Farewell to ICA on dividends

The discussion as to whether the receipt of dividends is a commercial, industrial or service activity, which therefore should or should not be subject to ICA, has been going on since the early nineties. In order to justify their position, the Registries have argued that the intervention as an associate in the incorporation of companies is a commercial act (article 20 numeral 5 of the C. de Co.), and therefore the obtaining of the fruits from such act, would necessarily be income from commercial activities, taxed with the tax.

On the other hand, taxpayers who -legitimately- have refused to pay the tax, have usually argued that the receipt of dividends is not an income from an industrial, commercial or service activity, but from the simple fact -passive- of being owner, usufructuary or pledgee of some shares of a company that has distributed part of its profits among its shareholders.

This discussion gave rise to judicial rulings in multiple directions; some in favor of the Secretariats, others in favor of the taxpayers. Fortunately, since the beginning of 2011, the Council of State has drawn a clear jurisprudential line that has remained intact with the rulings that have been issued after that moment and up to date.

In this, it is indicated that dividends received from shares that the taxpayer owns as fixed assets, since they are not part of the ordinary course of business (but - on the contrary - because they are income not attributable to the occasional performance of any activity), cannot be taxed with ICA.

This line of jurisprudence has prevailed throughout this year in multiple judicial processes that the firm to which the undersigned belongs is pursuing, both in Courts and Administrative Tribunals, and in cities such as Medellin and Bogota. Such has been the forcefulness of the new judicial position that the Treasury Departments, seeing that insisting on their position would only lead to its defeat before the courts with the consequences that this entails, have opted to grant reason to the taxpayer even in governmental proceedings (i.e. before initiating the corresponding judicial process).

This triumph of reason over the tax authorities' supervisory power deserves to be studied in terms of the challenges and opportunities that arise for Colombian businessmen. Three actions can then be considered, as follows:

1) If the conditions established in the Council of State Rulings are met, cease taxation on these items. This shall be done by the taxpayer refraining from declaring the income corresponding to shares held as fixed assets as taxable income subject to the tax.

2) To inform the dividend payers, attaching for this purpose a certification from an accountant or tax auditor, that the shares that entitle the taxpayer to receive the dividend are held as fixed assets, reason for which no withholding at source for ICA may be made for any reason, if applicable, and 3) to request the refund of the unduly paid for ICA in dividends during the years in which this may be applicable.

It is worth asking... how much can the ICA that has been unduly collected by the Treasury Departments for this concept during the last ten years amount to?