At the signing today of the Convention between the Government of the United States and the Government of the Republic of Venezuela for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on income and Capital, the Contracting States have agreed upon the following provisions, which shall form an integral part of the Convention.
- With reference to paragraph 4 of Article 1 (General scope)
For purposes of U.S. tax, the term “citizen” shall include a former U.S. citizen whose loss of such status had as one of its principal purposes the avoidance of U.S. tax, but only for a period of 10 years following such loss.
- With reference to paragraphs 1(a) and (b) of Article 3 (General definitions)
For the sole purposes of this Convention, when referred to in a geographical sense, Venezuela and the United States include the areas of the seabed and subsoil adjacent to their respective territorial seas in which they may exercise rights in accordance with domestic legislation and with international law.
- With reference to paragraph 1 of Article 4 (Residence)
The term “resident of a Contracting State” shall also include:
(a) a Contracting State or a political subdivision or local authority thereof; and
(b) a pension trust or any other organization that is constituted and operated exclusively to provide pension benefits or for religious, charitable, scientific, artistic, cultural, or educational purposes and that is a resident of that State according to its laws, notwithstanding that all or part of its income may be exempt from income tax under the domestic law of that State.
- With reference to subparagraph (a) of paragraph 3 of Article 5 (Permanent establishment)
(a) It is understood that, if an enterprise (general contractor) that has undertaken the performance of a comprehensive project subcontracts parts of such project to a subcontractor, time spent by such subcontractor must be considered as time spent by the general contractor. The subcontractor has a permanent establishment only if its activities last more than 183 days in any twelve month period commencing or ending in the taxable year concerned.
(b) The 183 day period begins as of the date on which the construction activity itself begins; it does not take into account time spent solely on preparatory activities, such as obtaining permits.
- With reference to paragraph 4 of Article 5 (Permanent establishment)
It is understood that, in order for paragraph 4 of Article 5 (Permanent establishment) to apply, the activities listed in subparagraphs (4)(a) through (f) and conducted by the resident of a Contracting State must each be of a preparatory or auxiliary character. Therefore maintaining sales personnel in a Contracting State would not be an activity excepted under paragraph 4 and, subject to paragraphs 1, 5 and 6 of Article 5 (Permanent establishment), would constitute a permanent establishment.
- With reference to paragraph 4 of Article 7 (Business profits)
Expenses allowed as a deduction include a reasonable allocation of expenses, including executive and general administrative expenses, research and development expenses, interest, and other expenses, incurred in the taxable year for the purposes of the enterprise as a whole (or the part thereof which includes the permanent establishment), regardless of where incurred, but only to the extent that such expenses have not been deducted by such enterprise and are not reflected in other deductions allowed to the permanent establishment, such as the deduction for the cost of goods sold or of the value of the purchases. The allocation of such expenses must be accomplished in a manner that reflects to a reasonably close extent the factual relationship between the deduction and the permanent establishment and the enterprise. In determining the allocation of a specific deduction to the permanent establishment, examples of bases and factors which may be considered include, but are not limited to:
(i) comparison of units sold;
(ii) comparison of the amount of gross sales or receipts;
(iii) comparison of costs of goods sold;
(iv) comparison of profit contribution;
(v) comparison of expenses incurred, assets used, salaries paid, space utilized, and time spent which are attributable to the activities of the permanent establishment, and
(vi) comparison of the amount of gross income.
Research and development expense incurred with respect to the same product line may be allocated to a permanent establishment based on a ratio of the gross receipts of the permanent establishment to the total gross receipts of the enterprise with respect to that product line. Venezuela will not provide a deduction with respect to any expenses allocable to income not subject to tax in Venezuela because of its territorial system of taxation.
- With reference to Article 8 (Shipping and air transport)
The provisions of Article 8 (Shipping and air transport) shall not affect the provisions of the Agreement of December 29, 1987, between the Government of the United States of America and the Government of the Republic of Venezuela for the avoidance of double taxation with respect to shipping and air transport.
- With reference to Article 10 (Dividends)
It is understood that the reference in Article 10 (Dividends) paragraph 4 to “a governmental entity constituted and operated exclusively to administer or provide pension benefits” shall include, in the case of Venezuela, private, public or mixed entities operating under or pursuant to the Ley del Subsistema de Pensiones, enacted under the Ley Orgánica del Sistema de Seguridad Social Integral, so long as the system under which the entities are operating provides universal coverage, requires mandatory contributions by both employers and employees; limits the discretion of employers or employees to direct investment; restricts distributions or borrowings, directly or indirectly, except upon or until death, retirement or disability; and requires that accounts be maintained at only one such qualifying entity at a time. Such entities also must be operated, and their investment parameters established, pursuant to governmental oversight and regulation. The term also shall include any equivalent entities in the United States.
