Use and Abuse of the Tax Rule
The concept of "Abuse of the Tax Rule" (which gave rise to the so-called "General Anti-Abuse Rule") was introduced to our tax legislation by Law 1607/2012, since until then there were only certain special anti-abuse rules. Said provision established -in general terms- which tax acts or operations could be considered abusive, and as such pointed out those that were aimed -without a reasonable commercial purpose- at modifying, disfiguring or altering the tax effects that would otherwise be generated in the head of the taxpayer. Likewise, it stated that the taxpayer's acceptance of the tax benefits granted by law, by complying with the requirements, would not constitute an abuse of the tax rule, it established the ceilings and requirements for this phenomenon to be configured (operations of more than 192,000 UVT's that comply with 3 or more than 5 assumptions), as well as the grounds for exoneration that the taxpayer must demonstrate in its defense (legitimate commercial purpose and use of market prices). Finally, it defined -due to the seriousness of its implications- that the application of this rule would be in the hands of a committee formed by several top level officials within the National Government such as the Director of the DIAN, the Minister of Finance, among others.
The Government, within its tax reform bill submitted to Congress, intends to modify several aspects of this rule, namely; i) the expression "tending to" is modified -in consideration of the taxpayer's conduct with respect to the alteration, modification or distortion of the tax effects- by "with the purpose of", in order to be able to sanction conducts that do not necessarily produce legal effects, ii) the provision regarding the acts that do not constitute abuse is eliminated, This is of great importance given that article 139 of the Reform states that any act that uses a double taxation avoidance treaty (which is a mandatory and automatic obligation) and that has the potential - according to the DIAN's discretionary criteria - to erode the taxable base constitutes an aggressive tax planning strategy, iii) the 5 assumptions are eliminated, of which - with the occurrence of 3 - the abuse could be configured, iv) the collegiate body that had to analyze and determine the existence or not of an abusive act is eliminated, v) a new special procedure for tax abuse is created, which consists of the issuance of a special summons by the DIAN, which, once notified, must be answered by the taxpayer within the following 3 months, time in which the term of finality of the tax return is suspended.
The proposed change generates great uncertainties for the taxpayer (to the point of violating his right to due process and defense) since it turns the figure of abuse of the tax rule into a kind of "blank infraction", where there are no clear parameters to know what exactly is the punishable conduct, nor what type of official has to determine it, nor what are the grounds for exoneration. Everything becomes especially worrisome, as previously mentioned, when the rules that regulate abuse are interpreted harmoniously with those that indicate what is to be understood by aggressive tax planning and when the reform also typifies as a crime against public administration the omission of assets -or the simple inaccurate presentation thereof-, or the inclusion of non-existent liabilities.
If this rule is approved, we would be under a scenario where any option validly and legitimately adopted by the taxpayer, which has had (or could have had) a favorable tax effect, would constitute an abuse.
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