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