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Rosa Caballero

Lega, Venezuela

rcaballer@lega.law

 

Article 156.13 of Venezuela's Constitution reserves to the National Power competence over the legislation to guarantee the coordination and harmonisation of the different taxing powers, and to define principles, parameters and limitations, especially for the determination of the tax rates or aliquots of the state and municipal taxes.

This competence results from the need for a proper coordination that allows the Taxing Power that has been constitutionally conferred to the nation, the states and the municipalities, to lead to the materialisation of the postulate contained in Article 316 of the Constitution. According to this, the tax system will seek the fair distribution of public burdens according to the economic capacity of the taxpayer, attending to the principle of progressiveness, as well as the protection of the national economy and the elevation of the population's standard of living.

In this sense, and given the relevance that the role of ‘harmonisation’ in the tax field plays these days, we must strengthen the idea that it goes beyond the mere creation of a single instrument, or even the enshrining of harmonising rules in different regulatory instruments. In fact, in order to promote the harmonious development of the national economy, it is necessary to have simultaneous and coordinated actions by each and every one of the branches of the Public Power, the Legislative Power (when issuing the law creating the tax), the Executive Power (when regulating the law and collecting and administering what is produced) and the Judicial Power (when guaranteeing the adequate compliance with the legal order in force).[1][2]

In this context and given the recent decisions issued by the Constitutional Chamber (CC) of the Supreme Court of Justice (SCJ), the issue of ‘harmonisation’ arises again, and especially the National Agreement of Municipal Tax Harmonisation that was prepared at the request of that Chamber, and presented by the Vice President of the Economic Area together with governors and mayors, who – at least from a formal point of view – have fulfilled the mandate that the CC would have given them.

It should be borne in mind that Article 156.13 of the Constitution establishes a reservation in favour of the National Public Power – which must be made concrete through the legislative body – with respect to legislation to guarantee the coordination and harmonisation of the different taxing powers, especially for the determination of the tax rates or rates of state and municipal taxes. Notwithstanding the aforementioned reservation, the CC delegated this power to the Vice President of the Economic Area, governors and mayors.

We intend to carry out a review of the main aspects that served as a starting point for this Municipal Tax Harmonisation Agreement in order to determine whether this agreement actually represents a step forward in this matter or if it represents a formula that leads to the emptying of tax autonomy – very specifically with regard to the tax power that has been constitutionally attributed to these minor entities.  

Genesis of the matter: from Ruling No 0250 of 8 August 2019, temporarily suspending the effects of the Ordinances on the Creation Of Fiscal Value Units of the municipality of Chacao in the State of Miranda and the Ordinance on Citizen Coexistence of the same municipality

The beginning of the subject matter of this analysis is based on Ruling No 0250, by which the CC of the SCJ admitted the nullity suit against the Ordinances for the Creation of Fiscal Value Units in the Municipality of Chacao, State of Miranda[3], and the Ordinance on Citizen Coexistence in the Municipality of Chacao, State of Miranda[4]. The CC agreed to the suspension of the legal effects of such normative instruments for establishing the creation of units of fiscal tax value and sanctioning anchored in an exchange market different from the one regulated by the Venezuelan Central Bank (VCB), not contemplated in Title VI, Chapter II or in Title IV, Chapter IV of the Constitution.

Ruling No 0078 of 7 July 2020 suspended the tax authority of states and municipalities for a period of 90 days.

On this occasion, the CC used its ‘general precautionary power’ to issue this decision in order to extend, in a special and temporary manner, the suspension of the effects originally agreed upon in the Ordinances of Creation of Units of Fiscal Value of the Municipality of Chacao, as well as that of Citizen Coexistence of that same municipality, to any regulatory instrument that established any tax rate or contribution, issued by the legislative or executive, municipal or state.

This decision is based upon Article 316 of the Constitution and on the idea that the tax system should aim to protect the national economy. It also establishes that some taxes, rates or contributions may have confiscatory effects and considerably affect the harmonious development of the national economy.

