Since being elected President of Venezuela in
November, 1998, Hugo Chávez has transformed Venezuela’s political
configuration. The culmination of 1999, "the year of politics," was
the adoption of the Constitution of the Fifth Venezuelan Republic by the
Venezuelan people, in a plebiscite held December 15. The following report
comments on the most significant topics and innovations of the new Constitution,
published December 30, 1999 in the Official Gazette Nº 36,860 (the
"Constitution"), and effective as of that date.
Title of the State:
The name of the country has been
changed to "República Bolivariana de Venezuela." Consequently, all
registries, titles, authorizations, concessions and contracts must adopt this
name when referring to Venezuela. Similarly, the currency must also adopt the
name "República Bolivariana de Venezuela." Early in January 2000, a
prominent member of the Constituent Assembly initiated the procedure to revise
this name change by plebiscite.
Social Rights and Economic Rights:
National adoption of children is
preferred to international adoption, although international adoption has
historically predominated. A controversial article protects the mother from the
conception of the child, thereby arguably allowing for the legalization of
abortion.
Although dual citizenship was expressly
prohibited in the previous constitution, the new Constitution refers to that
subject in vague terms. This has been interpreted by some as favourable towards
dual citizenship.
Extradition of Venezuelan citizens to foreign
countries is generally prohibited without reference to types of felonies.
The Constitution provides for the equality and
equity of men and women in the employment relationship, and expressly includes
certain labour principles such as prevalence of substance over form, and
non-waivability of labour benefits. The employer may not provide terms of
employment less favourable than those stipulated in the Constitution, but may
provide better terms.
The work week is set at a maximum of 44 hours
per week for day shifts, and a maximum of 35 hours per week for night shifts.
Overtime may not be imposed against the employee’s will. Every individual has
the right to social security, administered by the government on a non-profit
basis. If salaries and seniority are not paid at the end of the labour
relationship, they are subject to monetary correction that reflects inflation as
established by the Supreme Court of Justice. Salaries are not seizable, except
for family obligations. Salaries should also be adjusted annually taking into
consideration an index of consumer products (cesta básica).1
The Organic Labour Law will be amended, so seniority
will be paid according to final salary. Although this significantly favours
employees, it may result in reduced hiring by employers. Claims for seniority
benefits will have a limitation period of 10 years, as opposed to the current
statute of limitations of one year. Additionally, an Organic Labour
Procedures Law will be enacted and will guarantee an autonomous and
specialized labour regulatory agency.
Economic freedom, protection of private property and
prohibition of monopolies are maintained. However, protection of private
property is strengthened, and rules for expropriation are stricter and oblige
the government to provide timely fair payment to owners of expropriated lands,
after a final court decision declaring the property to be a public utility and
of social interest. The emphasis on timely fair payment is to avoid the effects
of inflation. Economic felonies, such as illicit speculation and usury, shall be
punished severely by the law. Consumers’ interests shall be defended, and the
quality of services shall be guaranteed.
Indigenous Peoples: The
recognition of the indigenous communities and territories is a fundamental
change from the 1961 Constitution, which failed to establish any protection or
rights. This has been a passionately contested issue, as some regard this
recognition as creating states within a state and therefore, an attack on
Venezuela’s internal unity. The Constitution recognizes the existence of
indigenous communities; their social, political and economical organization, as
well as their customs, languages, religions and habitat. The State guarantees
common property rights in the ancestral lands required for the preservation of
their lifestyle. These lands are not subject to sale, acquisition through
adverse possession, attachment or transfer. This provision may affect economic
activities, such as the exploitation of hydrocarbons in indigenous environments.
Environmental Rights: The
Constitution creates an obligation to conduct an environmental study for all
activities that may harm the environment. In all agreements or permits signed or
granted by the State involving natural resources, a clause mandating the
protection of the environment and its recovery in the event of damages is deemed
included, even if not expressly established. It is likely that the Ministry of
Environment will pass resolutions pertaining to additional permits or
environmental studies to be obtained or performed by the investors.
Obligations of the State: The
State is liable for damages suffered by individuals due to its acts, omissions
and functions. Contracts of national interest (essentially those to which the
State is a party) are to be approved by the . The exceptions to the
congressional approval that existed under the 1961 Constitution (i.e. contracts
of public interest needed for the normal development of the public
administration or those permitted by law) are no longer applicable. In contracts
of public interest, as in the 1961 Constitution, there would be an implied
clause subjecting the contract to Venezuelan law, and any arising controversies
to the jurisdiction of Venezuelan courts; however, some exceptions are
available.
Divisions of Government]: The
administration of the nation is divided into three levels of government:
national, state and municipal. In turn, the national government is comprised of
the legislative branch, the executive branch, the judiciary, the citizen branch,
and the electoral branch. The citizen branch is new and effectively is what
would be called an ombudsman in North America.
National Government: The
legislative branch of the national government is represented by the National
Assembly (formerly known as Congress). The Constitution eliminates the Senate
and modifies the former bicameral division of Congress. Essentially,
the National Assembly will have the same powers of the
former Congress. The process for the enactment of laws however, has been
significantly improved and reduced, as all bills will only be subject to two
readings in the unicameral National Assembly. Additionally, referenda may be
introduced to consult the people on draft laws and treaties, and possibly to
recall public officials and representatives.
