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FM AMEMBASSY CARACAS
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RUMIAAA/HQ USSOUTHCOM MIAMI FL
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UNCLAS SECTION 01 OF 02 CARACAS 001463 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PREL EINV PGOV VE
SUBJECT: TAX AUTHORITY RAMPS UP TAX ENFORCEMENT AND MONEY 
FLOWS IN 
 
REF: CARACAS 01444 
 
¶1.  (SBU) Summary.  The Bolivarian Republic of Venezuela, 
through its tax agency, has ramped up enforcement of Plan 
Zero Evasion (Evasion Cero) first announced in 2005.  The 
Plan involves audits of company accounting procedures and 
violations include fines, closures and "voluntary payments" 
of taxes.  The press has highlighted recent aggressive audit 
activity by the tax agency against emblematic U.S. brands 
MacDonald's and Pepsi, but many other Venezuelan and non-U.S. 
multinationals have also been targeted.  Tax revenue has 
increased substantially, both from fines and increased 
compliance.  Businesses continue to grapple with a murky tax 
code and selective, sometimes discriminatory, enforcement by 
the tax agency.  End Summary. 
 
------------------------------ 
BACKGROUND - PLAN EVASION CERO 
------------------------------ 
 
¶2.  (SBU)  The Bolivarian Republic of Venezuela (BRV), 
through its tax authority, Servicio Nacional Integrado de 
Administracion Aduanera y Tributaria (Seniat), announced the 
Plan Evasion Cero (Plan Zero Evasion (the Plan) in 2005.  The 
Plan is a tax collection program which involves sanctions, 
including business closure, fines and "voluntary payment" of 
taxes.  Under the Plan, Seniat audits a company's books for 
compliance with Venezuela's tax code.  The tax code is 
ill-defined and Seniat can arbitrarily penalize an enterprise 
for minor clerical errors, such as an incorrect date on an 
invoice.  When found non-compliant, Seniat can impose a fine 
of one to several tributary units on an enterprise.  (The 
current value of a tributary unit is 46 BsF or $21.40 at the 
official exchange rate of 2.15 BsF to 1 USD).  In addition, 
Seniat can (and routinely does) force the closure of the 
enterprise for several days.  Besides these penalties, Seniat 
may also determine that a business has failed to pay the 
correct amount of tax due.  In these instances, Seniat has 
allowed companies to "voluntarily pay" the disputed amount, 
often with no other sanctions.  Seniat may also seize 
products from enterprises for violations of the tax code. 
Seizures of goods have focused on food stuffs, which are then 
donated to the consumer protection agency, which auctions the 
goods to the public with much fanfare. 
 
---------------------------- 
RECENT HIGH PROFILE ACTIVITY 
---------------------------- 
 
¶3.  (SBU) Beginning in January 2008, Seniat stepped up 
efforts under the Plan and more recently seems to have 
ratcheted up its efforts again.  Enforcement actions in the 
past weeks have been taken against such emblematic U.S. 
brands as MacDonald's and Pepsi.  Seniat has, however, 
targeted other fast food service businesses (including 
non-American franchises) and other sectors. In these 
instances, Seniat has fined each enterprise a small amount 
(ranging from 1,150 to 3,450 BsF, about $535 to $1,600) and 
closed their operations in Venezuela for a 2 or 3 day period. 
 Seniat has levied substantially higher "voluntary payments" 
on business operating in the tourism sector, private health 
care and gaming, ranging from 651,340 to 3,752,1000 BsF 
(approximately $303,000 to $1.7 million.)  Most recently, on 
October 15, Seniat announced that Proctor & Gamble had failed 
to pay the proper amount of value added tax for 2005.  Seniat 
determined that Proctor & Gamble must pay 7,718,299 BsF 
(approximately $3.6 million) within the next 15 days to 
correct the underpayment of taxes. 
 
----------------------------------- 
HOW MUCH MONEY IS SENIAT TAKING IN? 
----------------------------------- 
 
¶4.  (SBU)  Statistics published on Seniat's website show that 
Seniat received no revenues from fines or "voluntary payment" 
of taxes during 2005 and 2006.  Beginning in 2007, Seniat's 
records reflect revenue from fines and "voluntary payment" of 
taxes of 1.2 million BsF (approximately $590,000.)  For year 
to date September 2008, revenues for fines and "voluntary 
payments" total 1.38 million BsF (approximately $643,000.) 
With the inclusion of the Proctor & Gamble fine, the BRV will 
increase receipts from the Plan by at least 52 percent in 
¶2008.  An added effect of greater enforcement has been the 
increase in overall tax revenue.  In 2005, Seniat tax 
receipts totaled 32 billion BsF (approximately $14.85 
billion.)  By 2007, this figure had grown to 56 billion BsF 
(approximately $26 billion.)  If the current rate of tax 
collection remains constant, tax revenue for 2008 should 
 
CARACAS 00001463  002 OF 002 
 
 
equal approximately 65 billion BsF (approximately $30 
billion.) 
 
-------------------- 
IMPACT ON BUSINESSES 
-------------------- 
 
¶5.  (SBU)  As seen above, Seniat enforcement actions have 
spurred business to pay their taxes at record levels. 
However, Seniat seems to enforce the tax code in an arbitrary 
manner, adding to the potential harassment a business may 
face in the daily conduct of its business.  Anecdotal 
evidence suggests Seniat levies large "voluntary payments" of 
back taxes for low-level clerical mistakes, such as incorrect 
calculation of the value added tax and incorrect dates on 
receipts.  In addition, as recently noted by a MacDonald's 
spokesperson, the tax code is murky and companies generally 
make a good faith effort to comply with accounting standards, 
only to learn otherwise during a Seniat audit. Heightened 
scrutiny of accounting procedures require additional business 
resources, negatively impacting the private sector.  Also, 
vague language on required recordkeeping and format leaves 
considerable discretion to the inspector and opens the door 
to corruption. 
 
------- 
COMMENT 
------- 
 
¶6.  (SBU)  The heightened scrutiny by Seniat may merely be 
another election year tactic, designed to distract voters 
from the economic woes of the country or simply a means to 
encourage tax compliance and increase revenues.  But, 
businesses, particularity high profile and emblematic 
companies, will continue to face greater scrutiny and perhaps 
corruption when dealing with the tax authorities, which 
serves as another disincentive for additional investment in 
Venezuela. 
CAULFIELD