Reversal of the burden of proof in collaboration contracts

The Council of State, in a judgment dated August 2, 2017 (Rad. 20701 C.P. Jorge Octavio Ramírez), established that if the tax administration finds -in the framework of an audit process- "elements of judgment that allow it to infer that a contract, which in appearance corresponds to that of business collaboration, in reality, concerns one of provision of services, the burden of proof is reversed and it corresponds to the taxpayer to prove the contractual reality". This reversal of the burden of proof, in view of the strong evidence against the taxpayer, has its origin in the jurisprudential line drawn in the judgments of September 15, 2016 (Rad. 20555, C.P. Jorge Octavio Ramírez), March 13, 2003 (Rad. 12946 C.P. María Inés Ortiz) and August 13, 2015 (Rad. 20822 C.P. Martha Teresa Briceño).

In the case under study, two accounting and auditing services companies entered into a contract called "Business Collaboration Contract", which had as its purpose "the provision of accounting advisory and consulting services, (...) in order to achieve growth in the domestic market and positioning in the provision of services offered by the two companies". Within such contract a clause called "Participation and payment" was established in which it was agreed that the hidden participant would receive, by way of participation on operational profits generated in the mentioned contract, the amount of $415'000,000 liquidated at the termination of the contract.

The Administration questioned that, without knowing the profits that the company would generate as of December 31, 2007, a value in favor of the inactive participant had been established in advance. Against this, the taxpayer indicated that such amount did not correspond to a price agreed between the companies (and therefore was not established as an unchangeable obligation) but corresponded to a maximum amount that the hidden participant could receive as profit sharing.

After analyzing the case, the high Corporation indicated that agreeing on a fixed amount as a participation in operating profits contrasts with "the distribution or division (sic) of profits or losses among the participants, as provided for in Article 507 of the Code of Commerce". It then indicated that the agreement to pay a determined sum cannot be assimilated to a distribution of profits or losses, but, on the contrary, this agreement would be assimilated more to a remuneration agreement for services rendered.

The Council of State concluded in this ruling that "it is not mandatory for the Administration to unconditionally accept the appearance of the contracts signed by the taxpayers, when from the evidence provided in the administrative proceeding it appears that, in reality, the agreement of the parties corresponds to a contract different from the one indicated by the taxpayer. The plaintiff did not refute the arguments taken into account by the administration to conclude that the agreement between the parties corresponds to a contract for the provision of services; therefore, since the invoice supporting the disbursement claimed by the taxpayer was not presented, the rejection of the amount of $415,000,000 was appropriate".