Lagniappe

 

 

Macleod Dixon, S.C.: The Law on Special
Contributions over Extraordinary Prices
of the International Hydrocarbons Market

 

 

The Law on Special Contributions over Extraordinary Prices of the International
Hydrocarbons Market (the “Law”) was published on April 15, 2008, in Official Gazette No. 38.910.

This law seeks to “tax” the potential windfall profits received by oil producers as a result of the high oil prices. As explained below, the impact varies depending on the project in question.

Following are the most relevant aspects of the Law:

I. Purpose

The Law creates a special contribution payable by those who export or transport abroad natural or upgraded liquid hydrocarbons and derivatives.

It remains unclear if the contribution applies to those companies who only transport the product abroad, even if they do not actually market it.

It appears that the contribution does not apply to those companies who must sell all their production to Petróleos de Venezuela, S.A. (“PDVSA”) locally (such as the “Mixed Companies” resulting from the conversion of the Operating Service Agreements and those resulting from the Profit Sharing Agreements).

The impact of the Law on these mixed companies, however, should be analyzed on a case-by-case basis because their corresponding marketing agreements might include language allowing PDVSA to discount the amount paid as contribution under the Law from the price to be paid to the Mixed Companies for production.

II. Applicability

The contribution is due when the monthly average price of Brent crude exceeds US$70 per barrel. According to the Law, the technical methodology to determine the average Brent price will be established by the Ministry of Energy and Petroleum (“MENPET”) in a special Resolution.

This delegation to MENPET of the determination of the methodology to calculate the base of the special contribution could be considered illegal because Article 3 of the Organic Tax Code (a higher-rank regulation) requires that (i) the creation of levies (including special contributions), (ii) the definition of their taxable base and (iii) the methodology to calculate such taxable base, must be established by Law.

We note that MENPET’s Resolution would not qualify as a Law for these purposes.

III. Calculation of the Special Contribution

The amount of the contribution per barrel is 50% of the excess of the average Brent price on a given month over US$70. If the average Brent price exceeds US$100, such excess will instead be subject to a 60% rate.

For example, if the Brent average price in any given month is US$120, the special contribution would be calculated as follows:

[(100-70=30) x (0.5) =15] + [(120-100=20) x (0.6)=12] = US$ 27 per barrel

The total amount of the monthly contribution is calculated by multiplying the per barrel amount by the result of deducting from the volumes of natural or upgraded liquid hydrocarbons and derivatives, exported or transported outside the country, the volumes of natural or upgraded liquid hydrocarbons and derivatives imported into the country for their blending or transformation. For these purposes, the volumes will be those indicated in the corresponding loading and unloading cargo certifications.

Because the cargo certifications are not a matter of public record, it will be difficult to verify the actual volumes imported or exported; especially by those Mixed Companies with marketing agreements allowing PDVSA to discount the amounts paid as contribution under the Law.

IV. Exemptions

The Law authorizes the Executive Branch of Government to grant total or partial exemptions to benefit exports made in the framework of economic and international cooperation policies.

V. Payment

The contribution will be liquidated by MENPET on a monthly basis in foreign currency and must be paid to the National Development Fund (Fondo de Desarrollo Nacional, FONDEN).

The interaction between MENPET and FONDEN for liquidating and paying is not clear, e.g. whether MENPET will issue the corresponding forms and the taxpayer will make the contribution directly to FONDEN.

VI. Deductibility of Other FONDEN Contributions

Other contributions made to FONDEN may be deducted from the amount of the special contribution.

VII. Income Tax Deductibility and Shadow Tax

The Law provides that the amounts paid as special contributions will be accounted as costs for purposes of the calculation of income tax. In our view, this contribution will also be credited for purposes of calculating the “shadow tax” napplicable to Mixed Companies.

VIII. Use of the contribution

The Law provides that the funds raised from this special contribution must be use by the Executive Branch of Government in infrastructure and social development projects and to strengthen the communal power (poder comunal).

IX. Entry into Force

The Law entered into force on the day of its publication in the Official Gazette.

According to Article 8 of the Organic Tax Code, laws creating levies must enter into effect at least 60 days after its publication in the Official Gazette. Special contributions are clearly levies; hence, the Law cannot legally enter into force on the day of its publication and oil producers now face the dilemma of complying with the literal text of an illegal provision.

 

 

 

Macleod Dixon, S.C (Despacho de Abogados miembros de Macleod Dixon, S.C) is international law firm. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published as a Bulletin by Despacho de Abogados miembros de Macleod Dixon, S.C, on 04/18/2007.For further information, please contact: Elisabeth Eljuri, Carlos Fernández Smith and/or
Adrián Carrillo Jiménez E-mail: elisabeth.eljuri@macleoddixon.com, carlos.fernandez@macleoddixon.com, adrian.carrillo@macleoddixon.com

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Petroleumworld News 04/21/08

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