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Taxation on Transfer Pricing by Tax Authorities in Venezuela


Since the implementation of the transfer pricing regime in Venezuela was included in the reform of the 1999[1] Income Tax Law, several actions have been taken by the Internal Revenue Administration. Some of these have been directed at perfecting the regime while others have been directed at ensuring compliance of the tax obligations established in the regulations. Taxand Venezuela identify the substantial changes with regard to the regulations contained in the revoked Income Tax Law of 1999.

Amongst the actions taken to perfect the transfer pricing regime, reform of the Internal Revenue Code[2] ("IRC") was highlighted, whereby the figure of Anticipated Price Agreements were included for the first time in the country's legal system. This established a mechanism to allow taxpayers to voluntarily go before the Internal Revenue Service with a proposal of a pricing methodology, based on the normal market value, to be applied on transactions carried out between related parties (Art. 20 IRC). Likewise, the 2001[3] reform of the Income Tax Law also included important changes in the transfer pricing regime.

The actions taken by the Servicio Nacional Integrado de Administracion Aduanera y Tributaria (SENIAT), the tax authority for Venezuela, has not only been aimed at revising compliance with formal obligations, but also at verifying the transfer pricing methodology and analysing the premises used by taxpayers. So much so, that on November 24th, 2006, the SENIAT announced the first assessment on transfer pricing for Shell, Venezuela. This assessment, according to information taken from SENIAT's web page, was for an agreed interest with related foreign parties.

In the year 2010, Alimentos Heinz was penalized due to a differential detected in its Income Tax declaration for the fiscal years 2003 and 2004, aimed at intentionally reducing its tax payment corresponding to those years. The reasons for the transfer pricing assessment were: adjustment within Arm's Length range of the exportation of a finished product manufactured in Venezuela and interest charged for loans granted to related parties domiciled abroad. The assessment amounted to BsF 185,917.

Similarly, that same year, General Motors was taxed due to a differential detected in its Income Tax declaration for the fiscal years 2003 and 2004 intended at intentionally reducing said taxes corresponding to those years. Officials from the Internal Revenue Service based the assessment on the adjustment within Arm's Length range of the purchase of parts for vehicle assembly, the purchase of vehicles for distribution in the local market and exportation of assembled vehicles to its related parties abroad. The assessment amounted to BsF 27,471,276.

During the year 2009, Pfizer de Venezuela, C.A. was also penalised, due to the omission of operating and windfall income, adjustments to the segment of export sales of manufactured products, change in the method of resale pricing to the transactional net margin method of the distribution segment and the reduction of rejected taxes. The company paid an assessment of BsF 36,587,156.

During the same year, Nestl? de Venezuela, S.A. paid an assessment of BsF 15,700 on the basis that the agreed interest rate with a Nestl?-related company located under the jurisdiction of a tax paradise, were adjusted within the Arm's Length range. This included royalties, expenses and the exportation of products for human consumption with a related party.

Additionally, in 2009, Chrysler Services de Venezuela, C.A., was penalised on the grounds that there was an adjustment with the Arm's Length range for the purchase of parts and components for vehicle assembly, corresponding to the fiscal year 2003. Likewise, tax collectors detected the omission of income, adjustment within the Arm's Length range for the exportation of locally assembled vehicles to related parties in the year 2004, as well as adjustments of foreign exchange differential and adjustment of loan interests of the related company. The fine amounted to BsF 13,436,994.


Taxand's Take

It must be pointed out that in 2010 68 taxpayers, whose fiscal domicile falls under the jurisdiction of the Capital Region of the Internal Revenue Management of the SENIAT, were subjected to verification of formal obligations of transfer pricing, with fines imposed to the tune of BsF 1,167, 266. This was for submitting late Transfer Pricing declarations (Informative Declaration of Transactions carried out with Related Parties Abroad PT-99), as well as not applying the methodology stipulated by the Income Tax Law in this matter, during the fiscal period of 2009.

Your Taxand contacts for further queries are:
Luis Mart?nez
T. +58 212 750 00 95

Aileen Figueroa
T. +58 212 750 00 95

More news from Taxand Venezuela:

[1] Official Gazzette No. 5.390, dated 22/10/1999

[2] Official Gazzette No. 37.305, dated 17/10/2001

[3] Official Gazzette No. 5.566, dated 28/12/2001

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