In October 2001 the Venezuelan Master Tax Code (MTC) was reformed, establishing several transfer pricing principles including: penalties relating to non-compliance with transfer pricing regulations; specific rules for transfer pricing audit procedures; and the introduction of advance pricing agreements (APA) to Venezuelan Tax Systems.
Also, in December 2001, Venezuela enacted new transfer pricing regulations under the Venezuelan Income Tax Law, adopting the arm’s-length principle for related-party transactions, in adherence to the OECD guidelines.
The transfer pricing regime (arm’s-length principle) has to be applied to all transactions, including tangible and intangible property, services and financial arrangements.
The Venezuelan Tax Administration (SENIAT) is allowed to make an adjustment if a taxpayer fails to comply with the transfer pricing provisions. On December 2010, SENIAT published the instructions to calculate the range described in the ITL. In this regards the statistical interquartile range is the one described on the manual.
Furthermore, according to the publication, if the price, amount of compensation or margin determined, is not within the interquartile range, the taxpayer must adjust its price, cost or margin to the median of the range calculated, as provided in the Administrative Order.
Taxpayers must file the transfer pricing return during the six month period following the fiscal year end. The return, resume some aspect of the economic analysis of the transfer pricing documentation.
SENIAT has been active recently auditing formal duties and performing some deep audits throughout a special group dedicated to transfer pricing. On this reviews of the taxpayer documentation, SENIAT has had observation on:
- Country risk adjustment;
- Capital adjustment;
- Idle capacity;
- Average financial information
- Inflation adjusted information; and
- How transactions were grouped.
It is important to mention that the Venezuelan economy has passed through some difficulties recently. Investors (shareholders) aspire higher returns for maintaining their investment in a country where they face expropriation risk or payment delays.
Based on the same economic circumstances, the economic cycle can produces higher or lower returns, so average financial information could show a smooth cycle.
On the other hand, SENIAT is asking for product by product financial information, trying to make transfer pricing adjustments to those products where the profitability is under the interquartile range.
We can also highlight that the custom authorities are using transfer pricing documentation in their audits request.
Manuel Candal (Taxand TP Latin American Leader) mcandal@taxand.com.ve
& Luis A. Martinez (Taxand Venezuela TP Partner).
