The Tax Amnesty under the New Colombian Tax Bill
Written by Monica Reyes and Andrea Catalina Nieto
Posted: 11th September 2013 09:28Customarily, the tax reforms that are implemented as part of the fiscal policies of each government in Colombia include tax “amnesties” to incentive taxpayers to comply with obligations that the tax authorities find difficult to enforce, in order to increase the collection of revenues by offering the exclusion from penalties and delayed payment interest.
Such is the case of the specific regulations on the declaration of assets that have been omitted before, or on the exclusion of inexistent liabilities that have been declared prior to the issuance of Law 1607 of 2012. The scope of the “amnesty” under the new Colombian Tax Bill, however, must be carefully analyzed as it includes various characteristics that may make it far more onerous than originally intended, or than it preliminarily appears:
a) The amnesty covers assets that were omitted or inexistent liabilities that were declared during taxable years that are covered by the Statute of Limitations on Income Tax Declarations. In consequence, it does not cover any assets or liabilities originating after January 1st. 2011, or in any prior periods that are not covered by the Statute of Limitations, because for example, the corresponding tax return includes a credit balance.
It is important to note, that if a taxpayer was to file a tax return for year 2012 and apply for the amnesty, without making sure that prior tax returns are covered by the Statute of Limitations, the Colombian Tax Administration (“Dirección de Impuestos y Aduanas Nacionales,” DIAN “) may still assess penalties and interest on the inclusion of the same assets or the exclusion of the mentioned liabilities, when the latter have originated in years prior to 2011 or in 2011.
b) Omitted assets and inexistent liabilities may be reported as capital gains in the tax returns for years 2012 y 2013 or in any amendments of the mentioned returns, that increase the tax due or diminish the credit balance. However, it is important to note that while capital gains are subject to a 33% tax rate in the declarations for year 2012, the capital gains tax for year 2013 will apply at 10%.
c) If the Colombian tax authorities verify that the taxpayer did not include all omitted assets or did not exclude all inexistent liabilities that were reported prior to the Tax Amnesties, the value of all the assets and liabilities that was detected upon application for the Tax Amnisty will be subject to income tax at 25% and to inexactitude penalties applying at 160%.
d) The amnesty will apply inaslong as no income tax assessment on the same tax returns, has been proposed prior to December 26th. 2012 by the Colombian Tax Authorities.
e) In case the tax amnesty is invalidated, the corresponding transactions will also be subject to Exchange Control penalties applying as high as 200% of the value of the transaction. In any case, if the assets that have not been declared are to be transferred into Colombia, the transference of the mentioned assets must comply with all the formalities established by the Exchange Control regulations in force at present.
In addition to the above, the following risks are to be taken into account when deciding to apply for the Tax Amnesty under Law 1607, 2012:
- The problem derives from the fact that the provisions establishing the tax benefits under the amnesty did not include any reference to the Net Equity taxes that were temporarily consecrated in two different opportunities by Laws 1111, 2006 and 1370, 2009. While the provisions establishing the amnesty referr to “ Income and Complementary taxes”, the 2006 and 2009 Net Equity Taxes, have been qualified as “autonomous taxes” and not complementary to the Colombian income tax by the oficial doctrine.
- When applying for the Tax Amnesty, the beneficiaries would be reporting assets that were omitted or inexistent liabilities that reduce the value of the taxpayers´net assets and consequently the taxable basis for the Net Equity taxes, in case the beneficiary was subject to said taxes, or reduce the minimum taxable basis, in case the beneficiary´s assets did not amount to the minimum covered by the Equity taxes in each case.
In principle, the Tax Authorities would be entitled to reassess the Net Equity Taxes on the basis of the assets or liabilities included or excluded in application of the Amnesty Regulations. No legal provision would prevent the tax officers from collecting the mentioned taxes.
The following considerations have to be taken into account when evaluating the risk:
Temporary Net Equity Taxes have been imposed twice:
- Law 1111, 2006 created an Equity Tax accruing on assets held as of 1st. of January 2007. This law did not establish that the tax was complementary to income tax and doctrine by DIAN has reiterated that the nature of this levy is an autonomous tax.
- The tax accruing as of January 1st. 2007 had to be declared from 2007 to 2010, independently for each year, and the Statute for Limitations for taxpayers that did not file a Net Equity Tax Return when they were obliged to do so, will not apply for 5 years following 2007, 2008, 2009 and 2010 . So that the only tax return that is not open to revision at present, in case of taxpayers that did not declare, is the Net Equity Tax Return for 2007.
- Law 1370 of 2009 established a Net Equity Tax that accrued on assets held on January 1st.2011 and had to be declared in that year and paid in equal instalments during years 2011, 2012, 2013 and 2014. The Statute of Limitations for taxpayers that were obliged to file a Net Equity Tax return and did not comply, will not apply during the five years following 2011 which means that this tax is open to assessment by the Colombian tax authorities until year 2016.
- The Statute of Limitations for taxpayers that filed Net Equity tax returns but omitted assets or included inexistent liabilities , does not apply for the two years following the date of filing the declaration. Those taxpayers should not worry as the faculties to revise the tax returns have already prescribed for the Colombian tax authorities.
The evaluation of the mentioned contingencies must be made under the light of the Tax Amnesty established by the Colombian Tax Bill, which in principle has been consecrated in good faith, and taking into consideration that the Colombian Tax Authorities have not issued any statement regarding the fact that the law did not contemplate any exclusion for the obligations deriving from the Net Equity Taxes.
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She obtained a major in law from Universidad Colegio Mayor de Nuestra Señora del Rosario (“El Rosario”), and specialised in taxes in the same university. She attended LLM courses in economic law in London School of Economics and obtained a diploma on International Tax Law at the Kennedy University in Switzerland. She can be contacted via email at firstname.lastname@example.org and phone at +571 620 78 70 – 620 78 72
Andrea Nieto is a Lawyer graduated from Universidad “Colegio Mayor de Nuestra Señora del Rosario”, and specialised in tax and financial law in the same university. As a member of the Tax Law Team in Reyes Abogados Asociados she provides advise in Fiscal Planning and taxes.
She has worked in law firms in the areas of contract law, administrative law, administrative procedure and contract and tort liability. She can be contacted via email at email@example.com and phone at +571 620 78 70 – 620 78 72.