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Case Study Topic 3.1: Audit of The Gas, Petroleum and Oil Sectors Heriberto Erik Ariñez Bazan
Case Study Topic 3.1: Audit of The Gas, Petroleum and Oil Sectors Heriberto Erik Ariñez Bazan
Case Study Topic 3.1: Audit of The Gas, Petroleum and Oil Sectors Heriberto Erik Ariñez Bazan
Topic 3.1
1. BACKGROUND
In view of this new situation arising in 2006, those who would have
signed Shared Risk Contracts for carrying out Exploration, Exploitation
and Commercialization activities, and would have obtained licenses
and concessions according to Hydrocarbons Law Nº 1689 of April
30, 1996, obligatorily, as per Article 65 of Law Nº 3058, would have
to be adapted to the three types of oil contracts (shared production,
operation and association).
Thus, in October 2006, the Bolivian State opted for the Operation
Contract model, whereby YPFB obtains revenues for the monthly sale
of hydrocarbons delivered by the petroleum companies, deducting
from said amount the costs of transportation and commercialization of
hydrocarbons. There are currently 41 contracts in force for carrying
out exploration and exploitation activities.
In Bolivia, natural gas and petroleum between 2011 and 2012 increased
13.8% and 15.5% respectively, while the production of PLG was
reduced due to a lower production in refineries (see chart 1). However,
this situation has been modified, inasmuch as it is anticipated that this
product will be exported as of September 2013:
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a. Exploration;
b. Exploitation;
c. Refining and Industrialization;
d. Transportation and Storage;
e. Commercialization;
f. Distribution of Natural Gas through Networks
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The entire chain is subject to the general taxation system taxes with
exemptions, as well as to the specific ones of the sector (see charts
3 and 4):
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TAXES OF A
PHASE ACTIVITIES SPECIFIC TAXES
GENERAL NATURE
Exploration VAT, TT, CPT,
UPSTREAM
Exploitation CPT-BA (1)
Refining and Industrialization STHC (2)
Transportation and Storage VAT, TT, CPT,
DOWNSTREAM
Commercialization CPT-BA (1) STHC (2) , DTH (3)
Distribution of Natural Gas
Source: Self-prepared.
(1) The CPT –BA is only applicable in case of remittances abroad.
(2) The STHC is applied to wholesale import and commercialization in the internal
market.
(3) YPFB, the state enterprise is subject to this tax through the fulfillment of the
generating event established when measuring the production of hydrocarbons in its
first stage of commercialization at the examination point, in accordance with Article 54
of Law Nº 3058.
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After the identification of the sector, item and taxpayer, the Examination
Department will proceed with the following schedule:
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Based on analysis of information dealing with taxes and others which includes background
on the taxpayer’s behavior, financial statements and F 605 of EEE presentations, previous
audits by SIN and internal auditors, annual report, information from stock exchange,
minutes of the board of directors, operational organization chart, monthly details of the
general ledger, monthly journal, legal files, agreements and contracts.
Identification of
noncompliance with
requisites
1 Although the DTH in strict terms corresponds to Downstream operations, audits are carried
out in the production stage considering that one must 1) Compare the amount produced ac-
cording to the examination, with the amount certified by the authorized entities; 2) Verify the
payment of the DTH according to the operation contracts; and 3) Verification of the annexes
to the tax payment, in the production of petroleum, natural gas and PLG of plants.
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The rest of the companies of the sector are distributed between the
large taxpayer management offices of the departments of Santa
Cruz and Cochabamba, which are in charge of ensuring their due
compliance with their tax obligations.
For VAT
1. Review of the holder’s compensation which consists of the
recovery of costs; that is, labor, materials, and depreciation of
fixed assets, among others.
2. Review of the documents related to the production of petroleum
and gas.
3. Review of purchases, making sure that they are related to the
taxed activity, that they comply with the formalities and that they
are duly supported with reliable means of payment according to
the rules.
