BAKER & MCKENZIE

Latin American Legal Developments Bulletin Vol. 5; No. 3

VENEZUELA

Municipal Taxes

Constitutionality and Transient Taxpayers

When the original draft of NOM-050 was published, some were concerned that the original labels of products would have to contain the minimum information in Spanish. If so, the use of counterlabels (stickers), which had become a common practice, would no longer be permitted. As finally enacted, NOM-050 permits counterlabels. However, in our experience, most significant importers are preparing original packaging in Spanish, in part for marketing reasons, but also to avoid difficulties with Mexican Customs, and to be prepared if amendments to NOM-050 prohibit the use of counterlabels.

This article is adapted from one originally published in CCH Mexico Law & Business Report, Vol. 1, Issue 2 (April 1997).

The transient taxpayer, as referred to in many municipal business tax ordinances, provides an example of unconstitutional taxation.

Traditionally it has been understood that, for a municipality to be justified in collecting municipal business tax, the taxpayer had to be physically present in the municipality. Physical presence for this purpose meant having either an industrial plant or a commercial establishment located in the municipality. The Supreme Court emphasized this requirement in various decisions. In one such decision, rendered on August 5,1976 (the Diego Ventura case), the court stated: "More important than the destination of the merchandise sold ... for purposes of levying the municipal business tax, is the location of the commercial establishment of the taxpayer, that being where it performs this activity."

In a similar decision, the Superior Court of the Western Region on January 14,1985, concluded that the determining factor justifying collection of municipal taxes is the location of the taxpayer's commercial facilities, where the commercial activity is performed, and not the destination of the merchandise sold or the situs of other activities. This decision was based on an opinion issued on September 10, 1984, by the Attorney General, which also stated that the determining factor justifying the imposition of municipal taxes is the location of the commercial facility where the commercial activities are carried out. The opinion further stated that such activities cannot be taxed by a municipality where the taxpayer has no branch, agency, or office.

In March, 1986, in the Ensambladora Carabobo case, the Supreme Court again confirmed that jurisdiction to collect municipal tax requires the taxpayer's physical presence, in the form of a permanent establishment in the municipality. The Political-Administrative Chamber of the Court in 1988, in the Diego Ventura case, established the requirement that, in order for municipal tax to be levied, two concurrent conditions must exist: sales generated and the existence of a permanent establishment in the municipality.

The concept emphasized was that the performance of commercial or industrial activities within a municipality requires that a fixed or permanent establishment already exist. This is consistent with the fact that, in order to operate in a municipality, a series of requirements and formalities must be satisfied to obtain an operating permit, the permit being none other than the municipal business license. If we analyze the requirements for obtaining the license, we see that they are inextricably linked to the notion of residence or permanency within a municipality (for example, compliance with zoning regulations, and the duty to display the license in a visible place in the establishment, among others).

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