ARTICLE 24

Relief from Double Taxation

Paragraph 1

Paragraph 1 confirms the understanding that the Contracting States shall avoid double taxation in accordance with the paragraphs of this Article. Paragraphs 2 and 3 describe the manner in which each Contracting State undertakes to relieve double taxation. The United States uses the foreign tax credit method under its internal law, and by treaty. Venezuela employs a broad exemption method under its internal law and may use either the exemption or foreign tax credit methods under this Convention.

Paragraph 2

Venezuela agrees in paragraph 2 to allow to its residents relief from double taxation of income derived by that resident which, in accordance with the provisions of the Convention, may be taxed in the United States. This relief is granted in accordance with, and subject to the limitations of the law of Venezuela, as they may be amended over time, so long as the general principle of the Article, i.e., the allowance of relief, is retained. The primary method of avoiding double taxation used by Venezuela, under its territorial-based system of taxation, is a broad exemption of foreign source income from Venezuelan tax. This is the method provided in paragraph 2(a). Subparagraph 2(b) would apply in the case that Venezuela adopts a worldwide system of taxation, under which it would avoid double taxation by granting foreign tax credits.

Paragraph 3

The United States agrees, in paragraph 3, to allow to its citizens and residents a credit against U.S. tax for income taxes paid or accrued to Venezuela.

The credit under the Convention is allowed in accordance with the provisions and subject to the limitations of U.S. law, as that law may be amended over time, so long as the general principle of this Article, i.e., the allowance of a credit, is retained. Thus, although the Convention provides for a foreign tax credit, the terms of the credit are determined by the provisions, at the time a credit is given, of the U.S. statutory credit.

As indicated, the U.S. credit under the Convention is subject to the various limitations of U.S. law (see Code sections 901 - 908). For example, the credit against U.S. tax generally is

limited to the amount of U.S. tax due with respect to net foreign source income within the relevant foreign tax credit limitation category (See Code section 904(a) and (d)), and the dollar amount of the credit is determined in accordance with U.S. currency translation rules (see, e.g., Code section 986). Similarly, U.S. law applies to determine carryover periods for excess credits and other inter-year adjustments. When the alternative minimum tax is due, the alternative minimum tax foreign tax credit generally is limited in accordance with U.S. law to 90 percent of alternative minimum tax liability. Furthermore, nothing in the Convention prevents the limitation of the U.S. credit from being applied on a per-country basis (should internal law be changed), an overall basis, or to particular categories of income (see, e.g., Code section 865(h)).

Subparagraph (b) provides for a deemed-paid credit, consistent with section 902 of the Code, to a U.S. corporation in respect of dividends received from a corporation resident in Venezuela of which the U.S. corporation owns at least 10 percent of the voting stock. This credit is for the tax paid by the corporation of Venezuela on the profits out of which the dividends are considered paid.

Relation to Other Articles

By virtue of the exceptions in subparagraph 5(a) of Article 1 this Article is not subject to the saving clause of paragraph 4 of Article 1 (General Scope). Thus, the United States will allow a credit to its citizens and residents in accordance with the Article, even if such credit were to provide a benefit not available under the Code.