ARTICLE 23

Capital

This Article specifies the circumstances in which a Contracting State may impose tax on capital owned by a resident of the other Contracting State. While absent from the U.S. Model, the inclusion of a Capital Article is appropriate because of Venezuela’s Business Assets Tax (BAT), which serves as a type of alternative minimum tax. The BAT is a covered tax for Venezuela under subparagraph 1(a) of Article 2 (Taxes Covered). However, it should be noted that in accordance with subparagraph 3(a) of Article 24 (Relief from Double Taxation) the Convention does not require the United States to allow foreign tax credits for Venezuelan BAT paid. Since the United States does not impose taxes on capital, the only capital taxes covered by the Convention is the BAT of Venezuela. Thus, although the Article is drafted in a reciprocal manner, its provisions are relevant only for the imposition of the BAT of Venezuela. The explanation which follows will be from the perspective of Venezuela as the taxing State.

The Article provides the general rule in paragraph 4 that, except as provided elsewhere in the Article, capital owned by a resident of a Contracting State may be taxed only by that Contracting State. Thus, in general, Venezuela cannot tax a resident of the United States on capital owned by that resident. Exceptions to this general rule are provided in paragraphs 1, 2 and 3.

Paragraph 1 provides that capital represented by real property (as defined in Article 6 (Income from Real Property (Immovable Property)) which is owned by a U.S. resident and located in Venezuela may be taxed by Venezuela. Under paragraph 2, capital which is represented by personal property which is part of the business property of a permanent establishment maintained by a U.S. resident in Venezuela or pertains to a fixed base maintained in Venezuela by a U.S. resident may be taxed by Venezuela. Paragraph 3 deals with capital represented by ships, aircraft or containers that are owned by a U.S. resident, and are operated in

international traffic and with other personal property pertaining to the operation of such ships, aircraft or containers. Under the paragraph, such capital is taxable only in the United States.

Thus, the capital to which each of paragraphs 1, 2 and 3 of the Article relate is subject to taxation in the same manner as is income from such capital under Articles 6 (Income from Real Property (Immovable Property)), 7 (Business Profits), 8 (Shipping and Air Transport) and 13 (Gains) of the Convention.