OCDE International Tax Model

Listed examples of a PE in Venezuela

There is limited guidance with respect to the positive list of PE examples established under paragraph 2 of article 5. Not surprisingly in some cases there appear to be some contradictory advisory letter rulings issued by SENIAT with respect to whether the positive list of examples constitutes deeming rules or whether the examples in the list are subject to meeting the general conditions of the basic rule PE set forth in paragraph 1 of article 5.

In the S A.G. ruling17 referred to above, SENIAT seems to take the position without a substantially reasoned analysis that a branch per se constitutes a PE. By contrast, in SENIAT advisory letter ruling no. DCR-5-33054-3539, dated 3 May 2007, which represents a more recent view, SENIAT seems to have adopted a more open interpretation of the positive list of examples. The case under analysis was whether a Dutch resident corporation with a Venezuelan branch could qualify for the reduced treaty rates (in this case it was a zero rate) established under article 10 of the Venezuela-Netherlands treaty. The Venezuela-Netherlands treaty has a provision (article 10(7)) that excludes the applicability of the reduced rate in cases where the non-resident shareholder has a PE in Venezuela to which the holding in respect of which the dividends are paid may be attributed.

Upon analyzing whether the branch of the Dutch company constituted a PE in Venezuela SENIAT concluded that since the activities of the branch were of a preparatory nature it would not constitute a PE in Venezuela. Although the analysis relied to some extent on the exception of preparatory activities contained under paragraph 4 of article 5 of the Venezuela-Netherlands treaty, it could be seen as ratification that a branch per se does not constitute a PE since the other conditions established in paragraph 1 should be met. In the reporters' view this would be the correct interpretation as it would conform to the purported intent of all the examples under this paragraph, as explained in paragraph 12 of the OECD commentary on article 5.

Other rulings that are worth noting are SENIAT advisory letter rulings no. DCR-5-597 and no. DCR-1718-97, dated 8 July 1998 and 5 November 1997 respectively. These rulings contain a somewhat limited analysis of the PE definition contained under the UK-Venezuela tax treaty. In reasoning a conclusion that certain business profits received by UK resident shareholders were not taxable in Venezuela, SENIAT suggested that since the "place of management" of the UK residents was located in the UK they did not have a PE in Venezuela. In doing so, SENIAT seems to have assimilated the notion of "place of management" contained in the list of examples of paragraph 2 of article 5 with the notion of "place of effective management" contained under articles 4, paragraph 3 and 8 of the OECD and UN based treaties. This position would conflict with the suggested interpretation under paragraph 13 of the OECD commentary on article 5, which suggests that the mention of the term "place of management" should be assimilated in the concept of "office" and that its use is recommended in those cases where there is a domestic definition of the term "place of management" distinct from the notion of the term "office".

Some efforts have been made in some of the Venezuelan treaties in order to clarify the scope of the natural resources example contained under letter (f) of paragraph 2 (a mine, an oil or gas well, a quarry or any other place of extraction of natural resources). In this regard, Venezuelan tax treaties with Spain,18 the Netherlands,19 Iran, Canada and the USA20 all establish an expansion of the example to exploration activities as also covered by this extraction of natural resources example, which will need to be reviewed on a case by case basis.

There is no guidance available with respect to the interpretation and application of the construction clause in paragraph 3 of article 5. There are therefore a number of issues left open for discussion and debate between SENIAT and the taxpayers, particularly with respect to which activities should be considered as a site or project covered by the construction clause and when the duration term should begin to count. In the reporters' view, the rule should be considered as a deeming rule with a broad reach applicable to all construction related works performed within the source state for a term exceeding the thresholds of 12 or 6 months, as the case may be, depending on whether the treaty follows the OECD or UN model. The terms "project" and "site" should be given a wide meaning in order to be consistent with the context of the construction clause. This will probably be SENIAT's position when dealing with these types of cases.

Venezuelan treaties following the UN model will probably be given a wider scope to include also any assembly and supervisory activities.

With respect to the duration of the term, it is worth noting that some guidance is contained in the Venezuelan treaties with Canada21 and the USA22 to cover the case of subcontracted activities, confirming that time spent by both contractor and subcontractors should be added.