Venezuela To Usher In Tax Reforms In Oil Sector

by Leroy Baker, Tax-News.com, New York

13 March 2006

The Venezuelan tax office has revealed that a project by the government aimed at reforming tax laws for the oil industry is nearing completion, Dow Jones Newswires reported last week.

According to the report, the proposal "establishes limits to cost deducting, to determine the total net enrichment of the companies dedicated to this activity."

Also included in the proposals is a 50% tax on "enrichment" obtained by taxpayers mainly from hydrocarbons and gas hydrocarbons activities. Companies that are also involved in refining, transporting and selling the product will face a similar 50% rate, the report stated.

The reforms come at a time when the government, through the tax agency, Seniat, is exerting greater pressure on companies in the oil industry to pay back taxes.

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, and have been paying a substantially lower tax rate than the statute requires.

Last month, Jose Joaquin Cedillo, head of Seniat, warned both foreign and domestic oil firms 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.

Cedillo issued the warning after it emerged that French oil firm Total was refusing to pay a bill for back taxes.

Total is one of 22 foreign oil firms which, according to Seniat, in February still owed US$363 million in back taxes covering the years 2001 to 2004.

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