Taxes in Colombia and the new Kelsen pyramid

The first thing they teach students in law schools during the first semester of their studies is the famous Kelsen pyramid. According to this pyramid, certain norms have a higher hierarchy than others, and those of lower hierarchy cannot (due to the principle of legality) exceed what is established by the higher ones. At the top of the pyramid is Supranational Law, followed by the Political Constitution and the block of constitutionality (international human rights treaties), other international treaties, the Law, normative acts of the executive power (decrees), jurisprudence, doctrine and then custom and administrative precedents.

Curiously, in tax matters, a new Kelsen's pyramid has been developing, in which the Dian and the Ministry of Finance, through the issuance of concepts (the former), decrees to correct errors (the latter) and regulatory decrees, try to exceed the scope of the Law itself, thus creating -without any debate- an extension to the Tax Reform, which violates the principle of legality. Since in Colombia administrative acts of a general nature are presumed legal until they are declared null and void, the titanic burden is transferred to the taxpayer to advance the whole process of nullity before the Council of State and, while this happens, the rule is applied.

As an example of the above, we can cite Oficios 4884 of February 24, 2017, and 461 of March 13, 2017, as well as the draft decree of correction of errors that was subject to public comments and will be issued soon.

Through Oficio 4884 of February 24, 2017, the Dian (without being asked by anyone) interpreted that income not constituting income imputable to the work certificate was considered "[T]he payments made by the employers in favor of third parties, for food for the worker or his family, or for the supply of food for them in their own or third party restaurants, as well as the payments for the purchase of vouchers or tickets for the acquisition of food for the worker or his family (Article 387-1 E. T.)".  It turns out that such article 387-1 of the Tax Statute, far from establishing that such payments constitute an income not constituting income for the worker, expressly indicates that such payments "do not constitute income for the worker but for the third party that supplies the food or provides the restaurant service (...)". The Dian is well aware that it is not the same that an inflow of resources is not considered as an income, than that it is considered as an income not constituting income, because while the former (not being income) does not have to be declared, the latter must be declared and then subtracted in the purification of the income. This distinction is fundamental at the time of determining which persons are obliged to file income tax returns for complying with the annual income ceiling.

In Oficio 461 of March 13, 2017, the Dian stated that the VAT exclusion for the supply services of web pages, servers (hosting), cloud computing and remote maintenance of programs and equipment "is subject to regulation by the Ministry of Finance and Public Credit in conjunction with the Directorate of National Taxes and Customs (Dian). Therefore, the possibility of making effective the exclusion referred to in the new numerals incorporated to article 476 by law 1819 of 2016 (numerals 23 to 25) is subject to what is indicated by the National Government". Thus, according to the Dian, these services referred to above are taxed with VAT, which is in direct contradiction with what was stated in this regard in the tax reform, because although the exclusion of VAT on virtual education services and the acquisition of software licenses for the commercial development of digital content (established in paragraphs 23 and 25 of article 476 of the E. T.) is subject to the regulations issued by the Ministry of ICT, the services initially mentioned (established in number 24 of article 476 of the E.T.) are not subject to such regulations, therefore it cannot be interpreted that to date they are taxed with VAT.

Finally, through a draft decree for the correction of errors, the Ministry of Finance intends to amend the calligraphic and typographical errors of the Tax Reform, but, using these powers, it also takes advantage of the opportunity to change substantive matters of the same. Thus, for example, it shortens the term of five (5) years brought by the Tax Reform for the Dian to issue the provisional liquidation, to a new term of three (3) years, under the pretext that a later regulation established such term.

Tax regulations are discussed, debated and approved by the Congress, as the highest body of the legislative power. Just as individuals cannot modify their scope, neither can the executive branch through administrative acts. This is clear, since both are opposing parties in the legal-tax relationship. For this purpose, the Constitutional Court exists, which -at the request of any of the parties- is empowered to issue modulating, interpretative, integrating and substantive judgments, thus filling any gap or interpretation that may be necessary.