PE and expatriates

PE in Venezuela

In general, there is consensus among tax practitioners, SENIAT and the tax courts that the OECD and UN commentaries are a useful instrument to interpret the scope and meaning of the PE definition.3 Several SENIAT advisory letter rulings have consistently referred to the OECD and UN commentaries when interpreting tax treaty provisions.4 Although such cases covered an analysis of other treaty provisions (article 7) with reference to the notion of the term business profits, a term not defined in the treaties or under Venezuelan legislation, the significance of the rulings is that they attach significant value to the OECD and UN commentaries for the elucidation of the meaning of treaties. In the reporters' opinion, these existing rulings ratify that such commentaries will probably be given significant weight when SENIAT analyzes the PE definition.

As will be further discussed in section 9 below, while the definition of PE contained under Venezuelan legislation has been clearly influenced by the definition contained in the OECD and UN models there are some important departures from these models. Although Venezuelan domestic legislation has made some important changes to the PE definition clearly intended to expand its scope, the structure of the definition suggests that the standard treaty PE clause was used as a reference for the drafting of the definition.

Although there are a relatively small number of SENIAT rulings on the matter and almost no court decisions dealing with the concept of PE, the analysis of the basic rule PE found under paragraph 1 of article 5 of both the OECD and UN models represents by far the most common case of examples dealing with the notion of PE.
In general and consistent with the OECD commentaries, SENIAT recognizes that the first step in determining whether a PE is deemed to exist is the analysis of whether the relevant taxpayer has a fixed place of business through which the business of an enterprise is wholly or partly carried on.

It is worth mentioning that in one of the existing advisory letter rulings available on the notion of PE, SENIAT adopted the position that the concept of fixed base should be assimilated to the concept of PE. The ruling referred to a technical services case of a German technical services company (the S A.G. case).6 The matter under discussion was the applicable provision dealing with such service payments under the Venezuela-Germany tax treaty. The ruling concluded that the service payments should be dealt with under the professional services provision (article 14) of the treaty and not by the business profits (article 7) provision. Nevertheless, in order to determine whether the German resident taxpayer was taxable in Venezuela under article 14, it specifically analyzed whether the taxpayer had a PE under article 5 of the treaty. SENIAT therefore assimilated the notion of PE with the notion of fixed base. This position would seem to indicate recognition by SENIAT of the 2000 amendment to the OECD model that suggested that there were no intended differences between the concepts of PE, as used in article 7, and fixed base, as used in article 14.7

Venezuela, Expatriates and FX

As is the case with other jurisdictions, the question of whether there is a PE in Venezuela is the most common question taxpayers, tax practitioners and SENIAT have to face when dealing with cross-border transactions.

The importance of the interpretation of the PE definition and the consequences stemming from it under the extensive network of tax treaties currently in place in Venezuela (26 tax treaties on income) is largely overshadowed by the lack of significant guidance or authority dealing with it from domestic sources and the fact that as a non-member of the OECD neither the model nor the commentaries are binding.
There is no statutory guidance available at the current time for interpreting the tax treaty concept of a PE under article 5 of the OECD and UN models, as it is not customary in Venezuela for Congress ( Asamblea Nacional) to "regulate" or condition the application of treaties beyond the provisions in the tax treaty itself, as approved by Congress.

On the other hand, there is limited or no access at all to preparatory works or agreements, arrangements or instruments exchanged between treaty negotiators in connection with the conclusion of tax treaties, or subsequent exchanges pertaining to the application of the tax treaties.

As such, sources of authority are mostly limited to case law and to guidance issued by SENIAT in advisory letter rulings or particular deficiency claims, neither of which has a stare decisis status and hence may change without the need for proper or in-depth justification.

It should be noted that advisory letter rulings are randomly made public by SENIAT and therefore, although the reporters have made an extensive effort to research all available guidance with respect to the notion of PE, it is possible that other relevant advisory letter rulings exist which have not been covered by this report.
When available, reference is made in this report to evidence in the Venezuelan context. Although there has been some modest evolution in the analysis of the definition by SENIAT, leaning towards the use of the OECD and UN model commentaries, when applicable, there is still a long way to go to obtain a clear understanding of the term under applicable tax treaties.

The report evidences the view of the reporters that to a reasonably large extent significant weight has and should continue to be given - absent domestic authority - to the OECD and UN model commentaries when interpreting the PE definition under Venezuelan tax treaties.