Venezuelan Tax Office Warns Oil Companies To Pay Up Or Shut Up Shop

by Mike Godfrey, Tax-News.com, Washington

17 February 2006

Venezuela's tax chief has 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.

Jose Joaquin Cedillo, who heads Venezuela's increasingly active tax agency Seniat, made his warning earlier this week, after it emerged that French oil firm Total is refusing to pay a bill for back taxes.

Total is one of 22 foreign oil firms which, according to Seniat, still owe US$363 million in back taxes covering the years 2001 to 2004. Cedillo has also alluded to the possibility of widening the ongoing audit to include earlier tax years.

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 a rate of 34% instead of the 50% rate demanded from firms operating in the oil industry.

The left-wing government of Hugo Chavez has also been dismantling tax incentives ushered in under a previous administration to encourage oil production at a time of low prices, and is forcing foreign companies into joint ventures with the nationalised Petroleos de Venezuela. However, the government is also insisting that these private companies clear their back taxes before being permitted to take part in joint ventures.

As the world's fifth largest oil exporter, the energy sector accounts for one-third of Venezuela's gross domestic product and 40% of the government's income.

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