The Double Taxation Relief (Taxes on Income) (Venezuela) Order 1996

Made: 15th October 1996

At the Court at Buckingham Palace, the 15th day of October 1996 Present, The Queen’s Most Excellent Majesty in Council

Now, therefore, Her Majesty, in exercise of the powers conferred upon Her by section 788 of the said Act, and of all other powers enabling Her in that behalf, is pleased, by and with the advice of Her Privy Council, to order, and it is hereby ordered, as follows: —

1

This Order may be cited as the Double Taxation Relief (Taxes on Income) (Venezuela) Order 1996.

2

It is hereby declared —

• (a) that the arrangements specified in the Convention set out in Part I of the Schedule to this Order and in the Exchange of Notes constituting an Agreement set out in Part II of that Schedule have been made with the Government of the Republic of Venezuela with a view to affording relief from double taxation in relation to income tax, corporation tax or capital gains tax and taxes of a similar character imposed by the laws of Venezuela;

• (b) that those arrangements include provisions with respect to the exchange of information necessary for carrying out the domestic laws of the United Kingdom and the laws of Venezuela concerning taxes covered by the arrangements including, in particular, provisions about the prevention of fiscal evasion with respect to those taxes; and

• (c) that it is expedient that those arrangements should have effect.

SCHEDULE

PART I — CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND 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 GAINS

The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Venezuela;

Desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains;

Have agreed as follows:

CHAPTER I — SCOPE OF CONVENTION

Article 1 — Personal scope

This Convention shall apply to persons who are residents of one or both of the Contracting States.

Article 2 — Taxes covered

CHAPTER II — DEFINITIONS

Article 3 — General definitions

Article 4 — Resident

Article 5 — Permanent establishment

CHAPTER III — TAXATION OF INCOME

Article 6 — Income from immovable property

Article 7 — Business profits

• (1) The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

• (2) Subject to the provisions of paragraph (3) of this Article, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

• (3) In determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including a reasonable allocation of executive and general administrative expenses incurred for the purposes of the enterprise as a whole, whether in the Contracting State in which the permanent establishment is situated or elsewhere. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than by way of reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of a commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on money lent to the permanent establishment.

• (4) No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

• (5) For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

• (6) Where profits include items of income or capital gains which are dealt with separately in other Article s of this Convention, then the provisions of those Article s shall not be affected by the provisions of this Article.

Article 8 — Shipping and air transport

• (1) Profits derived by a resident of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

• (2) For the purposes of this Article, profits from the operation of ships or aircraft in international traffic include:

• (a) income from the rental on a bareboat basis of ships or aircraft; and

• (b) profits from the use, maintenance or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise;

where such rental or such use, maintenance or rental, as the case may be, is incidental to the operation of ships or aircraft in international traffic.

• (3) Where profits within paragraph (1) or (2) of this Article are derived by a resident of a Contracting State from participation in a pool, a joint business or an international operating agency, the profits attributable to that resident shall be taxable only in the Contracting State of which he is a resident.

• (4) Notwithstanding paragraph (1) of this Article, profits derived by a resident of a Contracting State from the operation of ships used for the transport of hydrocarbons may be taxed in the other Contracting State; and in this paragraph “hydrocarbons” means natural gas, liquefied natural gas, crude petroleum and the products derived exclusively from the first phase of the refining of crude petroleum.

Article 9 — Associated enterprises

• (1) Where:

• (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

• (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises, but by reason of those conditions, have not so accrued, may be included by a Contracting State in the profits of that enterprise and taxed accordingly.

• (2) Where a Contracting State includes in the profits of an enterprise of that State — and taxes accordingly — profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.

Article 10 — Dividends

Article 11 — Interest

Article 12 — Royalties

Article 13 — Capital gains

• (1) Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 of this Convention and situated in the other Contracting State may be taxed in that other State.

• (2) Gains derived by a resident of a Contracting State from the alienation of:

• (a) shares, other than shares quoted on an approved Stock Exchange, deriving their value or the greater part of their value directly or indirectly from immovable property situated in the other Contracting State, or

• (b) an interest in a partnership or trust the assets of which consist principally of immovable property situated in the other Contracting State, or of shares referred to in sub-paragraph (a) above,

may be taxed in that other State.

• (3) Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.