- With reference to Article 11 (Interest):
The instrumentalities referred to in paragraph 3 shall include the U.S. Export-Import Bank, the Federal Reserve Banks and the Overseas Private Investment Corporation, the Venezuelan Banco de Comercio Exterior, the Banco Central de Venezuela and the Fondo de Inversiones de Venezuela and such other instrumentalities as the competent authorities may agree upon.
- With reference to Article 11a (Branch tax):
(a) In the case of the United States the term “dividend equivalent amount” shall have the meaning it has under the law of the United States, as it may be amended from time to time without changing the general principle thereof.
(b) The term “excess interest” means the excess, if any, of:
(i) interest deductible in one or more taxable years in computing the corporation’s profits that are either attributable to a permanent establishment in the other Contracting State or subject to tax in that other State under Article 6 (Income from immovable property (real property)) or Article 13 (Gains); over
(ii) the interest paid by or from such permanent establishment or trade or business.
- With reference to paragraph 3 of Article 12 (Royalties)
Payments received as consideration for technical services or assistance, including studies or surveys of a scientific, geological or technical nature, for engineering works including the plans related thereto, or for consultancy or supervisory services or assistance shall be considered payments to which the provisions of Article 7 (Business profits) or Article 14 (Independent personal services) apply.
- With reference to Article 14 (Independent personal services)
Article 14 (Independent personal services) shall be interpreted according to the Commentary on Article 14 (Independent personal services) of the 1992 Model Convention for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital of the Organization for Economic Cooperation and Development, and of any guidelines which, for the application of such Article, may be developed in the future. Accordingly, it is understood that the tax will be imposed on net income as if the income were attributable to a permanent establishment and taxable under Article 7 (Business profits).
- With reference to Article 15 (Dependent personal services) and Article 16 (Directors’ fees)
The terms “similar remuneration” and “similar payments” include benefits in kind received in respect of an employment and any other benefits, whether or not considered as salary in the domestic legislation of both Contracting States (including, but not limited to, the use of a residence or automobile, health or life insurance coverage and club memberships, provision of meals, food and groceries, child care, reimbursement of medical, pharmaceutical and dental care expenses, provision of work clothing, toys and school supplies, scholarships, reimbursement of training courses expenses, mortuary and burial expenses).
- With reference to paragraph 3 of Article 17 (Limitation on benefits)
The term “long-term resident” shall mean any individual who is a lawful permanent resident of the United States in 8 or more taxable years during the preceding 15 taxable years. In determining whether the threshold in the preceding sentence is met, there shall not count any year in which the individual is treated as a resident of Venezuela under this Convention, or as a resident of any country other than the United States under the provisions of any other tax treaty of the United States, and, in either case, the individual does not waive the benefits of such treaty applicable to residents of the other country.
- With reference to paragraph 1(b) of Article 19 (Pensions, social security, annuities, and child support)
The term “social security benefits” as used in this paragraph is intended to include United States tier 1 Railroad Retirement benefits.
- With reference to Article 21 (Students, trainees, teachers and researchers)
The amounts specified in paragraphs 1(b)(iii) and 2 shall be in addition to any personal exemption otherwise allowed under the domestic law of that other Contracting State.
- With respect to paragraph 1 of Article 25 (Non-discrimination)
It is understood that a non-resident of a Contracting State who is subject to tax by that State on his worldwide income by reason of being a national thereof is not in the same circumstances as a non- resident of that State who is subject to tax on income only from sources in that State.
- With respect to paragraph 2 of Article 26 (Mutual agreement procedure)
The competent authorities shall endeavor to resolve such cases as promptly as possible.
- With respect to Article 27 (Exchange of information)
It is understood that in order to comply with the provisions contained in Article 27 (Exchange of information) the competent authorities of the Contracting States are empowered by their respective domestic laws to obtain information held by persons other than taxpayers, including information held by financial institutions, agents and trustees.
In witness whereof, the undersigned, being duly authorized by their respective Governments, have signed this Protocol.
Done at Caracas, in duplicate, in the English and Spanish languages, each text being equally authentic, this 25th day of January 1999.