The new constitutional principle of legal certainty in taxation

A draft legislative act presented by Representative to the House of Representatives for the Democratic Center Edward Rodriguez Rodriguez, aimed at promoting tax legal security and stability in Colombia, is currently pending in the House of Representatives. This bill seeks to incorporate two paragraphs to Article 333 of the Political Constitution (article that regulates economic and business freedom in Colombia), thus creating the principle of legal tax security by means of which legal tax security will be guaranteed for those who make new investments or expand existing investments in the national territory and the power of the Government to enter into legal tax stability contracts that allow "the permanence, waiver or no unfavorable alteration of the legal conditions in tax matters existing at the time of entering into the contract" is elevated to constitutional rank.

This constitutional reform is indispensable for the country's progress and to encourage and retain foreign investment in a highly competitive environment. The investment environment in Colombia has been characterized for being unstable, a factor that scares away -like no other- foreign investment. According to the Global Investment Competitiveness Report 2017-2018, cited in the explanatory memorandum, international investors make the decision to invest in one country or another taking as a priority "security, political stability, macroeconomic conditions and above all (...) with conducive regulatory environments". In the last 24 years Colombia has had 14 tax reforms, which makes it impossible for the country to be considered as a long-term investment destination by foreign investors, since it is impossible to make a real forecast of the profitability of an investment. According to the project's explanatory memorandum, "legal stability is one of the causes that has the greatest impact on the decision to invest in a country [...] so that the constant changes in the rules of the game end up directly discouraging investment, due to the impossibility of being able to establish in advance the risks and benefits involved".

Unlike Colombia, countries such as Chile, Ecuador, Panama and Peru, have stability norms elevated to constitutional rank, which has translated into a constant increase in the level of foreign investment they have received in recent years. Colombia has had several unsuccessful attempts to implement this principle, such as Article 169 of Law 223 of 1995, which provided for a special tax stability regime consisting of the non-application of possible increases in income and complementary tax rates or other taxes created after the execution of the respective contract, Law 963 of 2005 with the legal stability contracts which created parallel tax universes very difficult to control and depended on the approval of the investment project by the Government and Law 1943 of 2018 with the legal stability for Mega investments, which - due to the conditions for it to apply (investment of more than $1. 028,100,00,000 for 2019, generate more than 250 new direct jobs, among others) - is designed to exclusively benefit the largest projects in the country.

If Colombia wants to be a country that attracts and retains foreign investment, there is no other way than to raise the principle of tax legal certainty to constitutional rank. This would mean that any rule that violates it can be declared unconstitutional and that such principle is preserved with the immutability of the National Constitution.