Venezuelan Tax Authority Initiates Transfer Pricing Review
By Alfredo Sahagún (Caracas)
Venezuela’s National Tax Administration Services (SENIAT) recently began transfer
pricing audits of several multinational corporations, resulting in sanctions for those that
failed to comply with transfer pricing documentation requirements. The audits, part of
SENIAT’s "Zero Tax Evasion" policy, resulted in fines and suspension of operations for
48 hours for violators.
Transfer pricing provisions in Venezuela’s Income Tax Law (ITL) require taxpayers to
submit an annual statement -- Form PT-99 -- listing controlled transactions carried out
with foreign related entities to document the arm’s length nature of foreign relatedparty
operations under valuation methods specified in 2001´s Venezuelan Income Tax
Law. The obligation to submit Form PT-99 was enacted in 2002 for fiscal years ending
in 2001. In February 2005, SENIAT started reviewing taxpayers’ compliance with
obligations for open years. Under a special audit program, the tax administration plans
to visit 70 multinational corporations to request additional information on PT-99.
Specifically, the tax authorities will verify compliance with formal duties and transfer
pricing documentation for fiscal years 2001, 2002, and 2003. Enterprises must respond
to the request within three to four days of receipt. In early March, five enterprises were
sanctioned on the basis of transfer pricing and value added tax infractions. The
companies forced to close were engaged in the food, pharmaceutical, and consumer
products sectors
Failure to provide the information requested within the stated period is considered a
failure to comply with a formal obligation and is subject to penalties, as well as the
possibility of closure. The penalties range from 10 to 50 Tax Units (UTs) (each UT is
equal to approximately US $11.50), for a possible maximum of US $683. Penalties for
inaccurate valuation or data inconsistencies range from 300 to 500 UTs, or a maximum
of US $6837. SENIAT’s recent actions have focused on taxpayers designated by the
Administration as "special." SENIAT categorizes some taxpayers as "special" when their
gross income exceeds a specified amount. Special taxpayers are required to comply
with different obligations aimed at keeping closer supervision over them.
So far, SENIAT has reviewed and penalized few enterprises; nonetheless, this development is certain to be a first step regarding transfer pricing audits.
SENIAT has also been involved in unprecedented activities whereby it has requested from enterprises in-depth information on technical assistance, trademarks, and intangibles contracts to ensure their accuracy. The tax authority is evaluating the substance
of transactions involving the transfer of intangible property, specifically, technical assistance services, know-how, and royalty agreements. In this regard, SENIAT has requested information such as financial studies that justify the need for the technical
services provided, and detailed explanations of activities and hours of service, studies showing the need for and impact of these services on the overall enterprise activity, and documents that support the services rendered.
In November 2004 a large oil services multinational was subject to an investigation encouraged by the National Securities Commission based on Item No. 8 (Related-Party Transactions) of their 1999 audited financial statements. This confirms that
government agencies other than the tax administration, including the Banking System Regulatory office (SUDEBAN), the National Securities Commission (CNV), the Foreign Investment Regulatory office (SIEX), and the Currency Exchange Administration
(CADIVI) have been actively monitoring transfer pricing Issues through currency requirements, contracts undersigning and other
publicly available information.
Since its inception in October 1999, Venezuela’s transfer pricing legislation has been modified to conform more closely to the OECD Guidelines. SENIAT has created a special unit to "supervise, coordinate and analyze resolutions [in regards to transfer pricing],"implemented the Form PT-99 requirement, and started to request that taxpayers provide further information in connection with these informative statements. Specifically, the data sought is necessary to validate the information provided in Form PT-99, and to review possible inconsistencies between different appendices to the statement. SENIAT has also requested resubmission of
appendices when the financial information had not been properly segmented between controlled and uncontrolled operations; details on cost structure, particularly in the case of service providers; and the appropriate selection of an arm’s length pricing
method.
During 2004, two months after taking office, Venezuela’s National Tax Commissioner announced SENIAT’s "Zero Evasion Plan," an intensive audit program intended to "persuade taxpayers about the need to comply with fiscal obligations…" Given the high levels
of tax evasion in the country, the tax administration has clearly adopted a more aggressive posture toward infractions. In the commissioner’s words, "We are going to initiate proceedings against any taxpayer evading taxes." Also as part of this initiative, the
administration plans to share information with tax administrations and other official organizations abroad in order to audit, among others, individual’s foreign bank accounts and imports and exports declared.