• (4) Gains from the alienation of ships or aircraft operated in international traffic by an enterprise of a Contracting State or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the Contracting State in which the enterprise operating the ships or aircraft is resident.

• (5) Gains from the alienation of any property other than that referred to in paragraphs (1), (2), (3) and (4) of this Article shall be taxable only in the Contracting State of which the alienator is a resident, so long as he is subject to tax in respect of those gains in that Contracting State.

• (6) The provisions of paragraph (5) of this Article shall not affect the right of a Contracting State to levy according to its law a tax on capital gains from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned Contracting State at any time during the five years immediately preceding the alienation of the property.

Article 14 — Independent personal services

Article 15 — Dependent personal services

Article 16 — Director’s fees

Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

Article 17 — Artistes and athletes

• (1) Notwithstanding the provisions of Article s 14 and 15 of this Convention, income derived by a resident of a Contracting State as an entertainer, such as a theatre, motion picture, radio or television artiste, or a musician, or as an athlete, from his personal activities as such exercised in the other Contracting State, may be taxed in that other State.

• (2) Where income in respect of personal activities exercised by an entertainer or an athlete in his capacity as such accrues not to the entertainer or athlete himself but to another person, that income may, notwithstanding the provisions of Article s 7, 14 and 15 of this Convention, be taxed in the Contracting State in which the activities of the entertainer or athlete are exercised.

Article 18 — Pensions and annuities

Article 19 — Government service

• (1)(a) Remuneration, other than a pension, paid by a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

• (b) Notwithstanding the provisions of sub-paragraph (1)(a) of this Article, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that State and the individual is a resident of that State who:

• (i) is a national of that State; or

• (ii) did not become a resident of that State solely for the purpose of rendering the services.

• (2) The provisions of Article s 15, 16 and 18 of this Convention shall apply to remuneration and pensions in respect of services rendered in connection with a business carried on by a Contracting State or a political subdivision or a local authority thereof.

Article 20 — Students

Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in the first-mentioned State, provided that such payments arise from sources outside that State.

Article 21 — Other income

CHAPTER IV — METHODS FOR THE ELIMINATION OF DOUBLE TAXATION

Article 22 — Elimination of double taxation

• (1) Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof):

• (a) Venezuelan tax payable under the laws of Venezuela and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within Venezuela (excluding in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Venezuelan tax is computed;

• (b) in the case of a dividend paid by a company which is a resident of Venezuela to a company which is a resident of the United Kingdom, and which controls directly or indirectly at least 10 per cent. of the voting power in the company paying the dividend, the credit shall take into account (in addition to any Venezuelan tax for which credit may be allowed under the provisions of sub-paragraph (a) of this paragraph) the Venezuelan tax payable by the company in respect of the profits out of which such dividend is paid.

• (2) In the case of Venezuela, subject to the provisions of the law of Venezuela, double taxation shall be avoided as follows:

• (a) where a resident of Venezuela receives income which according to the provisions of this Convention may be taxed in the United Kingdom, that income shall be exempted from Venezuelan tax;

• (b) if, under the law of Venezuela, a resident of Venezuela is subject to taxation in Venezuela on worldwide income, the provisions of sub-paragraph (a) of this paragraph shall not apply and double taxation shall be eliminated in accordance with sub-paragraphs (c), (d) and (e) of this paragraph;

• (c) where a resident of Venezuela derives income which, in accordance with the provisions of this Convention, may be taxed in the United Kingdom, Venezuela shall allow as a deduction from the Venezuelan tax on the income of that resident an amount equal to the United Kingdom tax paid in the United Kingdom;

• (d) the deduction allowed under sub-paragraph (c) of this paragraph shall not exceed that part of the Venezuelan income tax, as computed before the deduction is given, which is attributable to the income which may be taxed in the United Kingdom;

• (e) where in accordance with any provision of this Convention income derived by a resident of Venezuela is exempt from tax in Venezuela, Venezuela may nevertheless, in calculating the amount of tax on the remaining income of such resident, take into account the exempted income.

