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Cablegate: Tax Authority Ramps Up Tax Enforcement and Money

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DE RUEHCV #1463/01 2912051
ZNR UUUUU ZZH
P 172051Z OCT 08
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC PRIORITY 1999
INFO RUEHWH/WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEHNSC/NSC WASHDC
RUMIAAA/HQ USSOUTHCOM MIAMI FL
RUCPDOC/DEPT OF COMMERCE
RUEATRS/DEPT OF TREASURY

UNCLAS SECTION 01 OF 02 CARACAS 001463

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PREL EINV PGOV VE
SUBJECT: TAX AUTHORITY RAMPS UP TAX ENFORCEMENT AND MONEY
FLOWS IN

REF: CARACAS 01444

1. (SBU) Summary. The Bolivarian Republic of Venezuela,
through its tax agency, has ramped up enforcement of Plan
Zero Evasion (Evasion Cero) first announced in 2005. The
Plan involves audits of company accounting procedures and
violations include fines, closures and "voluntary payments"
of taxes. The press has highlighted recent aggressive audit
activity by the tax agency against emblematic U.S. brands
MacDonald's and Pepsi, but many other Venezuelan and non-U.S.
multinationals have also been targeted. Tax revenue has
increased substantially, both from fines and increased
compliance. Businesses continue to grapple with a murky tax
code and selective, sometimes discriminatory, enforcement by
the tax agency. End Summary.

------------------------------
BACKGROUND - PLAN EVASION CERO
------------------------------

2. (SBU) The Bolivarian Republic of Venezuela (BRV),
through its tax authority, Servicio Nacional Integrado de
Administracion Aduanera y Tributaria (Seniat), announced the
Plan Evasion Cero (Plan Zero Evasion (the Plan) in 2005. The
Plan is a tax collection program which involves sanctions,
including business closure, fines and "voluntary payment" of
taxes. Under the Plan, Seniat audits a company's books for
compliance with Venezuela's tax code. The tax code is
ill-defined and Seniat can arbitrarily penalize an enterprise
for minor clerical errors, such as an incorrect date on an
invoice. When found non-compliant, Seniat can impose a fine
of one to several tributary units on an enterprise. (The
current value of a tributary unit is 46 BsF or $21.40 at the
official exchange rate of 2.15 BsF to 1 USD). In addition,
Seniat can (and routinely does) force the closure of the
enterprise for several days. Besides these penalties, Seniat
may also determine that a business has failed to pay the
correct amount of tax due. In these instances, Seniat has
allowed companies to "voluntarily pay" the disputed amount,
often with no other sanctions. Seniat may also seize
products from enterprises for violations of the tax code.
Seizures of goods have focused on food stuffs, which are then
donated to the consumer protection agency, which auctions the
goods to the public with much fanfare.

----------------------------
RECENT HIGH PROFILE ACTIVITY
----------------------------

3. (SBU) Beginning in January 2008, Seniat stepped up
efforts under the Plan and more recently seems to have
ratcheted up its efforts again. Enforcement actions in the
past weeks have been taken against such emblematic U.S.
brands as MacDonald's and Pepsi. Seniat has, however,
targeted other fast food service businesses (including
non-American franchises) and other sectors. In these
instances, Seniat has fined each enterprise a small amount
(ranging from 1,150 to 3,450 BsF, about $535 to $1,600) and
closed their operations in Venezuela for a 2 or 3 day period.
Seniat has levied substantially higher "voluntary payments"
on business operating in the tourism sector, private health
care and gaming, ranging from 651,340 to 3,752,1000 BsF
(approximately $303,000 to $1.7 million.) Most recently, on
October 15, Seniat announced that Proctor & Gamble had failed
to pay the proper amount of value added tax for 2005. Seniat
determined that Proctor & Gamble must pay 7,718,299 BsF
(approximately $3.6 million) within the next 15 days to
correct the underpayment of taxes.

-----------------------------------
HOW MUCH MONEY IS SENIAT TAKING IN?
-----------------------------------

4. (SBU) Statistics published on Seniat's website show that
Seniat received no revenues from fines or "voluntary payment"
of taxes during 2005 and 2006. Beginning in 2007, Seniat's
records reflect revenue from fines and "voluntary payment" of
taxes of 1.2 million BsF (approximately $590,000.) For year
to date September 2008, revenues for fines and "voluntary
payments" total 1.38 million BsF (approximately $643,000.)
With the inclusion of the Proctor & Gamble fine, the BRV will
increase receipts from the Plan by at least 52 percent in
2008. An added effect of greater enforcement has been the
increase in overall tax revenue. In 2005, Seniat tax
receipts totaled 32 billion BsF (approximately $14.85
billion.) By 2007, this figure had grown to 56 billion BsF
(approximately $26 billion.) If the current rate of tax
collection remains constant, tax revenue for 2008 should

CARACAS 00001463 002 OF 002


equal approximately 65 billion BsF (approximately $30
billion.)

--------------------
IMPACT ON BUSINESSES
--------------------

5. (SBU) As seen above, Seniat enforcement actions have
spurred business to pay their taxes at record levels.
However, Seniat seems to enforce the tax code in an arbitrary
manner, adding to the potential harassment a business may
face in the daily conduct of its business. Anecdotal
evidence suggests Seniat levies large "voluntary payments" of
back taxes for low-level clerical mistakes, such as incorrect
calculation of the value added tax and incorrect dates on
receipts. In addition, as recently noted by a MacDonald's
spokesperson, the tax code is murky and companies generally
make a good faith effort to comply with accounting standards,
only to learn otherwise during a Seniat audit. Heightened
scrutiny of accounting procedures require additional business
resources, negatively impacting the private sector. Also,
vague language on required recordkeeping and format leaves
considerable discretion to the inspector and opens the door
to corruption.

-------
COMMENT
-------

6. (SBU) The heightened scrutiny by Seniat may merely be
another election year tactic, designed to distract voters
from the economic woes of the country or simply a means to
encourage tax compliance and increase revenues. But,
businesses, particularity high profile and emblematic
companies, will continue to face greater scrutiny and perhaps
corruption when dealing with the tax authorities, which
serves as another disincentive for additional investment in
Venezuela.
CAULFIELD

© Scoop Media

 
 
 
 
 
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