The right upside down

1. Civil companies must keep accounting records, prepare financial statements and renew their commercial registration. Although the Code of Commerce (art. 19 n. 3) establishes that it is a duty of the merchant "to keep regular accounting of its business in accordance with legal requirements", the Central Board of Accountants, in Concept 2014-403 of 11/19/2014, established that such companies were obliged to keep accounting, to prepare financial statements and to have a statutory auditor.

The control entity reaches such conclusion after considering that the mercantile rules apply to civil companies. Apart from this, the Superintendence of Industry and Commerce, in Concept 162225 of 08/09/2014 indicated that civil companies were obliged to renew their commercial registration annually (obligation equally applicable to merchants), since they were part of the Single Business and Social Registry (RUES), which had to be permanently updated. RUES to civil companies?

2. Branches of foreign companies may "pay dividends" (sic) in kind.  The Superintendence of Companies, in Oficio 220-180473 of 04/11/2014, incurs in a conceptual error by establishing that the commercial rules on dividends are applicable to the profits remitted by branches of foreign companies to their parent companies.

Although Law 1607/2012 (last tax reform) established that, for purely tax purposes, the profit remitted by the branch of a foreign company to its parent company would have the character of a dividend (in order to tax the foreign shareholder on the income that would not have been taxed in Colombia), this does not indicate that for commercial purposes such remittance also has the character of a dividend. Notwithstanding the lapse, the conclusion benefits the foreign investor because the entity concludes that since the dividend in Colombian companies can be paid in kind (including species other than released shares), the repatriation of "dividends" (sic) by branches of foreign companies to their parent companies can also be made in that sense.

3. Shares of companies resulting from mergers or spin-offs of issuers may be disposed of with the same tax benefit as shares listed on the stock exchange.

The Ministry of Finance published, for comments, a draft decree that "regulates" article 319 of the Tax Statute (norm that regulates the tax effects of spin-offs and mergers).

The decree establishes that when mergers or spin-offs are carried out between listed companies and unlisted companies, those who were shareholders of the listed companies will keep (with respect to their shares in the resulting company), the tax benefit consisting in the fact that the profit on the sale of these will be considered as income not constituting income. Likewise, it establishes that, for those who were originally shareholders of the unlisted companies, the disposal of their shares would be subject to the traditional income tax regime. By conditioning the benefit exclusively to the fact of "being shareholders" in one or the other entity, and by not establishing that they must be shareholders in equal proportions or percentages in both entities, it is easy for the shareholder of the unlisted company to migrate from one regime to the other, since for this it would only be sufficient to acquire - in the stock exchange - a share of the issuer.