• (3) For the purpose of paragraph (1) of this Article, the term “Venezuelan tax payable” shall be deemed to include any amount which would have been payable as Venezuelan tax for any year but for an exemption or reduction of tax granted for that year or any part thereof under any of the following provisions of Venezuelan law:

• (a) Article s 57, 58 and 59 of the Income Tax Law of 1994 so far as they were in force on, and have not been modified since, the date of signature of this Convention, or have been modified only in minor respects so as not to affect their general character; or

• (b) any other provision which may subsequently be made granting an exemption or reduction of tax which is agreed by the competent authorities of the Contracting States to be of a substantially similar character, if it has not been modified thereafter or has been modified only in minor respects so as not to affect its general character,

where the exemption from or reduction of tax so granted is certified by the competent authority of Venezuela as being for the purpose of promoting new industrial, commercial, scientific, educational or agricultural development in Venezuela.

• (4) Relief from United Kingdom tax by virtue of paragraph (3) of this Article shall not be given where the profits, income or chargeable gains in respect of which tax would have been payable but for the exemption or reduction of tax granted under the provisions referred to in that paragraph arise or accrue more than ten years after the date on which this Convention enters into force.

• (5) The period referred to in paragraph (4) of this Article may be extended by agreement between the Contracting States.

• (6) For the purposes of paragraphs (1) and (2) of this Article, profits, income and capital gains owned by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other Contracting State.

Article 23 — Non-discrimination

Article 24 — Partnerships

Where, under any provision of this Convention, a partnership is entitled, as a resident of Venezuela, to exemption from tax in the United Kingdom on any income or capital gains, that provision shall not be construed as restricting the right of the United Kingdom to tax any member of the partnership who is a resident of the United Kingdom on his share of such income or capital gains; but any such income or gains shall be treated for the purposes of Article 22 of this Convention as income or gains from sources in Venezuela.

Article 25 — Mutual agreement procedure

Article 26 — Exchange of information

Article 27 — Members of diplomatic or permanent missions and consular posts

Nothing in this Convention shall affect any fiscal privileges accorded to members of diplomatic or permanent missions or consular posts under the general rules of international law or under the provisions of special agreements.

Article 28 — Entry into force

Article 29 — Termination

This Convention shall remain in force indefinitely until terminated by one of the Contracting States. Either Contracting State may terminate the Convention, by giving notice of termination, through the diplomatic channel, at least six months before the end of any calendar year beginning after the end of the calendar year in which the Convention enters into force. In such event, the Convention shall cease to have effect:

• (a) in the United Kingdom:

• (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which the notice is given;

• (ii) in respect of corporation tax, for any financial year beginning on or after 1st April in the calendar year next following that in which the notice is given;

• (b) in Venezuela:

• in respect of the income tax and the business assets tax, for any year beginning on or after 1st January in the calendar year next following that in which the notice is given.

• In witness whereof the undersigned, duly authorised thereto by their respective Governments, have signed this Convention.

Done in duplicate at Caracas this 11th day of March, 1996 in the English and Spanish languages, both texts being equally authoritative.

PART II — EXCHANGE OF NOTES

Your Excellency

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland 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 Gains which is being signed today and to make on behalf of the Government of the Republic of Venezuela the following proposal:

Article 4

It is understood that the definition of resident in Article 4 of the Convention does not exclude from the enjoyment of benefits under the Convention residents of Venezuela merely because at the time of conclusion of this Convention Venezuela uses the territorial principle in its system of taxation. It is further understood that, in the event that Venezuela adopts a worldwide system of taxation, the term will not include any person who is liable to tax in that State in respect only of income from sources in that State.

Article s 7 and 14

Article 8

I avail myself of this opportunity to extend to Your Excellency the assurance of my highest consideration.

Your Excellency

I am in receipt of your note dated 11th March 1996 which states as follows:

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland 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 Gains which is being signed today and to make on behalf of the Government of the Republic of Venezuela the following proposal: It is understood that the definition of resident in Article 4 of the Convention does not exclude from the enjoyment of benefits under the Convention residents of Venezuela merely because at the time of conclusion of this Convention Venezuela uses the territorial principle in its system of taxation. It is further understood that, in the event that Venezuela adopts a worldwide system of taxation, the term will not include any person who is liable to tax in that State in respect only of income from sources in that State. It is understood that income from ordinary leasing activities and payments received as consideration for technical services, including studies or surveys of a scientific, geological or technical nature, or for consultancy or supervisory services shall be taxed in accordance with the provisions of Article 7 or Article 14 as the case may be. Notwithstanding the preceding sentence, it is recognised that if leasing activities include to a substantial extent a transfer of technological know-how, the payments paid as a consideration for such a transfer shall to that extent be considered as “payments for the use of, or the right to use, industrial, commercial or scientific experience” referred to in sub-paragraph (b) of paragraph (3) of Article 12. It is understood that the provisions of paragraph (4) of Article 8 of the Convention shall apply to the profits of a resident of one of the Contracting States derived from the operation of ships which serve any port situated in the territory of the other Contracting State. If the following proposal is acceptable to the Government of the United Kingdom of Great Britain and Northern Ireland I have the honour to suggest that the present Note and Your Excellency’s reply to that effect shall be regarded as constituting an agreement between the two Governments in this matter which will enter into force at the same time as the entry into force of the Convention. I avail myself of this opportunity to extend to Your Excellency the assurance of my highest consideration.

