ARTICLE 2

Taxes Covered

This Article specifies the U.S. taxes and the Venezuelan taxes to which the Convention applies. Unlike Article 2 in the OECD Model, but consistent with the U.S. Model format, this Article does not contain a general description of the types of taxes that are covered (i.e., income taxes), but only a listing of the specific taxes covered for both of the Contracting States. With three exceptions, the taxes specified in Article 2 are the covered taxes for all purposes of the Convention. A broader coverage applies for purposes of Articles 25 (Non-Discrimination) and 27 (Exchange of Information). Article 25 applies with respect to all taxes, including those imposed by state and local governments. Article 27 applies with respect to all taxes imposed at the national level. Article 24 (Relief from Double Taxation) provides narrower coverage in that while Venezuela’s business assets tax (BAT) is a covered tax, the United States is not required by the Convention to grant a U.S. foreign tax credit for business assets taxes paid to Venezuela.

Paragraph 1

Subparagraph (a) provides that the Venezuelan covered taxes are Venezuela’s income tax and its business assets tax (amplified as described above in the cases of Articles 25 (NonDiscrimination) and (Exchange of Information)). Coverage of the business assets tax limits its imposition to cases where a U.S. resident either

(i) has a permanent establishment in Venezuela under Article 5, (ii) has real property in Venezuela, or (iii) leases or otherwise permits a resident of Venezuela to use property for which a “royalty” (as defined in Article 12) is paid.

The United States is not required, under Article 24 (Relief from Double Taxation) to grant a foreign tax credit for assets taxes paid to Venezuela.

Subparagraph (b) provides that the United States covered taxes are the Federal income taxes imposed by the Code. Although they may be regarded as income taxes, social security taxes (Code sections 1401, 3101, 3111 and 3301) are specifically excluded from coverage. It is

expected that social security taxes will be dealt with in bilateral Social Security Totalization Agreements, which are negotiated and administered by the Social Security Administration. Except with respect to Article 25 (Non-Discrimination), state and local taxes in the United States are not covered by the Convention.

In this Convention, unlike some U.S. treaties, the Accumulated Earnings Tax and the Personal Holding Companies Tax are covered taxes because they are income taxes and they are not otherwise excluded from coverage. Under the Code, these taxes will not apply to most foreign corporations because of a statutory exclusion or the corporation's failure to meet a statutory requirement.

Paragraph 2

Under paragraph 2, the Convention will apply to any taxes that are identical, or substantially similar, to those enumerated in paragraph 1, and which are imposed in addition to, or in place of, the existing taxes after the date of signature of the Convention. The paragraph also provides that the competent authorities of the Contracting States will notify each other of significant changes in their taxation laws that affect their obligations under the Convention. The use of the term "significant" means that changes must be reported that are of significance to the operation of the Convention. The competent authorities are also obligated to notify each other of official published materials concerning the application of the Convention.