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.
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