For this reason, and to guarantee the effective validity of the constitutional text, in accordance with the provisions of Article 335 of the Constitution, the CC agreed:

• to suspend for a period of 90 days the application of any regulatory instrument issued by the state or municipal legislative power that establishes any type of tax rate or contribution, as well as any decree or administrative act of general effects issued with the same purpose by the mayors or governors; and
• demand the Sectorial Vice President of the Economic Area and Minister of the People's Power of Industry and Production, together with the governors, the mayors and the head of government of the capital district, to form a technical committee to coordinate the parameters within which they will exercise their taxing authority, in particular, to harmonie the tax rates and its aliquots.

This ruling constitutes an unprecedented decision that, in our opinion, suffers from multiple vices, both from the constitutional and procedural perspective. In fact, the states and municipalities have been endowed with an autonomy in the terms and with the limitations foreseen in our constitutional text and, according to the dispositions contained in Articles 159, 164, 167, 168 and 169 of the Constitution, although the National Power assumes the legislation in the matter of coordination (through the National Assembly) it could not suppose the emptiness of the competences of these minor political entities.

In relation to the case at hand, the effect is the annulment of the Taxing Power that has been constitutionally assigned to the municipal entities. Any limitation to local autonomy is reserved by law and its competence corresponds to the National Assembly, with this invasion of competences incurred by the CC being questionable.

National Agreement of Municipal Tax Harmonisation proposed by the Bolivarian Council of Mayors of Venezuela in conjunction with the Vice Presidency of the Economic Area

In accordance with the mandate of the Constitutional Chamber in the aforementioned ruling, on 17 August 2020, the Vice President of the Economic Area presented before this Chamber the National Agreement of Municipal Tax Harmonisation, the main aspects of which were highlighted in ruling No 0018 of 18 August. In any case, it should be made clear that only the unofficial version of this Agreement is available, which, to date, has not been officially shared.

The most relevant aspects of this Agreement are:

1. The creation of a unique registry of municipal taxpayers, which will function as a digital tool for consultation, information exchange and monitoring in real-time of companies with branches in different municipalities, making it possible to avoid double taxation of the industrial sector and to verify any declaration presented in one municipality as declared and paid in another. This unique registry will be created and managed by the Bolivarian Council of Mayors;
2. The approval of the use of the Venezuelan cryptoactive petro as a unit of account for the dynamic calculation of taxes and sanctions, charging exclusively from its equivalent in Sovereign Bolivars. It is reiterated that, in accordance with the Venezuelan legal system, the collection of taxes in foreign currency is prohibited;
3. The simplification of the Single Classification of Economic Activities, Industry, Commerce and Similar Nature, which, in accordance with the proposal presented by the Economy and Taxation Commission, reduces the codes for tax purposes, going from having more than 600 classification codes to only 30. This maintains – as stated in the Agreement – the specific diversification of the activity for the purposes of health, urban or inspection control, and establishes bands for minimum and maximum rates and a minimum taxable amount in petro;
4. The approval and assumption of the table of values of the construction and of the land that will be applied for the cadastral valuations, cadastral registration, construction permits, occupational certificates, and the determination of the urban real estate and peri urban tax according to the zone and the type of construction;
5. The creation of an adviser, monitoring and certification standards services for the creation and updating of the virtual and digital systems of the tax administration of the municipalities of the country;
6. The formalisation and institutionalisation of a working and communication instance between the Commission of Productive Economy and Taxes of the Bolivarian Council of Mayors and the Vice-Presidency for the Economic Area, in order to jointly coordinate the fiscal stimulus that the national government may wish to apply.

An adhesion agreement for the modernisation and harmonisation of the tax administrations shall be signed by the municipalities. The main objective of this is to establish the bases of organisation and modernisation of the tax administrations of the adhered municipalities, through the application of a municipal tax administration model developed by the Bolivarian Council of Mayors of Venezuela (CBAAV), with the intention of harmonising legislative foundations and operational processes in order to, amongst other things:

• optimise the taxpayer's voluntary compliance;
• improve productivity in collection, inspection and recovery;
• seek optimal prevention of evasion;
• increase tax awareness;
• improve the quality of taxpayer services; and
• not generate excessive or confiscatory tax burdens for the taxpayer.

