Colombia criminalizes Tax Evasion

Foodman CPAs & Advisors

On 12/29/2016, Colombia’s Congress approved “Law 1819 of 2016”.  The new legislation is a structural tax reform primarily aimed at increasing revenues for Colombia. 

Colombia suffered a loss of revenues when crude oil prices plummeted beginning in 2014. The loss of revenue created a negative impact on its economy; creating pressure to replace revenues previously sourced from oil activities.  

After credit agencies Standard & Poor’s and Fitch Ratings put Colombia on “negative outlook” during 2016, Colombia decided to implement tax reform to increase its revenues before the international credit agencies downgraded its sovereign country investment grade rating.

The tax reform under “Law 1819 of 2016” includes mechanisms for combating tax evasion.  They address the omission of assets and the inclusion of nonexistent liabilities by Colombian tax return filers.  Some specifics are that taxpayers who fraudulently omit assets, who file inaccurate information in relation to these omitted assets, and who file inaccurate information including non-existent liabilities in an amount exceeding USD 1.6 Million, will be subject to 4 to 9 years in prison and fined an equivalent of up to 20% of the assets omitted, the value of the declared assets that were not valued accurately and the non-existent liabilities.  Taxpayers that voluntarily file or correct their returns and provide payment would be able to remediate criminal classification.

Before the implementation of “Law 1819 of 2016”, tax evasion was not criminalized in Colombia.  Evasion and avoidance of taxes in Colombia was an “administrative” offense as opposed to a criminal offense. Colombia took it to the next level by formalizing tax evasion as an imprisonable criminal offense.      

It is clear that that some Latin American countries are incentivizing Taxpayers to declare the existence of assets held outside of their home countries in exchange for becoming classified as compliant with their tax status. Historical lack of home country criminal tax liability has sparked initiation of tax regularization programs in Latin America.  Countries like Brazil, Argentina, and Colombia have joined the Organization of Economic Cooperation and Development (OECD) Automatic Exchange of Information protocols known as the Common Reporting Standard (CRS) committing to an exchange of tax information with others jurisdictions of the CRS. 

Apparently, Colombia wants to implement a high standard of tax transparency and tackle cross-border tax evasion by joining the CRS Early Adoption Group.  This group will begin its first automatic exchange of information by September 2017 (the Second Group begins the automatic exchange of information by September 2018).  By committing to the Early Adoption Group, Colombia has implemented new account opening procedures to record tax residency since January 1, 2016.  The first exchange of information in relation to new accounts and pre-existing individual high value accounts will take place by the end of September 2017.  Argentina and Mexico join Colombia in this first exchange as the only nations in the Americas participating in the CRS First Adopters Group.  Colombia deserves credit for criminalizing tax evasion. 

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Foodman CPAs & Advisors

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