Monday, January 30, 2006
INVESTMENT 101 VENEZUELA
Investing in Venezuela 101. The daily journal. Financial supplement.Where to invest in a non-emerging economy.Venezuela a wealthy emerging economy has immense investment opportunities but under the legal, economical and political instability the risk is far too large for most investors. Only those who are courageous and can bear some losses are investing. The main ingredient to invest today in Venezuela is courage and the best asset well informed people. The Country has capacity but its economic activity is restricted at the present time.To success in business a good market research (location, costs, industry competitors, potential costumers, risks) and a projected cash flow (Internal Rate of Return, Present Value, Time length to repay initial investment). Once confirmed the business opportunity study deeper its legal structure, compare to other rates of return and opportunity costs. Be conscious in time frames, have a long term perspective, monitor your finances, keep updated financial statements. Good management in time will translate into profit to reinvest. But there are other less vigorous investments, though very limited due to the restriction on the domestic economy, some are:-Equity. Trading on the net or using brokerage houses. One good advice is to give your investment some time. Don't invest in equities with the intention to pull the money in months but years. Diversification is the tool against risk. The liability is that the actual situation of the Venezuelan capital market has too few outstanding stocks and is highly illiquid. Buying in domestic currency carries inflationary risk, and the only volatile shares seem to be: CANTV, EDELCA, Mercantil Financial Services. A better yet opportunity in the same area are the American Depositary Receipts ADR´s(CANTV, ELDAY), one of the last few ways to acquire US dollars is converting your domestic shares to foreign ADR and selling them, some call it the CANTV dollar. Converting your currency to a stronger one such as de US$ is a vital tool to protect your purchasing power, but is not truly an investment.A conservative investment is, buying non-deflationary goods, such as commodity contracts or Real State. -Corporate and Public Debt is nowadays the most widely used option. There are also far too few corporate issuers of commercial papers (those paid within the year) such as EDELCA, PROVENCES and Public Treasury Notes and ¨Pagarés¨ yielding an average of 7% maximum 12%. But our recommendation in the investment category are the instruments of Public Debt (DPN), such as the newly issued VeBono2008 and 2009, Bradys, Global10 and Global27 as the one with the most liquidity and better rate of return. These Government Bonds, used to restructure the Internal Debt, are paying the highest yield. Since the government is playing by far the biggest role in the economy it is understandable that its bonds are the ones traded the most. Some argue the good return of there bonds is due to the long term stronghold that Chavez has had and will have over its government and institutions and other speculate that is due to an eventual disappearance of Chavez from the political picture. The fact remains that an investment in US dollars seems more competitive than in domestic currency.Once we lived in a LDC, then in an emerging economy. Now we come across new barriers and a shortage of opportunities. The nation situation seems to be reversing, closing its economy; with virtually no investment and disappearance of an infant industry, the governmental common voice doesn’t reveal the underlying circumstances. Worse yet the lack of institutional autonomy and a large unplanned government spending are causes for the immense political risk we pointed out. Still there is hope in our investment scenario, being a wealthy oil producing country as long as the price of such commodity remains picking the Economic Risk of the government to pay its debt remains low. The concern is not economic but political.On the other hand the managers, investors, private sector, true planners of the future of the nation are getting our hands tied up. But there are still chances in the micro economies and gaps to make fortune at the margin of conventional business. Some useful links: www.conapri.org , www.bcv.org.ve, www.caracasstock.com , www.bancaynegocios.com , www.activalores.com, www.bbo.com.ve , www.cajavenezolana.com
MACRO ECONOMIA VENEZOLANA 2004
