Principle of favorability in tax matters

With the issuance of each law with tax content, it is common for some to wonder which favorable provisions may be applicable in the same period in which the law is enacted. This discussion, based on the interpretation of Articles 338 and 363 (non-retroactivity of tax rules) of the Political Constitution, has been widely addressed in the jurisprudence of the Constitutional Court and the Council of State, generating one of the existing train wrecks in tax matters due to their antagonistic positions.

Thus, since 1996 with Ruling C-527, the Constitutional Court was forceful in interpreting the philosophy of Article 338 of the Constitution, stating that "If a rule benefits the taxpayer, avoiding an increase in the tax burden, in general, for reasons of justice and equity, it may be applied in the same period without violating Article 338 of the Constitution".

For its part, the Council of State, beginning in 1998 with judgment No. 8331, established its position under which it considers that taxes are nothing more than a duty of all citizens to contribute with the burdens of the State, therefore, it cannot be considered that a tax rule can be applied retroactively using favorability "since taxes do not constitute a punishment, nor an aggravation to the taxpayer".

Normatively we have advanced in the discussion, since the legislator through Law 1607 of 2012 and Law 1819 of 2016 introduced in the tax system the application of the principle of favorability with respect to penalties, without being able to say that the aforementioned principle is inapplicable in substantive rules. In such sense and in a pleasantly surprising manner, the Council of State (filed 11001-03-27-000-2016-00020-00) declared precautionary measure the suspension of Dian Concept No. 018128 of June 19, 2015, for considering that the Entity departed from what was stated by the Constitutional Court regarding this principle.

The above shows an important turn in the position of the Council of State, regarding the application of the law in time in tax matters and invites us to review whether for the days elapsed between the enactment of Law 1943 of 2018 (December 28, 2018) and the last day of the same taxable year, modified provisions may be applied, such as the new thin capitalization rule (currently directed only to related parties), the discount (formerly deduction) of VAT paid on the acquisition of real productive fixed assets, discount of 50% of the ICA paid in the same year 2018 (v. gr. self-withholdings, withholdings, bimonthly returns as in the case of Bogota), among others.

Finally, it is worth mentioning that although this process has no final decision, in a judgment dated November 23, 2018, the Council of State concluded that it is possible to apply the principle of favorability to legal situations not consolidated in the substantial tax law when the legislator so orders, which could be interpreted that, unless a specific date of entry into force is provided, the date on which the law itself enters into force must be considered as such.