1. Acts subject to 0% VAT rate
Article 33 of the LISH provides that acts or activities that cause VAT for which Considerations set forth in the Contracts for Exploration and Extraction of Hydrocarbons must be paid, shall be subject to the 0% rate for purposes of such tax.
This means that the several considerations that must be paid under such Contracts shall be subject to 0% rate. As a matter of fact, let us be reminded that pursuant to the provisions set forth in Article Transitory Fourth of the Decree for constitutional reform of the Energy Reform, and the LH and the LISH, provide the following regime for contractual considerations:
- In cash, for Service Contracts.
- A percentage of the profits, for Contracts of Shared Profits.
- A percentage of production obtained, for Contracts of Shared Production.
- Transfer of Hydrocarbons for money, once these have been extracted from the subsoil, for License Contracts.
- Hybrids, that is, any combination of the above-mentioned.
This way, payment of the above-mentioned considerations shall be taxed with 0% rate, which will regularly create a favorable balance for Contractors of this tax. This is such considering that they may credit all of the VAT that is transferred to them by their suppliers of goods and services against VAT caused at the 0% rate in connection with payment of their respective considerations. Such situation is increased if we consider Contractors have the exclusive activities of participating in upstream projects, and are not entitled to receive ordinary income for any other kind of activities.
The above-mentioned 0% rate regime shall not be applicable to any other kind of Contracts or transactions executed with third parties that take part in the Contracts for Exploration and Extraction of Hydrocarbons.
2. Determination of VAT by members of consortia
We have said that private parties and EPE make take part in Exploration and Extraction operations of Hydrocarbons individually, by consortia or by a Joint Venture agreement. Regarding individual participation and by consortium, the LISH provides specific regimes on Income Tax matters; however, such legal body fails to establish any rule on VAT, which implies that taxpayers must follow the rules set forth in the LIVA, its Regulations and other applicable provisions, to determine and pay this tax.
Notwithstanding the above, Rule 10.2 of the RMF 2015 contains the following special rules applicable to participation in Exploration and Extraction operations of Hydrocarbons by consortium:
- Members of the consortium may credit, individually, the corresponding proportional part of creditable VAT. To apply the above, it is essential that the operator issues a tax document covering the amount of the corresponding proportional part for each of the members, complying with the requirements set forth in the applicable legal provisions.
- In the case of rendering services, the amounts received by the operator to make expenses on behalf of the members of the consortium shall not be considered as a value to determine the VAT base, provided such amounts are backed by tax documents issued by the operators to each of the members of the consortium.
- The operator may only credit the proportional VAT part that corresponds to it, based on its participation in the consortium.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.