Venezuelan Government Turns Up Heat On Foreign Oil Companies

by Mike Godfrey, Tax-News.com, Washington

07 April 2006

Having recently seized control of oil fields belonging to foreign companies, the Venezuelan government is tightening its grip on the nation's oil industry and forcing foreign firms to pay their taxes or face expulsion from the country.

Jose Vielma, head of Seniat, the tax national tax agency, announced Wednesday 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, and have been paying tax at 34% instead of the 50% tax demanded by the government.

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 has recently begun a process of converting them to state majority joint ventures.

Chevron and Norway's Statoil are two foreign companies which have recently 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.

The oil companies initially disputed the changes to their contracts, but it seems that most have fallen into line with the new regime under heavy pressure for the government, although there are a few dissenters, one of them being ENI.

However, according to an AFX News report, Vielma warned: "We are prepared to take ENI and any other international company to arbitration," adding that: "We know we are going to win."

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