On November 18, 2014, Law-Decree N° 1434 containing the Organic Tax Code (OTC) was issued by the president and published in The Official Gazette of the Bolivarian Republic of Venezuela, Special Issue N° 6152.
The following are some relevant aspects of the reform:
Power of the Executive branch to set the tax rate
The decree empowers the Executive branch to modify the tax rate within the limits established by the relevant law.
The Tax Administration is authorized to request a mandatory electronic address for notifications or communications of administrative actions to taxpayers. This will be the preferred form of communication with individuals and corporations residing in Venezuela and abroad.
Statute of Limitations
In cases where the applicable statute of limitations was four years, the term was increased to six years.
Similarly, the statute of limitations was increased from 6 to 10 years in the following cases:
- Actions subject to criminal penalties;
- When the taxable amount has not been declared or when no tax returns have been submitted;
- When the taxpayer is not registered as established by the Tax Administration;
- When the Tax Administration was not able to determine the taxable amount (in cases of verification, audits and levies);
- When the taxpayer has removed from the country the taxable goods, or in the case of taxable income related to activities performed or goods located abroad;
- When the taxpayer does not keep accounting records of the operations made, or the taxpayer does not keep them during the term established by law, or in cases of double accounting or duplicate records with different content.
- Lastly, notification of the filing of an administrative action, resulting from a procedure of verification, customs control or enforcement of administrative remedies, will interrupt the statute of limitations in favour of the Tax Administration.
No Statute of Limitations
All actions brought by the Tax Administration in cases of tax fraud, failure to report withheld amounts by withholding agents, and fraudulent insolvency for tax evasion purposes are not subject to the statute of limitations.
Privileges and Guarantees of the Treasury
The privilege of taxpayer’s rights on goods over the rights of the Treasury was removed. Pursuant to the OTC, the only rights with priority over the rights of the Treasury are meal allowances, salaries and other rights reserved for labour and social security matters.
Tax Offenses and Permanent Closing of Businesses
The new OTC allows special tax laws to establish new tax offenses and penalties.
The reform includes new offenses related to the failure to obtain authorizations from the Tax Administration to perform industrial activities, trade and import activities of taxable items; the duty to issue invoices; the duty to keep books and accounting records; as well as the duty to permit the Tax Administration´s control duties.
It must be highlighted that some tax offenses, in addition to fines and financial penalties, may also result in the closing of the taxpayer’s business.
Various time periods were fixed for the closing of a business. In some cases, the closing shall be extended until the taxpayer complies with his obligations and in other cases, the closing shall remain enforceable until the taxpayer notifies the Tax Administration of the regularization of the situation.
In certain situations, the closing penalty will extend to all of the premises or branches of the taxpayer. The concept of closing a certain area of the business was also included in the reformed OTC.
The following changes are the most significant:
- Applicable fines for both tax offenses and tax crimes were significantly increased. Fines for non-fulfillment of formal duties were tripled in most cases. There are cases in which applicable fines may reach 1,000 and 2,000 tax units1, as in the case for failure to deliver withholding vouchers and failure to submit declarations on investments in low-tax jurisdictions.
- The reform provides that penalties for failure to comply with obligations to hold, receive or report taxes are applicable even after the responsible party has complied.
- The penalty applicable to assessments resulting from verification proceedings was doubled to 20% of the unpaid tax.
- Two new criminal offenses were included: (i) fraudulent insolvency for tax purposes and (ii) public incitement to disregard tax laws. These are penalized with imprisonment from one to five years.
- It must be noted that public incitement to disregard tax laws differs from the remaining criminal offenses in which the criminal action is extinguished if the accused accepts the assessment by the Tax Administration and pays the tax liability within 25 working days from the notification of the relevant resolution.
- New forms of tax fraud were included and others were modified or eliminated. Among the new forms of fraud are: conducting industrial or commercial activities without obtaining the relevant authorization; the removal of sales recording devices in cash registers without authorization; as well as any other modification capable of altering the normal operation of cash registers or similar equipment.
- In addition to the increase in penalties, the term of imprisonment was also increased from four to six years in the case of non-compliance with the obligation to pay withheld taxes within the term established by law.
- Lastly, prosecution of criminal lawsuits on behalf of the state in matters related to tax offenses will be carried out by the Tax Administration and not by a competent court.
Powers of the Tax Administration
The reform grants the following powers to the Tax Administration:
- To cooperate in the fight against speculation, forgery and narcotics dealing, as well as any other activity directly or indirectly affecting the collection of taxes.
- To designate Community Councils as auxiliaries to the Tax Administration comptrolling tasks.
The OTC reform eliminated the requirement to notify the taxpayer of resolutions, orders, administrative provisions and other decisions issued by the Tax Administration in order to create a duty on such taxpayer.
Mitigating and Aggravating Circumstances
Compliance with the transfer pricing regulations between related parties was eliminated as a mitigating circumstance.
Obstruction of the Tax Administration’s audit powers was added as an aggravating circumstance.
The participation of public officers in tax offenses while performing their duties was included as an aggravating circumstance.
Exceptions to tax penalties set forth in other laws become invalid with the passing of the OTC.
Payments in Foreign Currency
The reform establishes the possibility of other laws accepting and regulating payment of tax obligations in foreign currencies.
The automatic suspension of an action through a hierarchical appeal was eliminated, though the taxpayer is permitted to request such suspension.
The penalties of closing a business, confiscation or withholding of goods or suspension of activities subject to authorization may not be waived or otherwise suspended.
Preventive Measures and Executive Collection
Two new preventive measures in favour of the Administration were included: (i) the suspension of tax refunds or other payments by public entities in favour of taxpayers and (ii) the suspension of previously granted tax incentives. One of the most significant changes to the new OTC is that the Tax Administration (and not a competent court) may declare preventive measures and collect tax obligations without court intervention. The enforcement of arbitration decisions in tax matters shall also be vested with the Tax Administration.
Except for procedural rules that become effective from the date of their publishing in the Official Gazette, the OTC shall become effective 90 calendar days following its publishing in the Official Gazette on February 17, 2015.