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As a response to the escalating inflation, the Organic Tax Code of 19941 created the Tax Unit (UT) initially equal to Bs. 1,000.00 (BsF. 1.00)2 as a reference value to update for inflation (under the National Index of Consumer Prices published by the Central Bank of Venezuela) the amounts that represent the tax bases for applying rates, exemptions, exonerations and sanctions, among others, which were quickly outdated. Then several non-tax laws established sanctions and other non-punitive concepts in UTs.

The Revenue Service should adjust the value of the Tax Unit annually according to the inflation of the immediately preceding year, upon the favourable opinion of the Permanent Finance Commission of the National Legislative Assembly.3 The UT equals BsF. 300.00. In cases of tax penalties established in UTs, taxpayers must pay the fines according to the value of the UT on the date of payment.4 Tax penalties established in percentages must be converted to the value of the UT on the date of the commission of the infraction and must be paid at the value of the UT on the date of payment.5

The National Constituent Assembly (ANC) recently issued the Constitutional Law on the creation of the Sanctioning Tax Unit6 (the Law), through which it created a special Tax Unit (Sanctioning UT) parallel to the UT, which now will be called the "Ordinary UT". The Sanctioning UT will exclusively apply for determining fines and financial penalties expressed in UTs in different laws. The purpose of the Law is to guarantee the dissuasive nature of the fines and financial penalties established in UTs and to update its value periodically to prevent non-compliance with legal norms, which the Ordinary UT was supposedly fulfilling and was precisely the rationale for its creation. The Law became effective on 21 December 2017.

The Law is an act dictated by the ANC in exercising functions that correspond to the National Legislative Assembly as Legislative Power.7 According to the Law, the National Executive must determine the value of the Sanctioning UT and adjust it the first days of the month of February of each year, in the same opportunity of the adjustment to the Ordinary UT.

The National Executive must adjust the value of the Sanctioning UT based on the variation of the Consumer Price Index of the Metropolitan Area of Caracas, in the immediately preceding year, set by the "competent authority"(sic) (which is the Central Bank of Venezuela) and with the opinion of the Ministry of Popular Power with competence in matters of citizen security, the Supreme Court of Justice and the Citizen Power. The intervention of the Legislative Power is not required. The National Executive has not yet established the initial value of the Sanctioning UT. The Central Bank of Venezuela has published none of the Consumer Price Indexes since December 2015.

It is clear from the Law that the Sanctioning UT and the Ordinary UT will coexist, although it is not clear what the coexistence and impact on the tax issues will be. It seems that the Law will create important distortions in the Venezuelan legal system. The fundamental discussion will focus on its origin and constitutionality. For example,

(i) The National Executive assumes the adjustment of the Sanctioning UT. Will the Executive adhere to the constitutional principles of reasonableness of the tax and its accessories at the moment of establishing the adjustment of the Sanctioning UT or will it depart from them because the Law is not properly a tax law?

(ii) How should the tax penalties established in UTs in the Organic Tax Code or in other laws be determined?; and

(iii) How should the tax bases for application of tax rates be determined, and the bases for exemptions and exonerations and other non-punitive concepts established in UTs? Among the latter, for example, is Presidential Decree No. 3,1858 that exempted from income tax liability the annual Venezuelan-source net income obtained by resident individuals during fiscal year 2017 for up to 32,000 UTs.9


1 Organic Tax Code of 1994, Official Gazette No. 4,727 Ext. of 27 May 1994, art. 229
2 Decree with Rank, Value and Force of Law of Monetary Reconversion, Official Gazette No. 38,638 of 6 March 2007, according to which BsF. 1.00 = Bs. 1,000.00.
3 Organic Tax Code of 2014, Official Gazette No. 6,152 Ext. of 18 November 2014, art. 131 (15).
4 Organic Tax Code of 2014, art. 91.
5 Organic Tax Code of 2014, art. 92.
6 Official Gazette No. 40,305 of 21 December 2017.
7 V. Click here
8 Official Gazette No. 41,293 of 5 December 2017.
9 V. Click here.
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