The daily journal. Financial supplement.Venezuela. Macro-Economic Outlook. Venezuelan macroeconomics are unordinary, more now than ever. This country gifted location provides it with vast energy resources that position it between the wealthiest of the region. Even with production under spare capacity Venezuela should be a good economic performer given the 5 year long oil price boom, on the contrary its Economy is shocking and its perspectives are uncertain.The management of the economic policies is as appalling as the political transformation. There has been a tremendous fall in productive activity; Central Bank figures real GDP contraction of -9.24% last year, while private consultants’ figures can be as high as 16.7% in 2002 and 29% in 2003. The past two years GDP trend has been downward sloping. These sectors have been the most affected: -49.8% in Construction, -23.7% Commercial activity and a -20.5% in Manufacturing. The unemployment index for March is 4, 7 points higher than last years, averaging 19.8%, more astonishing if we consider that the regime is practicing a labor immobility law.Soft-Line Consultants (Banking specialists) calculate as of February 2003 a Total amount of deposits of Bs.30 billion 775 thousand million (72.68% yearly increase) quite disproportionate in comparison with the Total amount of Credits totallingBs.10 billion 71 thousand million (only just %13.99% yearly increase). Another outstanding figure is the 114,75% rise in the totting up of bonds and stocks investment counting for 17 billion 699 thousand million. This can be explained by large emissions of rentable government papers designed to restructure the internal debt (remember some of these are the only way to acquire US dollars). Therefore the Internal Debt figurers are overwhelming; Bs.2.164.139MM in 1998 while in 2003 was Bs.20.635.099MM. The total of Internal Debt has increase 790% in the last five years. On the other hand the External Debt has been reduced by a 6% to Bs.22.026MM. The stock market closed index close this week at 27000, it averaged 22.203 in 2003, trading few sharers but highest than ever. The banking and financial sector is more regulated everyday day decreasing its intermediation. Interest Rates are at a low (considering inflation) averaging 20% also explained by the tight control, the closing of the economy and the rise liquidity derived from the foreign exchange control. Since 1999 the Capital Account has reflected the capital flees, and the Current Account shows the cuts in oil production, though 2002 and 2003 have been better than 2001. Last year we had the at least double of the inflation than any other Latin-American country totaling 27.10% rate of inflation, followed by Uruguay with 10.19%. The indicators that remain positive due to regulation and control on currency exchange are the International Reserve funds and the Capital Markets given that there are no real foreign investment opportunities; but the FIEM (monetary stabilization fund) although it grew to a maximum in 2002 is once again at the lowest possible level, this fund was intended to cushion eventual oil price drops. To conjecture under which assumptions Chavez is basing his economic policies is a hopeless task. The US is the primary market for Venezuelan Oil, as long as Chavez remains fulfilling his quotas the Anti US rhetoric will be tolerated, so bilateral relations are still strong though clouded by chat talk. Even though his disastrous economic policies. If he is able to maintain oil production and resume it to higher levels once its price drops, he can be in for a long term, if he doesn’t become able the exit might be a violent one provoked by the extreme poverty. The hope remains in the total catastrophe of the economy withdrawing the radical Chavez supporters. Rehabilitating the economy Hill will be costly and lengthy.
Leyenda del nombre SALTO ANGEL
ANGEL FALL or KEREPAKUPAI MERU.
Where the name comes from.
The legend says that the name Angel Falls derives from the miraculous saintly figure that once appeared to a Pemon Indian in the mist of cascade water. But the truth far from heavenly is as mundane as the search for gold and diamonds in this rich land. Back in 1921 the Canadian First World War pilot Jimmy Angel was hired by geologist and explorer of name J. R. McCracken, to search for gold where none had gone before. It was so that Jimmy Angel reached without map the area known today as Canaima and managed to land his plane on top of one of the Tepuis. McCracken proceeded out of the plane to pan a river and find it full of gold nuggets. The story goes that they loaded so much on the plane that when it nosed off the cliff it plunged a thousand of feet before Angel could level it. As they returned to Caracas Jimmy was paid the generous sum of 3000$. Angel became obsessed with the Rivers of Gold, but without the proper map it was hard to find his mountain. It wasn’t till 1933 that Angel while at his favorite Caracas bar claimed to have seen the highest waterfall in the world. He said that his altimeter read around 6.000 ft. A mile high waterfall. On a later flight, in 1937 Angel attempted landing on the Auyan-Tepui, but his small Flamingo plane, the ´Rio Caroní´ didn’t make it, and together with his wife and a Venezuelan explorer took him eleven days to find a way down the mountain, eventually reaching the Kamarata mission. Jimmy died in 1956, his ashes were scattered over the falls, and in 1970, the Venezuelan Air Force rescued the rusting ´Rio Caroní´ from the top of the Auyan. The true name given by the Pemons: Kerepakupai means the deepest place, and Meru means falls.
Where the name comes from.
