Colombia’s new Tax Reform and the new tax crimes

Law 1943 of 2018 (the “Tax Reform”) was enacted on December of 2018 to generate additional public financing sources, increase the country’s economic growth and to collect and distribute resources more efficiently. As part of the fight against tax fraud, the Tax Reform introduced tax fraud as a crime (article 434B, Colombian Criminal Code) and modified the existing asset omissions or declaring non-existent liabilities crime (article 434A, Colombian Criminal Code). This means that for the first time in Colombia’s legal history, a comprehensive criminal sanction that covers all tax-related faults was affectively installed, rather than specific taxes-related faults.

These crimes can only be committed by the taxpayers. This means that only those who are required to declare or pay taxes can be active subjects/perpetrators of these criminal behaviors. In the specific case of those taxpayers that are legal persons, this responsibility is extended to its legal representatives and managers. Furthermore, the accountants, auditors, and tax counsels that promote or facilitate tax fraud behaviors, may also incur in criminal liability.

Moreover, the Tax Reform presents the following innovation: criminal action regarding these crimes may only be initiated by the General Director of the National Tax and Customs Department (Dirección de Impuestos y Aduanas Nacionales, “DIAN”) or its delegate or special delegates. This means that the Attorney General’s Office cannot, in any way, initiate ex officio the criminal action. From the draft of the Tax Reform’s final version, it can be understood that the DIAN’s must initiate the criminal action only when the tax fraud does not correspond to a feasible interpretation of the tax norm, despite the DIAN’s consideration of said interpretation being mistaken. Nonetheless, the Tax Reform leaves a huge material room for interpretation which can result in a great freedom for the DIAN when pursuing interpretations of tax regulations with which it does not agree.

In both criminal behaviors, sanctions of imprisonment and fines may vary according to the tax’s value or the omitted assets or liabilities’ value. Also, these sanctions can be classified in minor, moderate or severe frauds; depending on the degree of severity, the consequences will vary according to the following tables:

Article 434A – Omitted assets or inclusion of non–existent liabilities.

Severity of the fraud

Fraud’s amount - SMMW (Statutory monthly minimum wages).

Sanction/Penalty

Early termination of the criminal action for presentation, correction and total payment.

Minor

5.000 – 7.250 SMMW

Imprisonment: 48 – 108 months.

- Fine: 20% of the value of the omitted assets, the non–existent liability or the difference between the declared asset for a minor value.

Yes.

Moderate

7.250 – 8.500 SMMW

Increased by a third part.

Yes.

Severe

Greater than 8.500 SMMW

Increased by half.

No.

Article 434B – Tax Fraud

Severity of the evasion.

Fraud’s amount - SMMW (Statutory monthly minimum wages).

Sanction/Penalty

Early termination of the criminal action for presentation, correction and total payment.

Minor

250 – 2.500 SMMW

Imprisonment: 26 – 60 months

Fine: 50% of the value of the tax charge.

Yes.

Moderate

2.501- 8.500 SMMW

Increased by a third part.

Yes.

Severe

Greater than 8.500 SMMW

Increased by half.

No.

The most relevant modification introduced by the Tax Reform is the amendment of the early termination of the criminal process regime, provided the payment of due taxes. First, the theoretical discussion that existed regarding the previous drafting of the crime is now settled, since it is clarified that for the anticipated termination to occur, the tax value and the corresponding interests and fines must be paid (which wasn’t clear before). Secondly, the possibility to have an early termination of the criminal proceeding due to the payment of the debt is eliminated when the value of the fraud is higher than 8.500 SMMW. In these cases, the criminal prosecution must seek for the imposition of penitentiary sanctions, even if the taxpayer settles its debts with the tax authorities.

In addition to the legal modifications that expand the scope of the criminal prosecution of the tax fraud, the Tax Reform created new specialized units in the Attorney General’s Office that are dedicated solely to the prosecution of tax fraud. With this organic modification, the criminal prosecution of these type of criminal behaviours will certainly increase.

From this new Tax Reform, multiple constitutional concerns arised, which shall be settled in the coming months and years. However, the fact is that today these new tax crimes exist and will be in force for the 2019 fiscal year. This means that all the tax planning strategies implemented during such fiscal year shall consider a criminal law analysis which is crosscutting to said strategies, together with the consideration that the interaction with the tax authority is a collective activity, in which, every party engaged in the presentation and payment of taxes may be involved in a criminal investigation for the sole reason of one of said parties acting inappropriately.

Authors

Jacques Simhon
Jacques Simhon, LL.M.
Partner
Bogotá – Siete 77
Santiago Calle
Santiago Calle
Associate
Bogotá – Siete 77
María José Correa
María José Correa
Associate
Bogotá – Siete 77