The mystery of the tax free status of the PDVSA bonds

March 28, 2007

Sort of in synch with recent posts on tax issues, bonds and the National Assembly, last night I did not mention the mystery that the upcoming PDVSA bonds will be tax free to both Venezuelans and foreigners. Mystery, because while tax legislation gives sovereign bonds their tax free status, no such treatment applies to corporate issues even if they are owned by the Venezuelan Government.

But the mystery was increased when Minister Rafael Ramirez told El Universal that the PDVSA bonds are tax free because the Minister of Finance Rodrigo Cabezas “gave them a dispensation on that issue”.

Well, I really don’t know where to begin. We seem to have a new legal figure in Venezuelan legislation whereby the Minister of Finance has apparently been given some sort of special powers to give “special dispensation” on tax mattes whenever he feels like it. In fact, I talked to a couple of lawyers and neither of them had ever heard of such a legal figure. In fact, one of them told me that it sounded more like an item from the church, than a tax matter.

In any case, as we have learned recently, tax legislation is a matter for the National Assembly and the Supreme Curt can review the Constitutionality of it, but the Minister of Finance certainly has no discretionary power on such matters least of all to decide whether a corporate bond is tax free or not. So, either Minister Ramirez had no idea about what he was talking about or there is something we are missing on this.

Funny that the National Assembly does not find this true invasion of their legislative domain offensive or has said nothing about or initiated an investigation like it did on the Supreme Court’s interpretation of the word “income”.

But I guess, Minister Cabezas must be a friend of the National Assembly of which he was a member until recently, but as we can see only in the revolution can one have such an issue still up on the air and unclear on the eve of the placement of the second largest corporate emerging markets bond issue in the history of those markets.

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