Colombia’s method to “standardizing” tax rulings

The regulation of procedures is not based on a simplified system

The Colombian Constitutional Court finds that judges base their decisions on the law. Colombian case law is a tool for interpreting the law. However, decisions by Colombian Supreme Courts must be heeded by the judge when making a decision.

If the judge does not follow the decision of the Supreme Court, such decision must be clearly justified. In particular, Congress has created mechanisms to speed up the resolution of tax disputes for taxpayers.

In Colombia the discussion process starts before the tax authorities themselves and unfortunately there are very few cases where the tax administration reduces the taxes due and / or imposes sanctions at the administrative level.

It has been alleged in the past that this is due to the lack of impartiality of the tax officials appealing, which is further evidenced by the decisions authorizing the nullity sought before the courts.

Procedural regulation is not based on a simplified system, the system of sanctions is determined on a case-by-case basis, there are various formal obligations and there is a high risk of compliance.

The interpretation of the law is also very difficult and the tax administration (responsible for the official interpretation) usually takes the view of a tax collector rather than an objective interpreter. The above is then mixed with long limitation periods, which often leads to considerable legal uncertainty.

Unification mechanism

Notwithstanding the foregoing, the tax law interpretation is only binding on taxpayers if the judicial courts have made a decision in an administrative proceeding (where it is also possible to request the temporary suspension of administrative acts). Regardless, this is not a short process that further reduces the likelihood of legal certainty when applying a tax law.

Although efforts have been made to reduce the time it takes to resolve tax disputes, the State Council has issued a decision that unifies the case law. This “unification mechanism” was introduced in Colombian law in 2011 and states that situations that have a legal, economic or social relevance can be regulated directly by the State Council in order to unify and unify the case law and ensure equality of legal certainty in later cases Decisions.

These settlement decisions apply to controversies in the administrative and judicial states and are particularly important as the taxpayer can request their full application at the administrative stage when the facts and laws that produced the settlement decision are the same.

If the extension is not accepted by the administrative authority, the taxpayer can appeal directly to the State Council in a consolidated procedure and provide relevant evidence showing that the uniform decisions should be fully applied to the specific case.

Unification decisions

As an example of this, decision SUJ-4-003 is likely to serve as a legal mechanism to stop joint discussions where the tax administration rejected the deductibility of general expenses for income tax determination, arguing that expenses are only deductible if they are direct are connected. required or inevitably associated with “income” items.

This particular rule states that the deductibility of general expenses does not depend on the need to create an income item, but is only directly or indirectly linked to income-generating activities. In addition, this decision also unified the scope of general derivability (ie necessity, proportionality and cause-and-effect relationship).

Taxpayers who intend to take advantage of the extension of this settlement decision can apply by demonstrating that without the spending the spending would be impossible or difficult to carry out and that the income generating activities are based on commercial criteria that are normal for the US equivalent activity , or that these enable the taxpayer to develop, maintain or improve the income generating activity and that the amount in the market is reasonable.

There is no doubt that settlement decisions can become a tool to promote equality by guaranteeing that decisions are equal in the same circumstances. However, this can also become a tool to avoid lengthy debates at the administrative level.

On the other hand, if an association decision deviates from previous case law, the arguments why such a deviation would be necessary would have to be explained thoroughly. In addition, the decision would have to clearly state the effects that such a decision would have.

The application of such prospective decisions that deviate from the case law is very relevant from a tax point of view, as taxpayers have already made decisions based on the prior interpretation of the law and should not have any negative effects in this regard.

Final remarks

The Council of State must clearly state how good faith, legitimate trust and equality of taxpayers are protected when applicable case law changes.

Failure to do so creates a scenario of extreme and persistent uncertainty in which tax administrations attempt to apply new case law to earlier tax years when other interpretations were widely accepted by taxpayers. This will have an impact on the constitutional principles generally protected by the Acción de Tutela in Colombia (particularly rapid mechanism where the party concerned can apply for the protection of fundamental rights before a judge and take a decision within 10 calendar days).

Margaret Salas

Partner, EY

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