Doctrinal development of in-kind contributions

Two official pronouncements recently issued by the Superintendence of Companies have contributed to clarify the tax and corporate treatment that must be given to certain contributions in kind, as well as the way in which the value of the payment of dividends in kind must be determined when these are paid with assets other than shares of the same issuer. These are Official Notices 220-172030 and 610-002618 of 2017.

Official Letter 220-172030 establishes that although the contribution of know-how to a company is usually treated as a contribution of industry, the same may be considered as a contribution in kind when it "consists of rights over intellectual property", such as happens -in the case under consultation-, with a "package" or "operations manual" containing secret knowledge.

It indicates that, in such case, the shareholders' meeting will be the body that determines -in the exercise of its autonomy- the valuation of the contribution and the classes of shares to be issued, and that such intangible asset, in order to comply with the standards established by IAS 38, must be "an asset measurable in money (...) which has no physical substance, which does not have physical substance, and which does not have an intellectual property right". ) that has no physical substance, that can be separated, that arises from contractual or other legally recognized rights, that can be separated from the entity and sold, transferred, licensed, leased or exchanged, that is distinguishable and that can be separately controlled (...)".

This pronouncement is valuable because, as it is known, and as stated in article 319 of the Tax Statute, the tax treatment of the contribution of industry is different from that of the contribution in kind. While in the former, the contributor of industry receives an income in kind by reason of his contribution while the company issuing the shares can take such issue as a theoretical deduction, in the contribution in kind it will not be considered that there is income for the contributor or for the receiving company if certain conditions are met, One of these conditions is that the tax cost recorded in the receiving company is the same as that which the contributor had on the contributed asset (which, in the light of the latest tax reform, and for the purposes of the intangibles formed, will be equivalent to zero pesos in the case of taxpayers obliged to keep accounting records).

Thus, although it is a pronouncement of a control body different from the DIAN, the mentioned Official Letter allows to classify the contribution of know-how as a contribution in kind or of industry, depending on whether the industrial or professional secret that is transferred through the same is dominated by the activity or obligation to do (in which case it will be treated as a contribution of industry) or its intellectual property content (in which case it will be treated as a contribution in kind).

For its part, Official Letter 610-002618 of 2017, when answering the question of how the value of the payment of dividends in kind should be determined when these are paid with assets other than the shares of the same issuer (i.e., with the issuer's own assets other than its own shares), indicated that "with regard to the determination of the value of the species that are delivered by way of dividend it is considered that, by analogy, the same rules applicable for the appraisal of contributions in kind should be followed".

Thus, according to articles 126 and 132 of the Code of Commerce, the contributions in kind must be estimated "at a determined commercial value", which must be "duly substantiated" and approved by a simple majority of the votes of the shareholders present at the meeting (article 68 of Law 222 of 1995). Thus, it is clear that it will be up to the shareholders' meeting, by simple majority, to fix the value of the assets to be paid in kind as dividends, always based on commercial criteria.