Chavez Confirms Tax Hike For Oil Firms

by Glen Shapiro, LawAndTax-News.com, New York

10 May 2006

Speaking to the nation on Sunday, Venezuela's President, Hugo Chavez confirmed that his government plans to impose higher taxes on foreign oil firms that profit from the country's petroleum reserves.

In his weekly television and radio address, President Chavez unveiled widely anticipated plans to raise income taxes for oil companies to 50% from the current level of 34%. The country's Oil Minister, Rafael Ramirez separately revealed that a 33.3% extraction tax is being considered.

The Venezuelan authorities recently seized control of oil fields belonging to foreign companies, and Seniat, the national tax agency, has been forcing foreign firms to pay their taxes or face expulsion from the country.

Jose Vielma, head of Seniat, announced last month that Chevron, Total and ENI had agreed to pay a total of $182 million in back taxes. In the case of Chevron, its $75 million back tax bill included a $26.3 million fine as punishment for its initial refusal to pay the original bill.

The announcement came shortly after the government seized oil fields run by ENI and Total. However, Vielma also announced that Total has become the first foreign company to settle its outstanding obligations to the nation, and consequently he stated that the firm now has "no problems with Venezuela".

Seniat is claiming that oil firms have been misinterpreting the nation's corporate tax laws since the early 1990s when the country's oil fields were opened up to private investment.

Seniat has been chasing 22 firms operating 32 contracts for outstanding taxes since last year, but stepped up the pressure on foreign companies earlier this year when it warned that they will not be permitted to take part in now mandatory joint ventures with the government if they refuse to settle claims for back taxes.

Last year the state's energy authorities declared that existing operating service agreements were illegal, and the government recently began a process of converting them to state majority joint ventures.

Chevron and Norway's Statoil are two foreign companies which have entered into new arrangements with the state-owned energy company PDVSA. Under the agreement with Chevron, PDVSA has taken a 75% stake in the joint venture, while Statoil has agreed to sell its 27% stake.

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