The Social Investment Law, adopted through Law 2155 of 2021, considered once again in Colombia, the complementary fiscal normalisation tax. This tax will apply for taxable year 2022 and temporarily modifies the regime provided for in the Article 239-1 of the Colombian Tax Code (CTC), a rule that constitutes a penalty for those taxpayers who have omitted assets or have include non-existent liabilities, in tax returns that are no longer aimed to be corrected and/or checked by the tax authorities.
The tax is caused by the possession of omitted assets or non-existent liabilities as of January 1 2022, and intends to correct such inconsistencies. This will be done by filing an autonomous return in which a tax equivalent to 17% of the value of the omitted assets or existing liabilities is settled, which in practice is a huge benefit given that, compared to the ordinary scheme, it pays 18% less than the income rate, taking into account that the income tax for 2022 will be 35%.
This rule is not new. In previous tax reforms this patrimonial reorganisation mechanism had already been considered in Law 1739 of 2014, 1943 of 2018 and 2010 of 2019.
In all these opportunities it has had constitutional claims, insofar as it has been considered that it would be a tax amnesty that does not meet the requirements to be validly issued as a transitory measure, breaking principles of equality, equity and good faith. However, the Constitutional Court, as the highest protective body of the Colombian Political Constitution, has stepped up and has maintained these provisions, noting among other reasons, that the rule is inspired by legitimate and constitutionally important and imperative purposes, aimed at obtaining resources necessary for the Social and Democratic State of Law, which ultimately improves the efficiency of the tax system (judgment No. C.551 of 2015 of the Colombian Constitutional Court).
The exceptionality and transitory nature, borne in 2014, is undoubtedly today blurred by the systematic and repeated regulation, so in this way it is even possible that upon a new constitutional control, the court may draw conclusions different from those existing until now and even withdraw the measure.
Beyond the constitutional discussion of the issue, we find a second scope of the provision and it is the possibility of adjusting under this same complementary tax, the value of the assets that, to date, have already been cleaned up under the three previous normalisations.
This faculty does not correspond to a transitory modification of Article 239-1 CTC, which allows the taxpayer to declare as net taxable income, the value of the omitted assets and/or non-existent liabilities originated in non-reviewable periods, in such a manner that when such assets or liabilities are detected by the administration within a tax review process or when the taxpayer includes them in their tax returns, without declaring them as liquid income, they will be treated as taxable liquid income and the corresponding penalty will be applied for inaccuracy.
It is a condition for the application of Article 239-1 CTC, the existence of a total omission of asset or total inclusion of the liability, without it being understood as an omission of assets capable of being added as liquid taxable income, the declaration of assets by a lower value, as the Tax Court, the highest body of the contentious-administrative jurisdiction, has recently indicated in judgment No. 24856 of August 12 2021.
In this way, this faculty of cleaning up assets is not a transitory exception to the determination of the special liquid income contemplated in Article 239-1 CTC, but a rule of patrimonial adjustment that will allow advance planning schemes to adjust the value of the assets that are intended to be sold, with the aim of adjusting the cost and reduce the profit in the operation, which could constitute the basis for determining the profitability or occasional profit.
Perhaps the most questionable thing about the provision, is that there are no reasons to reserve this measure exclusively for those who have availed themselves to standardisation measures in previous years, since there is no difference between whether the asset declared for a lower value has been declared in a normalisation tax return or has been declared as income tax but for a lower value, discrimination that breaks the principle of equality.
Finally, it should be noted that this benefit has a tax nature and does not imply the legalisation of illegal assets.
Ana María Barbosa
Associate partner, EY
