A second chance for Colombian agribusiness tax benefits

Through Laws 1943 of 2018 and 2010 of 2010, the Government created a tax incentive never seen before in Colombian Agriculture: the possibility of accessing ten (10) years of exempt income. This benefit is granted to those who comply with certain terms and conditions, namely: i) to have, in its corporate purpose, any activity related to agriculture; ii) to have hired, on a permanent basis, a minimum number of employees performing functions directly related to agriculture; iii) to have made a minimum investment, in property, plant and equipment, which may not be less than 1. 500 UVT's and to be paid in a period not exceeding six (6) years; iv) to have submitted the investment project before the Ministry of Agriculture obtaining for this purpose its corresponding act of conformity; and, v) to have been incorporated, the company aspiring to receive the tax benefit, as of the entry into force of Law 1943 of 2018 and to have started its economic activity before December 31, 2022.

On May 27, 2021, the Constitutional Court, in Ruling C-161/2021 (M.P. Cristina Pardo Schlesinger Exp: D-13899) declared literal b) of numeral 2 of article 91 of Law 2010 of 2019 (incorporated as article 235-2 of the Tax Statute) unconstitutional. This literal, as stated above, required that the companies that wanted to opt for the tax benefit of having an exempt income for ten years, had to be incorporated after the law that created the benefit had entered into force. In its analysis of constitutionality, the Court performed a mild test of equality, from which it concluded that the distinction between companies incorporated before and after the law, violated the principle of equality and free competition, since there was not a sufficiently strong reason to tolerate such differentiation of treatment. Thus, the Court indicated that "the differentiation provided for by the rule was evidently contrary to tax equity and justice, since, in addition to generating a disincentive for companies incorporated before December 28, 2018 to make new investments, the limitation of the tax benefit favoring certain companies would have the effect of generating economic distortions contrary to the constitutional mandate of free competition (see Communiqué N. 19 of the Constitutional Court)".

The declaration of unenforceability of the rules has -generally, and unless otherwise provided by the Court- effects into the future or ex nunc (see Ruling SU037/2019). This means that, from the issuance of the judgment, and onwards, any company incorporated prior to the enactment of Law 1943 of 2018 qualifies to access the tax benefits of exempt income for a term of ten (10) years.

Oscar Wilde used to say that "sometimes second chances are better than first chances", and this is exactly what happens with the Agro tax benefits. Thanks to the correct interpretation of the Constitutional Court, today the agricultural entrepreneurs have a second -and better- opportunity to opt for the highest tax benefit conferred to this industry, regardless of the time at which they incorporated their company.