New tax normalization tax

The Financing Law (tax reform) submitted to Congress by the Government includes a "new tax normalization tax complementary to income tax and wealth tax". Throughout this paper, the particularities inherent to this tax will be analyzed.

In the first place, it should be noted that -contrary to the previous tax normalization tax- this is not only a complementary tax to the wealth tax but also to the income tax. Therefore, those who, being income tax payers, have omitted assets or non-existent liabilities for 2019, will be taxpayers of this tax. This tax will be declared and paid in a separate return to be filed on September 25, 2019.

Will be taxpayers of this tax those who have omitted assets (those that were not included in the national tax returns existing the legal obligation to do so) or inexistent liabilities (those declared in the national tax returns without a valid support "of reality or validity" with the only purpose of lessening or decreasing the tax burden of the taxpayer). However, those who have previously declared the tax normalization tax for their assets omitted abroad, and have done so at a lower value than the market value, may update their value by including the additional amounts as taxable base of the normalization tax.

The taxable base of this new tax will be the value of the historical fiscal cost (acquisition price) of the omitted assets and non-existent liabilities determined according to the rules of the Tax Statute or the commercial self-assessment established by the taxpayer with a technical support, which must correspond at least to the fiscal cost of the omitted assets. The bill establishes, as an anti-abuse measure, that "The structures that have been created with the purpose of transferring the omitted assets, under any title, to entities with tax costs substantially lower than the tax cost of the underlying assets, will not be recognized and the taxable base will be calculated based on the tax cost of the underlying assets".

Likewise, the draft law establishes that, for purposes of this new tax, foreign private interest foundations, trusts, insurance with a material savings component, investment funds or any other foreign trust business, will be assimilated to trust rights held in Colombia, and will be "subject to the new tax normalization tax". Consequently, their equity value will be determined based on article 271-1 of the Tax Statute and for the calculation of their fiscal cost the principle of fiscal transparency will be applied in reference to the underlying assets. It also indicates that when the beneficiaries are conditioned or do not have control or disposition of the assets, the declarant will be the founder, constituent or originator of the assets transferred to the foreign private interest foundation, foreign trust, insurance with a material component, investment fund or any other fiduciary business.

The above without prejudice to the quality of discretionary, revocable or irrevocable. In case of the death of the founder, constituent or originator, the illiquid succession will be the declarant of such assets. This rule contradicts all the doctrine that until now the DIAN had established in this regard, which indicated that only those who had the economic use of such assets would be obliged to declare them in Colombia, reason for which the conditional beneficiaries or without control or disposition of the assets, would not be obliged to declare them.

The project establishes that when the taxpayer normalizes its assets abroad for the market value, and effectively repatriates them to Colombia in the year 2019, with vocation of permanence in the country (understood as a period of not less than two years), the taxable base of the normalization tax will be 50% of the value of the omitted assets. This fact, together with the fact that the rate of the mentioned tax will be 13% (same rate of the tax normalization tax for the year 2017), makes its payment very attractive, as a means to clean up the irregularity of having omitted assets abroad.

Although the assets of the taxpayer that are subject to the new complementary normalization tax will have to be included in the income tax return of 2019 and the following years, such increase in assets will not give rise to the determination of taxable income by the equity comparison system, nor will it generate taxable net income in the year in which it is declared or in the previous years, nor will it generate penalties in terms of income tax, VAT, transfer pricing or exogenous information. Nor will it generate criminal action for the omission of omitted assets or nonexistent liabilities, which have been subject to the new complementary tax of tax normalization. Likewise, the extemporaneous registration before the Bank of the Republic will not generate exchange infringement and the fact of paying this tax will not imply the legalization of the resources that have illicit origin.