In regard to the harmonisation mechanism, the aforementioned Agreement establishes that a standard model will be used, based on trends and good practices, which will be the product of research and development by the CBAAV and which the adhering municipality will receive in the following tools:

• model ordinances on tax matters;
• good practices manuals;
• training plans;
• certified technological platforms;
• tax awareness plans; and
• continuous improvement mechanisms.

It should be noted that this Agreement contains a ‘no collision’ clause. According to this once the aforementioned Agreement is signed, the adhering municipality may not develop a different model of tax administration than the one protected in the Agreement. Therefore, the municipality must focus and dedicate all its efforts to achieving the successful implementation of the proposed model. It may not incorporate independent or third party initiatives that collaborate with the objective of this Agreement.

Critical considerations on the Agreement

While we recognise the urgent need to seek tax harmonisation, we consider that this instrument is a direct and unconstitutional attack on municipal autonomy, since the Bolivarian Council of Mayors could hardly be in charge of creating the models and other instruments to implement the harmonisation mechanisms, which leaves the municipality in the residual position of limiting itself to deciding whether to adhere to the Agreement. This is especially true when the municipality makes a commitment not to develop a different model of tax administration than the one protected by the Agreement.

Each municipality has a different political, economic and social reality. Even though we are aware of the need for coordination and harmonisation of the taxing powers of the different political territorial entities, we consider that a single instrument such as the National Agreement for Municipal Tax Harmonisation will not constitute the magic solution to a complex problem. On the contrary, we see that this Agreement could add to the existing problem.

We consider that municipalities are not in a capacity to implement high-level technological platforms nor fiscal intelligence – much less the implementation of good practice manuals – under the guidelines contained in the Agreement. It should be borne in mind that many of the country's municipalities can barely sustain themselves economically: a tax management model such as the one presented in this Agreement will be difficult for most municipalities to comply with.

Ruling No 0118 of 18 August 020, by which municipalities are ordered to adapt their tributary ordinances attending to the National Agreement of Municipal Tax Harmonisation

Pursuant to the mandate contained in Ruling No 0078 of 7 July 2020, the Vice President of the Economic Area presented before the CC of the SCJ the National Agreement of Municipal Tax Harmonisation and requested the lifting of the precautionary measure already issued, specifically with respect to the municipalities that had signed the instrument of harmonisation, given the imminent need to manage and collect the taxes that correspond to it.

At the same time, it requested the Chamber to issue a pronouncement regarding:

• the precautionary parameters that could be applied to the municipalities that have not yet joined the National Tax Harmonisation Agreement; and
• the establishment of the corresponding collection criteria for the period of approval of the Ordinances that formalise what has been agreed.

For its part, the Chamber resolved:

• To instruct the mayors who have signed the National Agreement for Municipal Tax Harmonisation to proceed, within 30 continuous days following the notification of this decision, to adapt their municipal ordinances regarding the tax rates and rates of taxes inherent to economic activities and those related to urban real estate and peri urban real estate, in accordance with the parameters established in the agreement in reference. Once the corresponding adaptation has been made, the mayors should send to the Ministry of the Popular Power of Economy and Finance the modified ordinances for the purpose of verifying their adaptation to the parameters of the agreements reached, so that the latter, once it has been verified what is conducive, may send to the CC its opinion and finally proceed to issue a pronouncement on the request for lifting the precautionary measure; and
• To notify and send a certified copy of this decision, as well as of the brief and annexes filed before this Chamber on 17 August 2020, to the mayors who are not signatories of said Agreement, so that the latter, within a period of 15 continuous days following the notification of this decision, may proceed to express before the CC adherence to the Agreement.

With this decision, we believe the CC once again oversteps its bounds and violates the necessary separation of powers that must exist in every state that is reputed to be a state of law.

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