VZCZCXYZ0031
RR RUEHWEB

DE RUEHCV #0564/01 0741457
ZNR UUUUU ZZH
R 151457Z MAR 07
FM AMEMBASSY CARACAS
TO RUEATRS/DEPT OF TREASURY
INFO RUEHC/SECSTATE WASHDC 8139

UNCLAS CARACAS 000564 
 
SIPDIS 
 
SIPDIS 
 
TREASURY FOR INTERNATIONAL TAX COUNSEL HHICKS 
KLINGENSMITH AND NGRANT 
 
E.O. 12958: N/A 
TAGS: EFIN ECON VE
SUBJECT: NOTIFICATION OF CHANGES TO LOCAL TAX LAW PURSUANT 
TO BILATERAL TAX TREATY 
 
 
¶1.  (U) This is an action request; please see paragraph 4. 
 
¶2.  (U)  Ambassador Brownfield received a letter on March 9 
from the Superintendent of Customs and Taxation (SENIAT) 
informing Post of partial reforms to Venezuelan income tax 
law in 2006 and 2007.  SENIAT delivered this letter pursuant 
to Article 2.2 of the Convention between the Government of 
the United States of America and the Government of the 
Republic of Venezuela for the Avoidance of Double Taxation 
and the Prevention of Fiscal Evasion, with respect to Taxes 
on Income and Capital (the Bilateral Tax Treaty).  Article 
2.2 (erroneously referred to in the letter as Article 2.4) of 
the Bilateral Tax Treaty requires the competent authorities 
of the contracting states to notify each other of any 
significant changes to tax law.  The text of the letter is 
translated below (para 3). 
 
--------------------- 
Translation of Letter 
--------------------- 
 
¶3.  (U) Begin translation of letter No.2305 from SENIAT to 
Ambassador Brownfield dated March 8, 2007 (Post received the 
letter March 9): 
 
I would like to refer you to the Convention between the 
Government of the Republic of Venezuela and the Government of 
the United States of America to avoid double taxation with 
respect to taxes on income and capital. 
 
In conformity with the dispositions in Article 2, Paragraph 
4, of the mentioned Convention, find annexed (Spanish and 
English versions) of the changes adopted in our Income Tax 
Law.  In this regard, I request your cooperation in 
delivering the referenced information to the competent 
authorities in the Government of the United States of 
America. 
 
Without any other particular agenda, I take this occasion to 
reiterate my highest consideration and esteem. 
 
Jose Gregorio Vielma Mora 
National Customs and Tax Superintendent 
 
 
Annex: Partial Reforms of the Income Tax Law 
 
Year 2007 
 
The Partial Reform of the Income Tax Law was published in 
Official Gazette No. 38.628 of February 16, 2007. 
 
Such reform includes a new article numbered 118, which 
establishes that the interest paid directly or indirectly to 
persons considered as related parties pursuant to the terms 
of the Second Section of Chapter III of Title VII of the Law, 
shall be deductible only so far as the amount of the debts 
contracted directly or indirectly with related parties, added 
to the amount of the debts contracted with independent 
parties does not exceed the net equity of the taxpayer. 
 
For purposes of determining whether the amount of the debts 
exceeds the net equity of the taxpayer, the annual average 
balance of debts held by the taxpayer with independent 
parties will be subtracted from the annual average balance of 
the taxpayer's net equity, which shall be calculated by using 
the method indicated therein. 
 
The reform also establishes that the amount of the debts 
contracted directly or indirectly by the taxpayer with 
related parties that exceeds the annual average balance of 
the taxpayer's net equity shall receive net equity treatment 
for all purposes of the Law. 
 
Meanwhile, article 187 is modified and is now 188, it 
establishes that for purposes of the regular adjustment for 
inflation, that gains or losses caused by adjusting assets or 
liabilities denominated in foreign currency or with clauses 
for the possibility of adjustment based on exchange 
variations, shall be considered as performed in the fiscal 
year in which they are deemed, collected, or paid, whichever 
occurs first. 
 
The present Law entered into force on its publication in the 
Official Gazette and shall apply to those fiscal years 
beginning during its period in force. 
 
Year 2006 
 
The Partial Reform of the Income Tax Law was published in 
Official Gazette No. 38.529 of September 25, 2006. 
 
Such reform modifies Article 11 of the Law, establishing that 
those taxpayers engaged in exploitation of hydrocarbons and 
related activities, such as refining and transport, purchase 
or acquisition of hydrocarbons and derivatives for their 
exploitation, shall be subject to tax at a proportional tax 
rate of 50%.  Excluded from this regime are those companies 
carrying out integrated activities or not, of exploration and 
exploitation of non associated gas, of processing, transport, 
distribution, storage, marketing and export of the gas and 
its components, that are exclusively engaged in the refining 
of hydrocarbons or improvement of heavy and extra heavy crude 
oils. 
 
Likewise, the reform derogated Article 56 of the Law, which 
referred to rebates for new investments represented by fixed 
assets made in the country by those taxpayers engaged in the 
exploitation of hydrocarbons and related activities. 
 
The reform Law also modified Article 57, now Article 56 of 
the Income Tax Law, indicating that a 10% rebate is granted 
on the amount of new investments made in the five years 
following the entry into force of the Law, such as industrial 
and agriculture activities, construction, electricity, 
telecommunications, science and technology but expressly 
excluding from this tax benefit those taxpayers engaged in 
the exploitation of hydrocarbons and related activities.  75% 
rebate is granted on the amount of new investments made on 
tourism services.  80% rebate is granted on the amount of new 
investments made in agriculture and forestry activities. 
Lastly, an additional 10% rebate is granted on the amount of 
new investments represented by fixed assets, programs and 
other activities related to prevent the pollution of the 
environment. 
 
End translation of letter. 
 
¶4. (U) Post requests the Department of Treasury to review the 
implications of these tax changes to the Bilateral Tax Treaty 
and provide Post with an appropriate response to this letter, 
if warranted.  Post appreciates Treasury's assistance.  POC 
is Economic Officer David Harrison, email: 
harrisond@state.gov, phone: 58-212-907-8412. 
 
 
BROWNFIELD