The presidential term has been increased to six years and the
President is eligible for immediate re-election for one additional presidential
term. The powers of the President have increased as the Constitution allows the
National Assembly to authorize the President, through an enabling law, to
legislate on any subject or area. Furthermore, the President has the power to
dissolve the National Assembly if the latter decides, through a censure vote, on
three occasions in the same constitutional period, to remove the Vice President
appointed by the President. However, the National Assembly may not be dissolved
during the last year of a constitutional period.
The Constitution creates the figure of the Vice President as
the closest collaborator of the President in several matters, and as substitute
in case of a temporary absence or when an indefinite absence occurs within the
last two years of the constitutional period.
The national government may pass a series of laws to
coordinate all national, state and municipal tax powers, and to limit or
regulate state and municipal taxes. The national government may also create
territorial taxes on rural property and on sales of real estate properties.
These taxes will be collected and controlled by the municipalities.
Municipal Government: The figure of the mayor is
expressly included in the Constitution, and his/her term of office is increased
to four years. The powers of the municipalities are expanded so as to grant
constitutional level to some tax powers already recognized under the Organic
Municipal Regime Law. Double taxation between municipal and national
authorities of hydrocarbon revenue is addressed by codifying the Supreme Court
decision of August 17, 1999 exempting hydrocarbon exploitation from municipal
taxation.
The Municipal Business Licence Tax is extended to include
service activities along with the traditional commercial and industrial
activities. However, the Constitution expressly states that power of the
municipalities to levy the municipal Business Licence Tax is subject to the
limitations established in the Constitution. The powers of the municipalities
contained in the Constitution are independent and autonomous from the powers of
the national or state governments.
Economic Regime: The
Constitution establishes that economic activities are subject to certain free
market and protectionist guidelines, such as free competition, efficiency and
productivity considerations; and social justice and national economic
sovereignty requirements. The State may reserve the rights to all industries,
services and goods of public interest and strategic nature, by means of an
organic law passed by the National Assembly. Historically, the State has
reserved the rights to such industries as oil and gas, mining, electricity and
telecommunications. Consequently, private investors may only perform reserved
activities through concessions, permits, or authorizations granted by, or
agreements entered into with, the State.
The Constitution maintains that the State will be the sole
shareholder of Petróleos de Venezuela, S.A. (PDVSA), and PDVSA shares will not
be sold or transferred to third parties. However, the possibility of sale of all
or part of the shares owned by PDVSA in its subsidiaries, strategic
associations, or companies is permitted. Such circumstances would present a
unique opportunity for investors to participate in the Venezuelan oil industry.
The reference in the Constitution to association agreements, recently upheld in
the aforementioned Supreme Court decision, is an especially significant
declaration in favour of the validity of these kinds of agreements under
Venezuelan law.
Foreign investments are in principle treated equally to
national investments; however, it is expressly established that foreign
investors may not receive terms more favourable than national investors. Foreign
investments are subject to certain specific cases of differentiated treatment
that include:
(i) registration and notice requirements under Decisions Nº
291 and 292 of the Commission of Cartegena Agreement and their regulations under
Decree Nº 2095;
(ii) national preference considerations under laws such as the
Organic Law on Gas Hydrocarbons;
(iii) incentives applicable only to national investments under
the Law for the Promotion and Protection of Investments; and
(iv) the use by the State of commercial policies to defend the
economic activities of national companies under the Constitution.
We believe that international treaties for the promotion and
protection of investments signed and ratified by Venezuela and foreign states
will therefore play an important role in this context.
Taxation: The
taxation system must promote fair distribution of the public burdens according
to the economic status of the taxpayers, and should take into consideration the
principle of progressiveness, the protection of the national economy, and the
improvement of the standard of living of the people. This establishes the basis
for verifying income tax rates and exemptions to the national income tax and
value added tax.
The State may only collect taxes, levies, or contributions
previously set and regulated by law. Similarly, taxpayers will only be entitled
to claim those tax exemptions and benefits set and regulated by law. No tax
shall have a confiscating effect or shall be payable through personal services.
This principle has been included to some extent in the Law for the Promotion
and Protection of Investments. Such provision could be used in the future by
taxpayers to challenge aggressive tax rates imposed by municipalities for their
Business Licence Tax.
The National Assembly is to substantially amend the Organic
Tax Code before the end of the year 2000 so that:
(i) tax laws and rules will be interpreted in light of
"substance-over-form;"
(ii) exceptions to the principle of non-retroactivity of law
will be eliminated, and as a result, tax law changes more favourable to tax
payers will be inapplicable to situations that occurred prior to the enactments
of those laws;
(iii) the statute of limitations for actions concerning
serious tax crimes will be eliminated, and consequently, perpetual
responsibility for crimes and penalties will be created;
(iv) penalties against advisors, law firms, independent
auditors and other professionals assisting in tax crimes will be included;
(v) penalties against tax evasion crimes will be significantly
increased; and
(vi) penalties against tax crimes will be enforceable against
the personal assets of directors and advisors taking part.
by Rubén Eduardo Luján and María Isabel
Fleury García