Modification to the general anti-abuse clause of Article 90 of the ET

Among the anti-avoidance tax provisions is Article 90 of the Tax Statute (ET), which regulates the minimum price for the sale of assets, stating, among other things, that such price must correspond to the commercial value without differing by more than 25% of the market value or 115% of the intrinsic value in the case of shares/shares that are not listed on the stock exchange.

This rule implicitly allowed the loss on sale of property (fixed or movable assets other than shares) to be deductible when, when using the 25% limit, the value of the price was lower than the tax cost of the asset.

Now, the draft Financing Law proposes to modify again the referred article (the last modification took place with Law 1819 of 2016), in the sense of decreasing to 15% the proportion of difference of the market value versus the disposal price, for which the taxpayer must resort to any source of information that allows determining the commercial value of the asset, such as price lists, databases, among others.

Another relevant change is the extension of this treatment to services.  Therefore, the free provision of services with the consequent generation of VAT begins to be controlled (which was previously done by not knowing the cost of the service provider).

In addition, the cap on the intrinsic value for the disposal of shares is increased to 130%; however, it is established that the Tax Administration may, in its auditing processes, use technical valuation methods such as discounted cash flow or EBITDA multiples, approaching the methodology provided for the transfer pricing regime (article 260-4 of the ET, numeral 1, literal e), methodology that is logical from what is pursued by the legal precept and contrary to what was stated by the DIAN in Oficio 000345 of 2018, where it had accepted the use of the tax equity for the measurement of the intrinsic value.

Similarly, the project seeks to introduce to Article 90 of the ET dissuasive provisions, such as incorporating to the deed of alienation a statement under oath, regarding the non-existence of a private agreement setting a different price (lower) than the one stated therein, under penalty that the price taken as the basis for income tax or occasional gain, as the case may be, registration tax, registration and notary fees, is the result of multiplying by 4 the amount of the operation reported in the public deed.

This measure seeks to prevent the bad practice of informing in the public document the price equivalent to the cadastral appraisal (minimum value to liquidate notary and registration taxes), when in fact the property was being sold for a higher value.

In addition to the above, the terms set forth in Article 771-5 of the ET for the limitation of the use of cash -banking- are accelerated when it is indicated that "as from January 1, 2019, those sums that have not been disbursed through financial entities will not be considered as cost of real estate". This proposal, although it seeks to attack the informality associated with the sale of real estate, should be clarified in order to avoid punishing the acquisition other than the purchase and sale and the extinguishment of the obligation by a means other than payment.

Finally, it should also be considered that the project proposes the repeal of Article 72 of the TE, which means that the cadastral appraisal can no longer be taken as tax cost.