On January 29, 2020, the National Constituent Assembly ("ANC") approved through a Decree the partial reform of the Decree with Rank, Value and Force of Law of the Organic Tax Code published in the Official Gazette No. 6.152 Ext. of November 18, 2014 ("Code of 2014"). The Decree of reform ("Code of 2020") was published in the Official Gazette No. 6.057 Ext. of January 29, 2020.  We believe the Code of 2020 is clearly unconstitutional, but we will assume the authorities will apply it, as the Supreme Court of Justice has authorized through several decisions the application of other laws and decisions of the ANC.  

The Code of 2020 entered into force on February 28, 2020.  Generally, the Code of 2020: (i) limits the exonerations granted by the Executive Power; (ii) significantly increases the penalties for tax infractions with or without evidence of tax fraud; and (iii) sets the official exchange rate of the currency of highest value ("OER") published by the Venezuelan Central Bank ("Central Bank"), as the new unit of measure for applying sanctions and translating them into Bolivars at the time of payment.[1]  

Contrary to certain beliefs and interpretations, the Code of 2020 does not provide for the obligation to pay taxes in foreign currency or repeal the Tax Unit ("TU") as a referential value for all tax matters.[2]  Under the Code of 2020, taxes and accessories, including sanctions, remain  payable in Bolivars unless the Central Bank establishes other methods.[3]  Nevertheless, the standards to establish sanctions and translate them into Bolivars actually changed, with the result of increasing such sanctions, measured in Bolivars, in over 140,000%.  We should also mention that the new standards to establish and determine sanctions under the Code of 2020 would only apply to the future, that is to tax infractions occurring after February 28, 2020.  It would follow that the Code of 2014 will govern current or previous tax audits. The same rule will apply to pending or upcoming trials regarding to fiscal years that started prior to February 28, 2020.   

With few exceptions,[4] the Code of 2020 did not establish new sanctions, but mainly replaced the TU with the OER for determining those fines already established in the Code of 2014.  For instance, under the Code of 2014, non-compliance with the formal duty to register with the Tax Information Registry ("RIF") was subject  to a fine of 100 TU (jointly with the sanction of closure of the taxpayer's premises for five days).  Said fine equaled Bs. 5,000.00 or approximately 0.06 Euros.[5]  Now, under the Code of 2020, the same infraction will be subject to a fine of 100 times the OER, which essentially means 100 Euros or 100 Jordanian Dinars, depending on the OER applied by the Tax Administration when interpreting different indexes published by the Central Bank.  Taking Euro as a reference, the penalty for not registering in the RIF would have increased from 0.06 Euros to 150 Euros under the Code of 2020. 

 In the case of sanctions established based on percentages, such as those corresponding to underpayment of taxes or late payment of tax withholdings, any amounts in Bolivars will be converted into foreign currency based on the OER at the time of the infraction and then translated into Bolivars at the value of the OER at the time of payment. Therefore, fines for underpayment of taxes will continue to be 100% to 300% of the deficiency tax, and will be translated based on the OER at both infraction and payment dates.  

The Code of 2020 created additional conditions for extinguishing the tax criminal liability related to tax audits that reflect tax fraud presumptions and/or grounds for applying criminal sanctions.  First, the taxpayer must entirely accept the tax deficiency assessment. Second, the term to notify such acceptance will be 10 and not 25 business days after the Tax Administration serves the tax deficiency assessment.  Finally, the taxpayer must pay the entire tax assessment with a 500% increase. The provision refers to the payment of the entire tax obligation, so we will assume it includes both the deficiency tax and its accessories.  

Besides the provisions related to sanctions and increased charges to extinguish tax criminal liability, the Code of 2020 established temporary limits to exonerations already granted to taxpayers and contemplates that the Tax Administration will only recognize the exonerations explicitly mentioned in the Exonerations General Decree to be issued by the National Executive ("Exonerations Decree").  Initially, the National Executive must issue the Exonerations Decree by march 29,2020. Thereafter, it must issue such Decree annually, based on the annual Budget Law.  As a temporary relief, the Code of 2020 provides that exonerations granted prior to the enactment of the first Exonerations Decree will remain valid.  The above rules only apply to exonerations of national (federal) taxes.     

The Code of 2020 also increased to 10 years the statute of limitation for the Tax Administration to collect firm tax credits; and established important changes regarding administrative tax procedures.  First, it reduced, from 40 to 30 days the term to file written answers or "Descargos" to tax assessment reports when they refer to transfer pricing matters and there are indicia of tax fraud. Then, it reduced from one year to six months the term for the Tax Administration to issue and serve the final assessment report or "Resolution" and changed the outcome if the Tax administration does to timely issue and serve said report.  Under the Code of 2014, if the Tax Administration did not issue and serve the report within one year, the entire administrative summary and report were void and null.  Now, in the same case, the summary and report will remain valid.  Finally, the Tax Administration may start new audits regarding completed and closed procedures, whenever it has access to "relevant information" regarding such procedures or it is determined that a tax official was involved in corruption acts.  There is no time limit for exercising that power.  

Regarding tax judicial procedures, the Code of 2020 increases the threshold to appeal decisions of any judicial tax appeal.  The taxpayers and the Tax Administration may file appeals against decisions of tax trial courts if the value of the case exceeds 100 times the OER regarding individuals and 500 regarding corporate taxpayers.  

The Code of 2020 also reinforced the tax collection procedure and complemented the rules on attribution of the procedure´s expenses; seizures; appraisals; designation of experts; auction of goods; precautionary measures and prevalence of the interest of the National Tax Administration over other tax administrations.[6]  Among other aspects, taxpayers must bear the expenses of the collection procedure; while the Tax Administration may discretionally seize bank accounts as precautionary measure when there is risk of collection of tax deficiencies.    

Finally, under the Code of 2020 all other Public Powers (i.e., states and municipalities) will have one year to replace the UT as unit of measure for determining either labor benefits or tax contributions and fees for their services. The provision does not expressly mentions that the OER must replace the TU.  When complying with such obligation,[7] states and municipalities would have to follow appropriate legal reforms.  In our view, the Code of 2020 will not apply to laws other than tax laws (e.g., Law of Public Contracts; Law of Fair Pricing; etc.)  Therefore, including the OER as a unit of measure in any non-tax statute will require individual legal reforms by the National Legislative Assembly or the state or municipal legislative powers.