Venezuela Hikes Tax For Private Oil Firms

by Mike Godfrey, Tax-News.com, Washington

01 September 2006

International oil companies operating in Venezuela will see a substantial increase in their tax bills after the National Assembly approved a new tax law earlier this week.

The new law means that companies operating in the Orinoco river basin oil fields will pay tax at 50%, up from 34%, which will affect an array of international firms such as Exxon Mobil, Total, Conoco Phillips, Statoil and BP.

In a statement, Exxon Mobil expressed concern at the "unilateral decisions taken by the Venezuelan government to change the fiscal terms" of the Cerro Negro Strategic Association Agreement, a joint initiative between private companies and the state-owned Petroleos de Venezuela (PDV).

Exxon Mobil and PDV each hold a 41.7% stake in the joint venture, while BP has a 16.6% stake.

The move is the latest step by the left-wing government of President Hugo Chavez to extract more revenues from Venezuela's lucrative oil sector, which is the world's fifth largest producer. The government recently insisted that assessments for additional back taxes by the tax agency Seniat be paid up by private oil firms before they could enter into mandatory joint projects with the state.

It is expected that by the end of the year, lawmakers would have approved a new law allowing the state to take majority stakes in the four Orinoco projects as the government seeks to exert more control over the national oil industry.

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