Transfer Pricing in Venezuela
Transfer pricing in Venezuela has as a normative background the reform introduced in October 1999 to the Income Tax Law (the Law).
From that moment until now, they have undergone certain reforms that have helped to establish the regulatory framework of transfer pricing, which to a certain extent has been aligned with what has been indicated by the Organization for Economic Cooperation and Development (OECD) in this matter.
Currently, the transfer pricing regime is regulated by Articles 109 to 168 of the Law, as well as by Administrative Ruling N°2003-2424 established by the Tax Authority and the Tax Code regarding the infractions and sanctions to be applied for the noncompliance with transfer pricing regulations.
Definition of Transfer Pricing
Transfer prices can be defined as those prices or considerations agreed for transactions between related parties, also known as intercompany transactions.
Principle of Full Competition
The principle of full competition or “arm’s length” is a basic principle of transfer pricing, since it is based on the fact that the prices or values agreed between related parties are at market value.
The Venezuelan transfer pricing legislation includes this principle in Article 109 of the Income Tax Law, which states that taxpayers who carry out transactions with related parties are obliged to determine their income or expenses based on the prices agreed upon by independent parties in comparable transactions.
Definition of Related Parties in Venezuela
In accordance with Article 114 of the Law, the following parties shall be considered to be related parties:
- That company which participates, directly or indirectly, in the management, control or capital of another company.
- When both companies have the same persons who participate directly or indirectly in the management, control or capital of these.
Also, according to Article 115 of the Law, the transfer pricing rules will also apply when the operations are carried out through an intermediary, which is not considered a related party of the taxpayer resident in Venezuela, but helps the latter to carry out operations with its related party abroad.
Transfer Pricing Methodology in Venezuela
According to Article 134 of the Law, in order to analyze whether the prices agreed for transactions with related parties are at market value, five valuation methods are established:
- Non-controlled Comparable Price Method.
- Resale Price Method.
- Added Cost Method.
- Profit Split Method.
- Net Transaction Margin Method.
The taxpayer should choose the comparable uncontrolled price method as the first option.
Comparability Analysis in Venezuela
In order to analyze whether two operations are comparable, Article 121 of the Law states that the following elements must be taken into consideration:
- The characteristics of the operations.
- The functions, assets and risks involved by each party in the operations.
- The economic circumstances.
- The business strategies.
Transfer Pricing Information Affidavit in Venezuela
Article 166 of the Law, indicates the formal duties on transfer pricing that taxpayers subject to the Law must comply with.
The mentioned article indicates that the Tax Administration must be informed of the operations with related parties carried out in a certain fiscal year, by means of an “Informative Declaration of Operations carried out with Related Parties”.
Likewise, Administrative Ruling N° 2003-2424 issued by the National Integrated Service of Customs and Tax Administration (SENIAT) indicates that the operations to be declared will only be those carried out by the taxpayer residing in Venezuela with a related company abroad and will be done through Form PT-99 and its annexes.
The deadline for filing the return is June of the year following the closing of the tax year, and for those taxpayers whose tax year ends differently from the calendar year, the return will expire within six months following the closing of the tax year.
In addition, in order to assist in the completion of this return, the SENIAT has published on its web page an instruction for the preparation of the return.
Transfer Pricing Documentation in Venezuela
Taxpayers subject to transfer pricing rules must keep and retain documentation regarding the analysis and calculation of the transfer prices indicated in the information return.
Sanctions for Noncompliance with Transfer Pricing in Venezuela
Violations related to the breach of formal duties with respect to transfer pricing are stipulated in the Venezuelan Organic Tax Code.
Thus, paragraph 1 of Article 103 of the Code establishes that the non-submission or late submission of a sworn statement for more than one year will be sanctioned with a fine of one hundred and fifty (150) times the official exchange rate of the currency of greatest value, published by the Venezuelan Central Bank.
It should be noted that in addition to the indicated fine, the premises will be closed for ten continuous days.
In case of incomplete declaration, it will be penalized with a fine equivalent to one hundred times the official exchange rate of the currency of greater value, published by the Venezuelan Central Bank.
At the same time, numeral 12 of Article 104 of the referred Tax Code indicates that the failure to keep the documentation with respect to the calculation of the transfer prices will be sanctioned with the closing of the office or establishment for 10 days and a fine equivalent to 1000 times the official exchange rate of the currency of greater value, published by the Venezuelan Central Bank.
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