 2018 and 2019
(January - December)
ST-SSC
b) Inflation adjustment
c) Fines
Scenario 2 - Without Tax Amnesty
(retroactive)
a) Omitted Tax from December
2015
b) Inflation adjustment
c) Interests 4%, 6% y 10%
a) Contributions since the
operations started
b) Interest
c) Incremental interest
(January - December)
b) Inflation adjustment
c) Fines
Scenario 3 - Tax amnesty (Not Scenario 4 - Tax amnesty
retroactive) (Retroactive)
a) Omitted Tax from December
a) Omitted Tax from January 2014
2015
b) Interest 2%
b) Interest 2%
a) Contributions since the a) Contributions since the
operations started operations started
b) Interest b) Interest
c) Incremental interest c) Incremental interest
a) Contribution of 2018 and 2019 a) Contribution of 2018 and 2019
(January - December) (January - December)
b) Inflation adjustment b) Inflation adjustment
c) Fines c) Fines

The assumptions are:

1. The payment will occur in one shot on May 15, 2020.

2. MSC will fix the past fixes, amending the correspond PIT and SSC returns.

3. For contingency estimation purposes, SUMI’s management confirmed that the provided amounts regarding salaries and bonuses, were
expressed on gross basis; thus, not required to apply any gross-up procedure.

4. The omitted PITs and SSCs were determined over the difference between the total amounts paid to the expatriates (i.e. base salary, and
STI) and the ones included in the Bolivian payroll.

Given that STI was paid on yearly basis (non-regular benefit), it was not included for LT-SSC estimation, considering this kind of
contributions only apply over monthly benefits.

5. SSC’s interests are calculated applying some rates defined and managed by the collectors; thus, the amounts were estimated with the
information available to the date. As a consequence, the estimated amounts should vary from the final amounts. To define the amounts to
pay, it will be needed to obtain specific liquidations from collectors.

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 As of the date, the inflation indexes (UFV by its Spanish acronym) are available until April 10; therefore, the indexes of following days were
estimated.

6. MSC will completely assume the contingency’s extra costs (i.e. PITs, SSCs, interests, inflation adjustment, etc.). This is because it will be
deemed that SUMI´s expatriates worked for the Bolivian entity. In summary, SUMI won’t charge back any amount to MSC.

Based on that, in following tables, the composition of amounts:

Scenario 1

Detail 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
PIT 0 0 0 0 0 566 455 216 223 173 121 1.753
Tax 0 0 0 0 0 362 319 167 185 154 113 1.300
Inflation adjustment 0 0 0 0 0 73 47 17 12 6 2 157
Interest 0 0 0 0 0 131 89 32 25 13 5 296
LT-SSC 62 454 488 776 569 710 388 401 306 264 109 4.525
Contributions 25 215 236 394 310 426 268 300 244 228 99 2.746
Interest 30 199 210 318 216 237 100 84 52 30 8 1.483
Incremental interest 6 40 42 64 43 47 20 17 10 6 2 297
ST-SSC 0 0 0 0 0 0 0 0 0 173 110 283
Contribution 0 0 0 0 0 0 0 0 0 136 94 231
Inflation adjustment 0 0 0 0 0 0 0 0 0 5 2 7
Interest and fines 0 0 0 0 0 0 0 0 0 32 13 45
Totals 62 454 488 776 569 1.276 842 617 529 610 339 6.562

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Scenario 2

Detail 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
PIT 0 0 0 0 0 0 16 216 223 173 121 749
Tax 0 0 0 0 0 0 12 167 185 154 113 631
Inflation adjustment 0 0 0 0 0 0 1 17 12 6 2 38
Interest 0 0 0 0 0 0 3 32 25 13 5 79
LT-SSC 62 454 488 776 569 710 388 401 306 264 109 4.525
Contributions 25 215 236 394 310 426 268 300 244 228 99 2.746
Interest 30 199 210 318 216 237 100 84 52 30 8 1.483
Incremental interest 6 40 42 64 43 47 20 17 10 6 2 297
ST-SSC 0 0 0 0 0 0 0 0 0 173 110 283
Contribution 0 0 0 0 0 0 0 0 0 136 94 231
Inflation adjustment 0 0 0 0 0 0 0 0 0 5 2 7
Interest and fines 0 0 0 0 0 0 0 0 0 32 13 45
Totals 62 454 488 776 569 710 404 617 529 610 339 5.557

Scenario 3

Detail 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
PIT 0 0 0 0 0 406 352 180 197 160 115 1.410
Tax 0 0 0 0 0 362 319 167 185 154 113 1.300
Inflation adjustment 0 0 0 0 0 0 0 0 0 0 0 0
Interest 0 0 0 0 0 44 33 13 11 6 3 110
LT-SSC 62 454 488 776 569 710 388 401 306 264 109 4.525
Contributions 25 215 236 394 310 426 268 300 244 228 99 2.746
Interest 30 199 210 318 216 237 100 84 52 30 8 1.483
Incremental interest 6 40 42 64 43 47 20 17 10 6 2 297
ST-SSC 0 0 0 0 0 0 0 0 0 173 110 283
Contribution 0 0 0 0 0 0 0 0 0 136 94 231
Inflation adjustment 0 0 0 0 0 0 0 0 0 5 2 7
Interest and fines 0 0 0 0 0 0 0 0 0 32 13 45
Totals 62 454 488 776 569 1.116 739 581 503 597 334 6.218

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Scenario 4

Detail 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
PIT 0 0 0 0 0 0 13 180 197 160 115 666
Tax 0 0 0 0 0 0 12 167 185 154 113 631
Inflation adjustment 0 0 0 0 0 0 0 0 0 0 0 0
Interest 0 0 0 0 0 0 1 13 11 6 3 34
LT-SSC 62 454 488 776 569 710 388 401 306 264 109 4.525
Contributions 25 215 236 394 310 426 268 300 244 228 99 2.746
Interest 30 199 210 318 216 237 100 84 52 30 8 1.483
Incremental interest 6 40 42 64 43 47 20 17 10 6 2 297
ST-SSC 0 0 0 0 0 0 0 0 0 173 110 283
Contribution 0 0 0 0 0 0 0 0 0 136 94 231
Inflation adjustment 0 0 0 0 0 0 0 0 0 5 2 7
Interest and fines 0 0 0 0 0 0 0 0 0 32 13 45
Totals 62 454 488 776 569 710 401 581 503 597 334 5.474

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