The legend says that the name Angel Falls derives from the miraculous saintly figure that once appeared to a Pemon Indian in the mist of cascade water. But the truth far from heavenly is as mundane as the search for gold and diamonds in this rich land. Back in 1921 the Canadian First World War pilot Jimmy Angel was hired by geologist and explorer of name J. R. McCracken, to search for gold where none had gone before. It was so that Jimmy Angel reached without map the area known today as Canaima and managed to land his plane on top of one of the Tepuis. McCracken proceeded out of the plane to pan a river and find it full of gold nuggets. The story goes that they loaded so much on the plane that when it nosed off the cliff it plunged a thousand of feet before Angel could level it. As they returned to Caracas Jimmy was paid the generous sum of 3000$. Angel became obsessed with the Rivers of Gold, but without the proper map it was hard to find his mountain. It wasn’t till 1933 that Angel while at his favorite Caracas bar claimed to have seen the highest waterfall in the world. He said that his altimeter read around 6.000 ft. A mile high waterfall. On a later flight, in 1937 Angel attempted landing on the Auyan-Tepui, but his small Flamingo plane, the ´Rio Caroní´ didn’t make it, and together with his wife and a Venezuelan explorer took him eleven days to find a way down the mountain, eventually reaching the Kamarata mission. Jimmy died in 1956, his ashes were scattered over the falls, and in 1970, the Venezuelan Air Force rescued the rusting ´Rio Caroní´ from the top of the Auyan. The true name given by the Pemons: Kerepakupai means the deepest place, and Meru means falls.
CANAIMA y su villa
CANAIMA and The Lagoon Village
It was established as a National Park in 1962. It has 3mm hectares. Canaima is bordered by the Rio Carrao, Rio Caroní and the Pakaraima and Roraima Range. The most famous tepuis are the Auyan (of the size of Menorca) and the Chimantá. The nearest city is Ciudad Bolivar. The park averages an annual temperature of 24.5oC, but on top of the summits it can be as cold as 0oC during the nights. The second semester of the year is considered the rainy season. Its native occupants are the ‘Pemon’ Indians. The settlement counts with more than a thousand people and everything there must be provided by plane. You must pay an entrance fee to the park of no more than 10.000Bs, and the guides can go as high as for 50$ a day, or as low as 20$. And food price is very reasonable. Your guide will get you to travel in the “curiaras” (hollow tree boats) around the lake, they fit anywhere from 10 to 30 people. The boat can be stationed in any of the rocks or sand banks inside the lake to sunbathe and you can even choose to get very close to any of the waterfalls nearby, named Salto el Acha, Salto El Sapo y Salto El Sapito. You can leave the boat and walk on top of the waterfalls or even behind the curtain of water; this is one of the camp’s best attractions. You can also hike around the many sabana trails, visit Indian villages or set off to a longer adventure up river to the angel falls. Despite the danger typical of a virgin savage reservoir, the National Park Institute (Imparques) has done a tremendous job ensuring the safety of the public like nowhere else. The main excursions are endowed with well prepared tracks and signs, the steep walks are provided with stairs and in all cases there is a handle bar to lean on. The leaders are well educated and dominate Basic English. There is a restriction on the areas you can visit, besides it is strongly recommended that your guide be aware of your location at all times. You will find plenty of guides as soon as you land in the airport, and they can show you the way around and get you accommodation in either of the hotels or the few newer posadas.
CANAIMA (articulo para el daily journal)
FLYING INTO CANAIMA NATIONAL PARK –
World heritage.Tepuis - Venezuela´s World Natural Wonder.
