Harvest Natural Resources, Inc. has announced that its 80 percent owned affiliate, Harvest Vinccler, C.A. (HVCA), received a final assessment for 2001 through 2004 of 120 billion Venezuelan bolivars, or approximately $56 million, for additional taxes and related interest from the SENIAT, the Venezuelan income tax authority. HNR's 80 percent share of the final assessment is approximately $45 million. Previously, the SENIAT had issued a preliminary tax assessment against HVCA for years 2001 through 2004 of 202 billion Venezuelan bolivars, or approximately $94 million. During 2005, HVCA paid 11.3 billion Venezuelan bolivars, or $5.3 million, with respect to two items in the preliminary tax assessment.
HVCA took a charge in the 2006 second quarter of $43 million for the estimated impact of the resolution of 2001 through 2004 tax issues and an additional $18 million for increased taxes and interest for 2005 and 2006. The charge was based on a negotiated agreement between HVCA and the SENIAT as announced by Jose Joaquin Cedillo, Capital Regional Manager of Special Taxes, of the SENIAT on July 28th and confirmed by a further August 29th SENIAT announcement. In taking the charge in the second quarter, HVCA relied on these pronouncements by the SENIAT, but the $56 million final assessment for 2001 through 2004 exceeds the $43 million that formed the basis of the formerly negotiated agreement by approximately $13 million. The additional taxes for 2001 through 2006 were primarily due to retroactive tax rate increases imposed by the Venezuelan government.
Harvest President and Chief Executive Officer, James A. Edmiston, said, "We are extremely disappointed that the SENIAT did not honor the agreement reached in July after several months of negotiation. We will continue to pursue with the SENIAT, as best we can, resolution all tax matters from 2001 to 2005 and will communicate the results in due course. Resolution of these tax issues is a necessary step in the transition of HVCA's operations to a mixed company."