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Venezuela To Bill Oil Firms 4 Yrs Of Back Taxes: Official

THE WALL STREET JOURNAL: Venezuela To Bill Oil Firms 4 Yrs Of Back Taxes: Official

Posted 11 May 05

DOW JONES NEWSWIRES

CARACAS — Venezuela will charge oil firms four years of back taxes on some operations as the government clamps down on the oil industry, a tax official said Tuesday.

Venezuela has been investigating 32 operating agreements with private oil firms for months, claiming they have not been paying enough taxes. Last month, the Seniat tax office raised the income tax rate on the projects to 50% from 34%, saying the oil firms were paying a cheap industrial rate under dodgy contracts signed in the 1990s.

Jose Zedillo, a top official at the Seniat handling the investigation, said the office will back charge the 50% rate as of 2001, even though operations started in the 1990s.

“It will be limited to the last four years,” said Zedillo, explaining that tax regulations do not allow the office to recover unpaid taxes from over four years ago.

The Seniat is also investigating oil firms for inflating costs involved with operating agreements to reduce the tax load. He said only a few of the firms operating the oil fields pay taxes at all, as tax filings include unjustifiable costs such as training programs and foreign currency losses.

He estimated that, over the past 10 years, these firms have underpaid to the tune of $2 billion due to the low tax rate and inflated costs.

The tax hike on operating agreements is not the first in Venezuela. Last year, Venezuela raised the royalty tax on heavy oil operations to 16% from 1%, scrapping the preferential rate included in the original contracts.

The tax hike on operating agreements hits a number of foreign companies, including ChevronTexaco (CVX), Royal Dutch Shell (RD,SC), Repsol YPF (REP) and Petrobras (BPR).

If Venezuela chases off private oil investment, analysts warn it will have difficulties meeting its target of nearly doubling output to 5 million barrels a day by 2009.

Venezuela did not fully recover from a two-month strike against President Hugo Chavez that ended in early 2003. The country pumped more than 3 million b/d heading into the strike, but since then output has leveled off at around 2.6 million b/d, according to market estimates. The government says it pumps 3.3 million b/d, a figure analysts disagree with.

Venezuela is the world’s fifth largest oil exporter and a member of the Organization of Petroleum Exporting Countries.

-By Peter Millard, Dow Jones Newswires; 58-414-249-6821; peter.millarddowjones.com

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