Article 11A permits the United States to impose its branch taxes on the “dividend

equivalent amount” and the “excess interest” of a Venezuelan company that derives business profits attributable to a U.S. permanent establishment or which derives income subject to tax on a net basis in the United States under Articles 6 (Income from Immovable Property (Real Property) or 13 (Gains). These branch taxes are imposed under Code section 884.The tax on the dividend equivalent amount is limited to 5 percent, the same rate that applies to direct investment dividends. The tax on excess interest is limited to 10 percent, except in the case of persons referred to in subparagraph (a) of paragraph 11 (Interest), in which case the tax is limited to 4.95 percent.

More specifically, with respect to profit, Article 11A permits the United States generally to impose its branch profits tax on a corporation resident Venezuela to the extent of the corporation's

(i) business profits that are attributable to a permanent establishment in the United States

(ii) income that is subject to taxation on a net basis because the corporation has elected under section 882(d) of the Code to treat income from real property not otherwise taxed on a net basis as effectively connected income and

(iii) gain from the disposition of a United States real property interest, other than an interest in a United States real property holding corporation.

The United States may not impose its branch profits tax on the business profits of a corporation resident in Venezuela that are effectively connected with a U.S. trade or business but that are not attributable to a permanent establishment and are not otherwise subject to U.S. taxation under Article 6 or paragraph 1 of Article 13.

Paragraph 10(a) of the Protocol specifies that the term "dividend equivalent amount" used in subparagraph (a) shall have the meaning it has under section 884 of the Code, as amended from time to time, provided the amendments are consistent with the purpose of the branch profits tax. Generally, the dividend equivalent amount for a particular year is the income described above that is included in the corporation's effectively connected earnings and profits for that year, after payment of the corporate tax under Articles 6, 7 or 13, reduced for any increase in the branch's U.S. net equity during the year or increased for any reduction in its U.S. net equity during the year. U.S. net equity is U.S. assets less U.S. liabilities. See Treas. Reg. section 1.8841. The dividend equivalent amount for any year approximates the dividend that a U.S. branch

office would have paid during the year if the branch had been operated as a separate U.S. subsidiary company.

With respect to interest, Article 11A permits the United States generally to impose its branch profits tax on a corporation resident Venezuela to the extent of the corporation's “excess interest,” which is defined in paragraph 10(b) of the Protocol. In general, excess interest is the portion of the entire enterprise’s interest expense that is allocated to the branch over the amount of interest paid by the U.S. branch, and a tax is applied to the amount of that deemed payment. Such excess interest is deemed to arise in Contracting State in which that branch is located. The rate of tax on the deemed payment is limited to 10 percent, the rate generally applicable to interest payments to residents of the other Contracting State. However, in the case of interest deemed paid by the branch of a financial institution, the rate of tax is limited to 4.95 percent, the rate generally applicable to interest beneficially owned by financial institutions. The formula for calculating excess interest does not require that interest be fully deductible in one year. Rather, interest may be “excess interest” even though not deductible in a particular year if it is allocable to the U.S. income under U.S. domestic law rules.

Just as under Venezuela’s current system there is no shareholder level tax on dividends, there is also no Venezuelan tax on the dividend equivalent amount of branch profits or on excess interest. Nevertheless, this Article is drafted reciprocally, and thus, if in the future Venezuela should adopt branch taxes, it may apply them to U.S. companies, subject to the limitations of this Article.