Tax benefits of BICs: in danger of extinction

Law 1901 of 2018 created the legal condition of Benefit and Collective Interest Companies (BIC) which can be adopted by any type of company. Through this condition, companies can adjust their business practices in labor, environmental and social responsibility matters in a way that aligns them with the sustainable development goals outlined by the United Nations.

The Government has already presented three times the draft decree containing the benefits that would encourage companies to adopt the BIC status. Previous versions included benefits such as a reduction of up to 50% in the fees charged by the Chambers of Commerce for registration procedures carried out by BICs, as well as in the fees applicable to the renewal of commercial registration, and a reduction in the fees charged by the SIC for the registration of distinctive signs or new creations, the preferential access to credit lines created by National Government entities, the reduction of the withholding tax rate, the possibility of obtaining an additional score when participating in state contracting processes and the regulation of the tax treatment of the profits distributed through shares to the workers.

Law 789 of 2002 established, as an incentive to democratize the shareholding composition of the companies by linking their workers as shareholders, that the profits distributed through shares would not be taxed with income tax to the employer "up to the equivalent of 10% of the profit generated" and that "the profits derived from these shares will not be subject to taxes within the five years in which they are transferred to the worker and the worker keeps their ownership, nor will they be part of the base to liquidate any other tax".

The first draft of the decree regulated the essential aspects of the norm and made it conditional on the shares conferring effective patrimonial and political rights to the workers and that they were not dismembered.

The second version preserved the essence of the rule and added other conditions, such as that the remuneration given to the worker should not exceed 200 UVT's and indicated that, if the shares were disposed of before the established term, the worker should liquidate and pay the corresponding taxes.

The third draft completely changes the philosophy of Law 789/2002 by establishing that the shares received by the workers of the BIC companies will be treated as income under the terms established in article 108-4 of the Tax Statute. This rule refers to the tax treatment of payments in shares, which is substantially different from that applicable to the payment of dividends in shares.

With this, the Government intends to apply a rule of payment of salary in kind to a rule that regulates the payment of dividends in shares, which is strange, since the cause of the two disbursements is completely different (one is because the worker is an employee and the other is because the worker is a shareholder). In the same way, it is intended to tax dividends (a later general rule) in a case that is regulated in a previous special rule (which indicates that the profits derived from the shares will not be subject to tax), and as such prevails.