DT20201 - Venezuela: Admissible taxes

Admissible for credit under the Agreement

Income tax.

Business assets tax (to the extent that the tax paid is used to extinguish an Income Tax liability).

Top of page

Admissible for unilateral relief before the Agreement took effect

Income tax.

Income tax on shipping companies.

Tax charged under Decree 3106 of 27 February 1979, and, as from 1 January 1980, under Decrees 476 and 479 of 31 and 27 December 1979 respectively, on 30 per cent of gross revenue from the provision of technical assistance and on 50 per cent of gross revenue from the provision of technological services.

Withholding tax on income from non-commercial professional activities, charged on 90 per cent of gross receipts.

Reinsurance premium tax.

Note: Note that, in some cases before the Agreement entered into effect, Venezuelan tax may have been calculated not by reference to accounts but on a percentage of gross receipts of a business. Claims to tax credit relief in respect of Venezuelan tax imposed on this deemed profits basis should be considered critically.

In particular, the possibility of extraterritorial taxation, that is taxation in Venezuela of income which by reference to UK principles would be regarded as having its source in the UK or in a third country should be taken into account.

Consequently in cases where significant amounts of tax were paid in Venezuela before the agreement entered into effect it is important to ascertain what work was actually performed in Venezuela and what profit, by reference to UK principles, was derived from that work. Only that part of the income from a contract which is derived from the performance of services in Venezuela will be regarded as arising from the trading in Venezuela, as opposed to trading with Venezuela.

The distinction is demonstrated for tax credit relief purposes in the case of Yates v GCA International Ltd (`the GCA case’ DT578 last sub-para.). The GCA case also shows the extent to which tax credit relief should be restricted where taxation is imposed extraterritorially on a gross basis even where the tax as such is in principle admissible for the purposes of unilateral relief.

The general rule derived from the terms of Section 790(4), is that credit for foreign tax on foreign income must not exceed the lesser of the foreign tax and the UK tax charged on that income. This will frequently result, when the foreign tax is imposed on gross receipts, in a limitation of credit (as in the GCA case) to the amount of UK tax charged on the foreign income. Hence the importance, in the case of significant claims, of establishing the UK tax measure of the foreign income (see DT875 onwards and especially DT887 concerning management and technical fees).