Headquarters Audit Committee

Law 1607 of 2012 introduced Article 12-1 of the Tax Statute, which establishes the concept of national companies and entities for tax purposes, indicating that they shall be understood as such "(...) the companies and entities that during the respective taxable year or period have their effective seat of administration in the national territory". In turn, paragraphs 1 and 3 of article 12-1 of the Tax Statute provide that the effective place of administration of a company is "the place where the commercial and management decisions that are decisive and necessary to carry out the activities of the company are materially taken (...)" and that the decision regarding such determination would be made by an Audit Committee of the Dian.

Through Resolution number 00018 of March 27, 2018, the Dian created the Audit Committee for the determination of an Effective Management Headquarters. Said Committee's function, among others, is to declare the existence or non-existence of this phenomenon with respect to foreign companies or entities, which -once determined by the Dian- will be notified to the Colombian tax residents, natural or legal persons that materially make decisive commercial and management decisions necessary to carry out the activities of the company or entity, who may file the corresponding appeals for reconsideration and in subsidy of appeal before the Sectional Director, in his capacity as hierarchical superior. Once the above appeals have been resolved, the foreign corporation or entity will be registered in the RUT.

Regarding the above, it is noteworthy that the Dian -for reasons of efficiency- intends to notify an administrative act to someone who may not have the legal representation of the foreign company or entity, which could violate the right of defense of the investigated entity.

The Resolution reiterates, time and again, that the decision on the existence of the effective seat of administration is declaratory and not constitutive, which indicates that "the determination of the effective seat of administration recognizes an already existing legal effect and, therefore, has effects with respect to the periods subject to audit according to article 714 of the Tax Statute". Therefore, once such condition is declared, the Dian could practice the corresponding assessment liquidations and impose the penalties for not declaring on the past periods in which the foreign company or entity did not file its corresponding tax returns in Colombia.

Although the Dian is within its rights to create such a Committee, it is important that in the development and execution of this Committee, the rights to defense and due process that, by virtue of the law and international treaties, are equally applicable to foreigners (whether natural or legal persons) in Colombia are not violated. Investor confidence in Colombia will depend on the weighting and equanimity with which the Dian carries out its functions, and given that -according to article 683 of the Tax Statute- these must be preceded by a "relevant spirit of justice".