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Daily Journal (Venezuela): Shell tax charge comes up short

When Caracas began accusing private oil companies of tax evasion last year, it claimed the 22 companies owed the state a total of $2bn-$3bn in income taxes for the period 2001-2004.
If found guilty, oil companies would have to repay “billions of dollars,” said national assembly president Nicolás Maduro.
Well into the tax battle, the Venezuelan government’s collection figures make recovering billions look unlikely.
Shell has settled its tax feud with the Venezuelan government by only handing over 10 percent of Caracas’ original tax demand, paying $13 million of the original $131 million claim.
With most companies yet to settle their claims, they may be hoping to follow Shell’s lead and pay significantly less than initial demands. The tax agency – known as Seniat – says it does not expect other companies to pay as small a portion of their original claim as Shell did.
Seniat says it made incorrect exchange rate conversions when calculating Shell’s initial claim and that the company challenged the calculations. The payment made was based on the increase in income tax from 34 percent to 50 percent and fines.
“It was just part of the process,” says the tax official. “They had a right to present evidence.”
Some analysts speculate that the gap between the initial claim and final payment is too wide to be merely due to an exchange rate error. But a Shell spokesman has said that he did not know the specifics of why the Seniat reduced the amount owed.
“We’ve closed this chapter now and we’re satisfied with the professional conduct of the Seniat,” he said.
Some in the industry call the move an embarrassment for Seniat, given that Shell was part of the first batch of companies to receive a demand and also received the highest claim.
“This certainly hurts the professionalism of Seniat,” says Venezuelan oil analyst Alberto Quirós Corradi. The tax office has a long way to go to reach $2 billon. It has only collected $54 million of the $651 million in total claims it has leveled on private oil companies.
Brazil’s Petrobras was the first company to settle its claim, and is the only other one besides Shell to have done so. Petrobras paid $23.7 million without challenging Seniat’s claim.
All but three companies that have received claims have made small partial payments to Seniat. They have been given one year to present evidence to challenge the rest of the claims.
U.S. independent Harvest has paid $5.3 million of its $85 million claim, while Venezuela’s Vinccler has paid $1.38million of its $3.3 million claim. Seniat did not give amounts for other companies’ partial payments.
France’s Total, China Na-tional Petroleum and Italy’s Eni did not make partial payments. Seniat expects these companies to submit challenges to the claims.
Seniat says BP, Chevron, Britian’s Hocol and Venezuela’s Open are the only companies that have not received claims. Seniat expects to issue those claims within weeks. Venezuela’s Suelopetrol also says it has not yet received a claim.
In December, Seniat extended its deadline for issuing tax claims to all 22 companies from the end of 2005 to the end of March 2006. Seniat says companies who have not yet presented evidence to challenge their claims may prefer to wait for their negotiations to joint ventures advance further.
The tax agency repeated that the companies cannot sign new joint venture contracts until they settle their tax claims.
Shell says that settling its claim with Seniat will make joint ventures negotiations easier. It adds that it is still negotiating after signing a transitory agreement in December.
The conversion of all Operating Agreements into joint ventures controlled by Petróleos de Venezuela was first announced in April. None of the contracts were due to expire until 2012, at the earliest.
Jens Erik Gould
Daily Journal Staff

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