For the TT
1. Compare the amount sold in the internal market with the amount
produced to identify undeclared revenues.
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The scope of the tax audit is determined in the tax intelligence study.
It comprises taxes, periods and items to be reviewed according to the
modalities established under item 3.
4.2.1 Refining
In the refineries one can review the following taxes: VAT, TT, CPT,
CPT-BA, RC-VAT and STHC, according to specific procedures for
each of them.
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The following taxes may be examined in this activity: VA, TT, CPT,
CPT-BA, RC-VAT, according to specific procedures for each of them.
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b) The VAT Tax Credit is calculated on the basis of the total of the
invoice issued by the Refinery (including the ISTHC).
5. CASES
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TOPIC 3.1 (Bolivia)
On base of the audit by the external auditors and given the lack of
withholding of the CPT-BE profit tax in the corresponding payment;
after analyzing the situation and in order to obtain tax advantages,
the taxpayer decides to return bills initially received from “Services
company”, to replace them with local invoices issued by “Bolivia
services” which apparently allows to benefit from the tax credit.
In addition the taxpayer mentions that the taxation event for services is
created at the time of their delivery or from the time of their payment,
as a result two aspects are present: i) the observed invoices relate
to a service that at the date of invoicing was in progress and which
execution had not been completed, as shown in the financial lease
delivered to the audit team; and (ii) Although there was a partial
payment of the price, the supplier did not invoice in due time.
The taxpayer argues that the amounts paid to the company “Services
Company” based in Houston USA, are for services that were in
progress at that time. In this regard, we note that the service referred
to was a financial leasing contract and payments for the importation of
equipment; therefore under the tax legislation for financial lease, the
taxable event is completed at the due date of each installment, law
N ° 843 article 4; in the case of imports, the taxable event is concluded
when the import is completed, law 843 article 4; It is concluded
that the leasing fees were overdue and that imports service already
had been completed, facts that the taxpayer knew when he made the
payment to the foreign company without making the corresponding
withholding.
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TOPIC 3.1 (Bolivia)
Law No. 843, article 4, subsection e) in the case of leasing, the taxable
fact occurs at the due date of the expiration of each installment.
Law No. 843, article 46, the CPT tax has an annual basis and will
be determined at the end of each period on prescribed dates, to the
effect, revenues and expenses will be considered from the current
year in which they occur.
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(For this purpose, subsection b), article 1 of the law 843 indicates that
the value added tax (VAT) affect any contracts for works, services and
any other activity performed in the national territory.
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The taxpayer says that, as a general rule, the withholding of the CPT-
BE for these services and interests should be made under Bolivian
law. However, since the payments are made by a Bolivian company
in favor of a company domiciled abroad, the mandatory application of
the Convention to avoid the double international taxation (DTC) signed
between the two countries, ratified by the law 1655 of 31 July 1995
applies. For this purpose, for a correct interpretation and application of
the referred DTC and with the purpose of clarifying the confusing and
inadequate criteria that have been generated to date, it is imperative to
explain the following basic concepts of international tax law.
The first basic step to implement a DTC is to establish who are the
“parties” to which applies the DTC. The answer is found in article 1 of
the DTC, which indicates that the Convention applies to parties who
are residents of one or both Contracting States. In our case DTC with
the European country establishes that it applies to individuals or legal
entities resident in one or both States.
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This brief explanation helps to understand that the DTC favors the
residence principle as a general rule, noting first that company
revenues are recorded in the country of residence. That means the
first part of paragraph 1 of article VII, which says: “the benefits of a
company in a State will only be taxable in this State”. For example, if a
European company gets revenue in Bolivia, this only can be taxed by
the European country.
The first exception to this general rule occurs when the company
performs operations in the other State through a permanent
establishment. This means that if the foreign company get these
incomes by operation of a permanent establishment located in Bolivia,
the right to tax such income belongs logically to Bolivia and no longer
to the European country.
6. CONCLUSIONS
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