Accounting Criteria for Determination of Fair Prices
Administrative Ruling No. 003/2014, issued by the National Superintendence for the Defense of Socioeconomic Rights (“SUNDDE”), was published in Official Gazette No. 40,351 of February 7, 2014. Said Ruling sets the accounting criteria for determination of fair prices. The Ruling prescribes the general accounting criteria that the individuals/entities subject to the application of the Organic Law on Fair Prices have to use for adapting their cost structures, in order to determine fair prices. The application criteria established by the Ruling are the cost calculation formulas set forth in the Generally Accepted Accounting Principles of Venezuela.
The Ruling establishes the criteria to be obligatorily complied with in the accounting of the individuals/entities subject to the application of the Law, which include the following:
a) Production costs include: (i) purchase costs of materials and raw materials; and (ii) conversion or transformation costs, provided that they are necessary to take the product or service to the condition of finished or provided and that they comply with the transfer pricing regulation.
b) Costs of conversion or transformation, direct labor, fixed (based on the normal working capacity of the means of production), variable (based on the actual level of use of the means of production) and mixed (with fixed and variable portion) indirect production costs are part of the costs.
c) Indirect costs must be reasonable with respect to the cost structure and those that do not contribute to take the products or services to their condition of finished or provided are excluded.
d) The necessary values under normal efficiency conditions will be the only values recognized as part of the production costs; any waste or abnormal use of factors of production is excluded.
e) Expenses unconnected with production (such as administrative, reimbursable, advertising and sales expenses, among others) are incorporated into the cost structure, up to a maximum of 12.5% of the production cost, provided that they are made in the country, accrued in the fiscal year, and normal and necessary for the performance of core operations.
f) When the production generates products and subproducts and their respective costs are not identifiable, the cost will be distributed by using uniform and rational bases.
g) When costs may not be assigned to each article, the following final stock selection methods are applied: (i) First-in First-out, or (ii) Weighted Average Cost.
h) The following are expressly excluded from the production costs: abnormal amounts of materials waste, labor and other production costs, storage costs (except if necessary for the production process), distribution expenses (except if the individual/entity subject to the application of the law carries out the distribution himself/itself), taxes, donations, and other expenditure, in the SUNDDE’s judgment. Regarding the value added tax (“VAT”), it will be excluded from the production costs when it may be recovered or transferred under the relevant law.
As to the profit margin, the Ruling establishes that the limit of the Law is to be observed. Such limit is 30 percentage points of the cost structure.
In order to access the Ruling, please click here.
“NOTE: THIS INFORMATION SHOULD NOT BE CONSTRUED AS LEGAL ADVICE ON ANY SPECIFIC MATTER AND ITS CONTENT ARE INTENDED AS A MANAGEMENT ALERT AS TO CURRENT DEVELOPMENTS IN VENEZUELA, ANY SPECIFIC LEGAL QUESTIONS REGARDING THE POSSIBLE APPLICATION OF NEW OR PROPOSED LEGISLATION TO PARTICULAR SITUATIONS SHOULD BE ADDRESSED TO TRAVIESO EVANS ARRIA RENGEL & PAZ.”