The tax future of BICs

The "Benefit and Collective Interest Commercial Companies (-BIC-)" were created in Colombia through the recently issued Law 1901 of June 18, 2018. Such norm establishes that any existing or future commercial company, of any type established by law, may adopt the status of BIC for which it must include in its corporate purpose -in addition to the respective acts of commerce it intends to develop- the activities of collective benefit and interest it intends to promote.

Adopting BIC status implies the assumption of multiple obligations and burdens for the corporate entity and its administrators; They must reform their bylaws to incorporate the collective benefits and interests they intend to promote, the administrators will have a greater responsibility than in private interest companies (since they must act not only in the interest of the company they represent and its partners, but also in the interest of the collective benefit they pursue) and they must also prepare and present to the highest corporate body and to the general public -through its website- a report on the impact of the management of the respective company.

This report must be prepared based on special standards that may be modified and updated by the Superintendence of Corporations, an entity that will also be in charge of declaring the loss of BIC status when its obligations are not complied with.

Although the law is clear in its purpose (to democratize the interest of the companies in its different participants or "stakeholders" instead of continuing this only in the head of its owners), and being this a laudable purpose and very much in line with global corporate trends, the reality is that, without real incentives for this, it is unlikely that entrepreneurs will take the decision to assume more commitments and obligations than those currently involved in managing a company.

For this reason, the same law introduced, in its Article 8, a stipulation according to which "the National Government will evaluate the necessary measures so that the entities of the Executive Branch of the Public Power may promote the development of the BICs (...)".

In application of this norm, and given that the BICs are fulfilling a social function, the Government must issue a decree where they are favored in matters such as being winners in public bidding processes whenever they are tied with another company that is not a BIC, being exonerated from making payments to renew their commercial registration and being benefited with the exoneration from the payment of certain parafiscal contributions, among others.

But even more important are the tax benefits granted to them, which must necessarily be addressed in the already announced tax reform of 2018.

For this, Colombia should follow the example of other countries that have already implemented this figure. Thus, England adopted four years ago a program called "social investment tax relief" which is nothing more than a tax benefit for those who invest in BIC companies. Such benefit consists, among other things, in that 30% of the amount of such investment -if it is kept for more than three years- can be used as a deduction in their income tax, provided that certain conditions are fulfilled.