Taxes and unfair competition

Until recently, there was no relationship between taxation and unfair competition. The two subjects coexisted separately and had nothing to do with each other.

In August 2016, the European Commission announced that, after a lengthy investigation, it had determined that the US company Apple had violated European State Aid Rules ("State Aid Rules") by having received undue tax advantages from Ireland and that, in so doing, it had engaged in unfair competition with other players in the market. Specifically, according to the European Commission, what Apple did was to take advantage of benefits granted by Ireland to foreign companies that were incorporated in that country and generated employment, since by doing so, they could benefit from a significant reduction in their effective tax rate.

The Commission noted that Apple, although it was covered by two Irish administrative rulings that validated its structure and tax effects, was in an irregular situation compared to its other competitors because it had achieved an effective income tax rate of 0.005%. The European Commission determined that Apple should pay 13.8 billion euros in unpaid taxes, plus interest on late payment. The case was appealed by both Apple and the Irish Government and is currently under review.

Although the case was very well known, it was not seen that its thesis was applicable in Colombia, since the rules of unfair competition are clear and restrictive and within them there would not strictly fit such an assumption, consisting of taking advantage of a tax benefit and thereby achieving a considerable competitive advantage. It would be like thinking that the companies that have been under the free zone regime were competing unfairly with those that operate in the rest of the Colombian customs territory; or that the companies that at the time were under the regime of Law 1429 had competed unfairly with those that did not have the opportunity to do so.

However, a recent ruling of the Superintendence of Industry and Commerce, in matters of unfair competition, opens a new perspective on this issue.

This proceeding was initiated by a lawsuit filed by the companies Cidegas S.A.S. and Cilgas S.A.S. (both of which manufacture and sell propane gas cylinders) against the company Comercial Industrial Nacional S.A. -Cilsa S.A.-, a company engaged in similar activities. The basis for the same is that the defendant marketed such products without VAT outside the border area, where it could do so -in a certain period of time-, by express provision of Decree 1818 of 2015, which set the transitory and exceptional tax measures arising from the economic emergency due to the closure of the border with Venezuela.

By virtue of this, the plaintiffs argued that such marketing of the products without VAT, in municipalities other than those located in the border zone, generated to the defendant a significant competitive advantage over the plaintiffs, since they could offer their products with a real price difference of 16%.

The defendant, in turn, argued that the emergency decree did allow the marketing of VAT exempt products outside the border area, and therefore its conduct did not constitute unfair competition on the grounds of violation of rules (Art. 18, Law 256 of 1996). The Superintendency, in its decision, based its decision on a test report requested to the Dian where such entity argued that, indeed, the defendant could not sell VAT exempt products outside the area delimited by the aforementioned decree, which, as it was proven, it did.

As a result of this ruling, it is clear that when a market agent infringes tax regulations, thereby obtaining a significant competitive advantage over other competitors, it incurs in the unfair competition cause known as "violation of regulations".

This becomes even more important in the understanding that free competition is a collective right, and as such enjoys preferential protection with respect to the rights considered individually.