In the Venezuelan landscape, as mountains run into hills and hills into plains, as deserts melt into waters and rivers into deltas, the Canaima National Park’s Sand-Rock Table Plateaus rise defiantly against the skies. Separated from other natural forms, Canaima reminds its visitor about the God’s creation and the ages of the earth– One of the natural wonders of the World.The flight took no more than two hours. At a low altitude the sight of the Venezuelan plains with its haciendas and rows of trees offered a pleasing view. After midday, the air’s warmth caused turbulence, obligating us to fly higher at around 10.000 feet. The details blurred, but there it was the plenitude of the Venezuelan land with plains extending flat in any direction till the horizon; yet, it does not matter how high are you flying because, eventually, you will discern the Orinoco River, third widest in the world. When I looked at it, the sand banks betrayed that the Orinoco was low at this time of year and so would be the Guri lagoon and the Canaima´s jumps and rivers. December generally promises a better time to catch the full strength of waters. Soon afterwards, there was the city of Puerto Ordaz with its sordid industrial landscape. I could see a damp, diggings, and plenty of the factories standing at the edge of the Canaima National Park, reminding me of the fight of civilization against nature, of the storm before the calm. The Great Plain starts with undulating lowlands, then the Gran Sabana flat plateau at approximately 1000 meters above sea level, and, at last, the Tepuis´ summits reaching heights above the 2500 meters. The excitement of approaching the Tepuis is only equaled by the excitement of flying between them. Already hundreds of kilometers away the summits arise over the clouds as enormous shadows. The solid sand-stone plateaus draw an uneven line over the horizon. I was dreaming a documentary in front of my eyes; one without embellishments, special lenses or tricks. As we approached the Table Mountains the more Tepuis kept appearing to the southeast. It was the right time for the plane to start dropping some altitude. Seconds later, we all had our noses against the windows, and we began appreciating the summit’s pioneer vegetation atop the reddish Precambrian rocks, cliffs, cracks and walls. 600 million years of erosion and evolution produced extra smooth rocks, deep black-water ponds, freezing humid breezes and genetically diverse insects as if you were in another planet. Next, the plane dropped below the summits and we navigated the Devil´s Canyon with walls that appeared even taller than their 1.500 meters: the perfect preamble to the Angel Falls, the highest water falls in the world. And we had sight of it. Being the dry season, the Angel Falls stream drops more than a kilometer before it transforms itself into drizzle dew of all of colors of the rainbow. The sight evades description, take the height of twenty Niagara’s for instance. Or as it name captures its beauty remind us angel like forms and according to the locals, getting wet by the dew is really just touching the Angel’s wing. After enjoying the splendor of nature from the air it was time to land in the Canaima Lagoon Village and set the adventure on foot...
World heritage.Tepuis - Venezuela´s World Natural Wonder.
In the Venezuelan landscape, as mountains run into hills and hills into plains, as deserts melt into waters and rivers into deltas, the Canaima National Park’s Sand-Rock Table Plateaus rise defiantly against the skies. Separated from other natural forms, Canaima reminds its visitor about the God’s creation and the ages of the earth– One of the natural wonders of the World.The flight took no more than two hours. At a low altitude the sight of the Venezuelan plains with its haciendas and rows of trees offered a pleasing view. After midday, the air’s warmth caused turbulence, obligating us to fly higher at around 10.000 feet. The details blurred, but there it was the plenitude of the Venezuelan land with plains extending flat in any direction till the horizon; yet, it does not matter how high are you flying because, eventually, you will discern the Orinoco River, third widest in the world. When I looked at it, the sand banks betrayed that the Orinoco was low at this time of year and so would be the Guri lagoon and the Canaima´s jumps and rivers. December generally promises a better time to catch the full strength of waters. Soon afterwards, there was the city of Puerto Ordaz with its sordid industrial landscape. I could see a damp, diggings, and plenty of the factories standing at the edge of the Canaima National Park, reminding me of the fight of civilization against nature, of the storm before the calm. The Great Plain starts with undulating lowlands, then the Gran Sabana flat plateau at approximately 1000 meters above sea level, and, at last, the Tepuis´ summits reaching heights above the 2500 meters. The excitement of approaching the Tepuis is only equaled by the excitement of flying between them. Already hundreds of kilometers away the summits arise over the clouds as enormous shadows. The solid sand-stone plateaus draw an uneven line over the horizon. I was dreaming a documentary in front of my eyes; one without embellishments, special lenses or tricks. As we approached the Table Mountains the more Tepuis kept appearing to the southeast. It was the right time for the plane to start dropping some altitude. Seconds later, we all had our noses against the windows, and we began appreciating the summit’s pioneer vegetation atop the reddish Precambrian rocks, cliffs, cracks and walls. 600 million years of erosion and evolution produced extra smooth rocks, deep black-water ponds, freezing humid breezes and genetically diverse insects as if you were in another planet. Next, the plane dropped below the summits and we navigated the Devil´s Canyon with walls that appeared even taller than their 1.500 meters: the perfect preamble to the Angel Falls, the highest water falls in the world. And we had sight of it. Being the dry season, the Angel Falls stream drops more than a kilometer before it transforms itself into drizzle dew of all of colors of the rainbow. The sight evades description, take the height of twenty Niagara’s for instance. Or as it name captures its beauty remind us angel like forms and according to the locals, getting wet by the dew is really just touching the Angel’s wing. After enjoying the splendor of nature from the air it was time to land in the Canaima Lagoon Village and set the adventure on foot...
Friday, January 27, 2006
Subscribe to:
Posts (Atom)