The foregoing proposal being acceptable to the Government of the United Kingdom of Great Britain and Northern Ireland, I have the honour to confirm that Your Excellency’s Note and this reply shall be regarded as constituting an agreement between the two Governments in this matter which shall enter into force at the same time as the entry into force of the Convention.

I take this opportunity to renew to Your Excellency the assurances of my highest consideration.

Signed

N. H. Nicholls — Clerk of the Privy Council

Explanatory note

(This note is not part of the Order)

The Convention with Venezuela is set out in Part I of the Schedule to this Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Article s 5 and 7).

Income and gains from immovable property may be taxed in the country in which the property is situated (Article s 6 and 13).

Profits and gains from international shipping and air transport are generally to be taxed only in the residence state of the operator. However profits derived from the transport of hydrocarbons by ship may be taxed in the other Contracting State (Article s 8 and 13).

The Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 9).

The rate of tax imposed in the country of source on dividends derived and beneficially owned by a resident of the other country shall not, in general, exceed 10 per cent. of the gross amount of the dividends. If the beneficial owner is a company which controls at least 10 per cent. of the voting power in the company paying the dividends, the dividends will generally be taxable only in the recipient’s country of residence (Article 10).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is not to exceed 5 per cent. of the gross amount flowing to the other country provided the recipient is the beneficial owner of the interest. Certain categories of interest will be exempt from tax in the source state (Article 11).

The rate of tax imposed in the country of source on royalties is limited to 7 per cent. of the gross amount in respect of copyright of literary or artistic work and 5 per cent. of the gross amount in respect of patents, trade marks, industrial, commercial or scientific experience; where, in either case, the recipient is the beneficial owner of the royalties (Article 12).

Each country may generally tax capital gains in accordance with its domestic law. Gains arising from the disposal of the assets of a permanent establishment or a fixed base which the taxpayer has in the other country may be taxed in that other country (Article 13).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Article s 14 and 15). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in that other country (Article 16). Income derived from the activities of artistes and sportsmen may be taxed in the country in which those activities are performed (Article 17).

Occupational pensions and annuities are to be taxed only in the recipient’s country of residence (Article 18) while government service remuneration is normally to be taxed only by the paying Government (Article 19). There are separate provisions for diplomatic or consular officials (Article 27). Certain payments made to visiting students and business apprentices are generally exempt from tax in the country visited (Article 20).

Other income not specified in the Convention will generally be taxed only by the country of which the beneficial owner is a resident (Article 21).

Where income continues to be taxable in both countries, relief will be given, in effect, in accordance with the laws of each country. The credit to be given in the United Kingdom for tax imposed in Venezuela includes credit for tax spared under certain provisions of Venezuelan law (Article 22).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 23) and provisions whereby the United Kingdom ensures that it retains its right to tax a United Kingdom resident member of a Venezuelan resident partnership (Article 24).

There are also provisions for consultation to resolve difficulties in the application or interpretation of the Convention (Article 25) and for exchanges of information between the taxation authorities of the two countries (Article 26).

The Exchange of Notes comprising Part II of the Schedule clarifies the intended interpretation of certain parts of the Convention.

The Convention will enter into force on the date of the later of the notifications by each country of the completion of its legislative procedures. It will take effect in the United Kingdom in respect of corporation tax from 1st April in the following calendar year; and from 6th April that year for income tax and capital gains tax (Article 28). The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.

Footnotes

[^f00001]: 1988 c. 1; section 788 is extended by section 277 of the Taxation of Chargeable Gains Act 1992(c. 12).