VZCZCXYZ0031
RR RUEHWEB
DE RUEHCV #0564/01 0741457
ZNR UUUUU ZZH
R 151457Z MAR 07
FM AMEMBASSY CARACAS
TO RUEATRS/DEPT OF TREASURY
INFO RUEHC/SECSTATE WASHDC 8139
UNCLAS CARACAS 000564
SIPDIS
SIPDIS
TREASURY FOR INTERNATIONAL TAX COUNSEL HHICKS
KLINGENSMITH AND NGRANT
E.O. 12958: N/A
TAGS: EFIN ECON VE
SUBJECT: NOTIFICATION OF CHANGES TO LOCAL TAX LAW PURSUANT
TO BILATERAL TAX TREATY
1. (U) This is an action request; please see paragraph 4.
2. (U) Ambassador Brownfield received a letter on March 9
from the Superintendent of Customs and Taxation (SENIAT)
informing Post of partial reforms to Venezuelan income tax
law in 2006 and 2007. SENIAT delivered this letter pursuant
to Article 2.2 of the Convention between the Government of
the United States of America and the Government of the
Republic of Venezuela for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion, with respect to Taxes
on Income and Capital (the Bilateral Tax Treaty). Article
2.2 (erroneously referred to in the letter as Article 2.4) of
the Bilateral Tax Treaty requires the competent authorities
of the contracting states to notify each other of any
significant changes to tax law. The text of the letter is
translated below (para 3).
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Translation of Letter
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3. (U) Begin translation of letter No.2305 from SENIAT to
Ambassador Brownfield dated March 8, 2007 (Post received the
letter March 9):
I would like to refer you to the Convention between the
Government of the Republic of Venezuela and the Government of
the United States of America to avoid double taxation with
respect to taxes on income and capital.
In conformity with the dispositions in Article 2, Paragraph
4, of the mentioned Convention, find annexed (Spanish and
English versions) of the changes adopted in our Income Tax
Law. In this regard, I request your cooperation in
delivering the referenced information to the competent
authorities in the Government of the United States of
America.
Without any other particular agenda, I take this occasion to
reiterate my highest consideration and esteem.
Jose Gregorio Vielma Mora
National Customs and Tax Superintendent
Annex: Partial Reforms of the Income Tax Law
Year 2007
The Partial Reform of the Income Tax Law was published in
Official Gazette No. 38.628 of February 16, 2007.
Such reform includes a new article numbered 118, which
establishes that the interest paid directly or indirectly to
persons considered as related parties pursuant to the terms
of the Second Section of Chapter III of Title VII of the Law,
shall be deductible only so far as the amount of the debts
contracted directly or indirectly with related parties, added
to the amount of the debts contracted with independent
parties does not exceed the net equity of the taxpayer.
For purposes of determining whether the amount of the debts
exceeds the net equity of the taxpayer, the annual average
balance of debts held by the taxpayer with independent
parties will be subtracted from the annual average balance of
the taxpayer's net equity, which shall be calculated by using
the method indicated therein.
The reform also establishes that the amount of the debts
contracted directly or indirectly by the taxpayer with
related parties that exceeds the annual average balance of
the taxpayer's net equity shall receive net equity treatment
for all purposes of the Law.
Meanwhile, article 187 is modified and is now 188, it
establishes that for purposes of the regular adjustment for
inflation, that gains or losses caused by adjusting assets or
liabilities denominated in foreign currency or with clauses
for the possibility of adjustment based on exchange
variations, shall be considered as performed in the fiscal
year in which they are deemed, collected, or paid, whichever
occurs first.
The present Law entered into force on its publication in the
Official Gazette and shall apply to those fiscal years
beginning during its period in force.
Year 2006
The Partial Reform of the Income Tax Law was published in
Official Gazette No. 38.529 of September 25, 2006.
Such reform modifies Article 11 of the Law, establishing that
those taxpayers engaged in exploitation of hydrocarbons and
related activities, such as refining and transport, purchase
or acquisition of hydrocarbons and derivatives for their
exploitation, shall be subject to tax at a proportional tax
rate of 50%. Excluded from this regime are those companies
carrying out integrated activities or not, of exploration and
exploitation of non associated gas, of processing, transport,
distribution, storage, marketing and export of the gas and
its components, that are exclusively engaged in the refining
of hydrocarbons or improvement of heavy and extra heavy crude
oils.
Likewise, the reform derogated Article 56 of the Law, which
referred to rebates for new investments represented by fixed
assets made in the country by those taxpayers engaged in the
exploitation of hydrocarbons and related activities.
The reform Law also modified Article 57, now Article 56 of
the Income Tax Law, indicating that a 10% rebate is granted
on the amount of new investments made in the five years
following the entry into force of the Law, such as industrial
and agriculture activities, construction, electricity,
telecommunications, science and technology but expressly
excluding from this tax benefit those taxpayers engaged in
the exploitation of hydrocarbons and related activities. 75%
rebate is granted on the amount of new investments made on
tourism services. 80% rebate is granted on the amount of new
investments made in agriculture and forestry activities.
Lastly, an additional 10% rebate is granted on the amount of
new investments represented by fixed assets, programs and
other activities related to prevent the pollution of the
environment.
End translation of letter.
4. (U) Post requests the Department of Treasury to review the
implications of these tax changes to the Bilateral Tax Treaty
and provide Post with an appropriate response to this letter,
if warranted. Post appreciates Treasury's assistance. POC
is Economic Officer David Harrison, email:
harrisond@state.gov, phone: 58-212-907-8412.
BROWNFIELD