Where is the principle of good faith?

Good faith is a guiding principle of our legal system. Its importance has given it the status of a constitutional rule (Article 83 of the National Constitution). Under such principle, the actions of individuals are presumed to have been carried out in good faith, which must be disproved by whoever is interested in proving the contrary.

The tax reform bill submitted by the National Government to Congress last July 20 (entitled "Social Investment Law") proposes, among other things, to add a paragraph to article 90 of the Tax Statute, aimed at increasing controls on the undervalued sale of real estate.

According to this proposal, set forth in Article 9 of the bill "(...) notaries shall make use of the georeferencing system to be established by resolution by the Special Administrative Unit of the National Tax and Customs Directorate (Dian) and shall inform both the parties involved in the deed process and the Tax Administration, if the provisions of this article regarding the commercial value of the real estate are not complied with".

Since this is an addition (and not a replacement of the current article), this provision would happen to complement the already existing anti-evasion controls that were imposed in the previous tax reform (known as Law 2010/2019) according to which the parties have to declare, under oath, that the price established in the deed is real and has not been subject to private covenants in which a different value is indicated, and -if such declarations are not made- "the income tax, as well as the occasional gain, the registration tax, the registration fees and the notary fees, will be liquidated on a basis equivalent to four times the value included in the deed, without prejudice to the obligation of the notary to report the irregularity to the tax authorities".

This measure, then, is a control in the sale of real estate in charge of the notary who must verify the value of the transaction versus the georeferenced value and report to the Dian, in addition to the parties, the cases in which the former differs notoriously from the latter, under penalty of being sanctioned for not sending the information.

Now, in the event that there is such a report from the notary for finding the differences provided for in the regulation, it is possible that the Dian will question the taxpayer in order not to be sanctioned, without this resulting in a tax invalidity of the operation.

The fight against evasion is a priority and it is correct that it is one of the basic pillars of the Social Investment Law.

What must be carefully reviewed is not to transgress the constitutional presumption of good faith by conditioning it to match the data of a georeferencing system that has not even been invented or parameterized.

It should also be taken into account that such a provision may slow down the real estate business, thus preventing the longed-for economic recovery.