JANUARY 2010 | LEGAL REPORT #16
LAW 1370, 2009 - TAX REFORM

1. The Colombian Congress issued Law 1370 of December 30th, 2009 (hereinafter the "Law"), which includes important amendments related to fiscal matters such as: i) the extension of the patrimony tax from year 2011 through 2014 (the "Patrimony Tax") (ii) the fiscal treatment of debts between Colombian and foreign related companies and (iii) the modification of important tax benefits.

2. The most important aspects regarding the Patrimony Tax are the following:

1. The Law states that the funds collected will not be used exclusively to finance national security programs, but instead, said funds will also be spent on (i) aiding violence refugees and (ii) the health sector.
2. The tax triggers only on one occasion (January 1, 2011).
3. Payment must be made in eight (8) installments, two each year, starting year 2011 through 2014.
4. Individuals or corporate entities that are taxpayers and are obligated to file income tax returns, with a fiscal networth above COP 3,000 million by January 1, 2011, must pay the Patrimony Tax.
5. The tax rates to be paid depend on the amount of the networth owned by the relevant taxpayers, as follows:
   
   

   NETWORTH	TAXABLE RATE
   Between COP 3,000 to 5,000 million.	2.4% for the 4 years (meaning an annual average rate of 0.6%)
   Higher than COP 5,000 million.	4.8% for the 4 years (meaning an annual average rate of 1.2%)

   
   
6. The National Government will establish the dates when (i) the relevant tax return must be filed and (ii) the tax must be paid.
7. The Patrimony Tax is not deductible for Income Tax purposes.
8. The taxable base is the result of subtracting from the total networth of the relevant taxpayer, the net value of the shares it owns in Colombian companies , plus the value of the tax payer's domicile (i.e. place of residence), limited up to three hundred nineteen million two hundred and fifteen thousand pesos (COP $319,215,000).
9. The Tax Authorities may impose penalties to anyone who carries out fraudulent actions aimed at lowering its networth to avoid paying the Patrimony Tax.

3. Another change introduced by the Law is related to the fiscal treatment of debts between related companies.

Formerly, Colombian branch offices, agencies and subsidiaries of foreign companies could not include as fiscal liabilities, those debts they had obtained with their parent company or other branch offices located abroad.

As from January 1, 2010, branch offices, agencies and subsidiaries, will also not be able to include as fiscal liabilities, the debts they've obtained with any economically related legal person.

4. Another change introduced by the Law is related to tax benefit for the investment in some assets.

The tax benefit related to the deduction for investments in productive fixed assets has been reduced from 40% to 30%.

In addition, said tax benefit may not concur with the income tax special tax rate of 15% that has been established for users of free zones, which means that taxpayers must choose to either apply for the tax benefit, or pay the special tax rate.