Venezuelan Tax Agency Targets Foreign Oil Firms

by Mike Godfrey, Tax-News.com, Washington

03 January 2006

It has emerged that the Venezuelan tax authorities have demanded a total of US$223 million in back taxes from a number of foreign oil firms, including France's Total and Spain's Repsol, as the government intensifies its effort to extract more revenues from foreign companies for supposed tax irregularities.

According to the state news agency ABN, the tax agency, Seniat, is demanding US$113 million from Repsol, US$107 million from Total and an additional US$3 million from the Japanese oil firm Teikoku.

Dian Vargas, head of Seniat, has indicated that the agency will be pursuing a further five oil companies for back taxes in January. Last month, the agency revealed that 14 oil firms had been asked to set aside US$422 million to cover back taxes. By the end of the campaign, Seniat suggested that the total collected in back taxes from the oil sector could be as much as US$2 billion.

The government of President Hugo Chavez has instigated a hardline policy on company tax compliance in the past year in an attempt to extract record levels of tax revenues. As the world's fifth largest oil exporter, Venezuela has been especially keen to improve tax collection from the oil sector, and has accused foreign oil companies of avoiding $3 billion in taxes resulting from deals struck under the leadership of former President Rafael Caldera in the 1990s.

In August last year, it emerged that the Venezuelan tax authorities had asked a court for an injunction over Royal Dutch Shell PLC assets worth US$130 million, stemming from a contested tax bill covering the years 2001-2004.

However, the tax agency has not restricted its activities to the oil sector and it has been keen to enforce tax compliance across the board.

In October, Seniat ordered the temporary closure of a number of foreign companies, including IBM and Bosch Rextroth, due to bookkeeping irregularities relating to income tax and value added tax. Nokia, Ericsson and Honda have also come under the agency's scrutiny.

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