The “Black Listed Countries” and Planning Ideas

Juan Guillermo Ruiz

May 30, 2014

Tax havens

Incorporation of the concept in 2003

Court precedent: No referral to OECD’s list on tax haven jurisdictions

October 7, 2013. Tax haven list

New rules on sanctions to tax haven jurisdictions could be expected

Controlled Foreign Company

No current legal development on the matter

New regulation to come into force is expected

OECD - BEPS

Exchange of information

Growing number of agreement entered into by Colombia

Global Forum on Transparency and exchange of information for tax purposes

OECD - BEPS

New faculties and responsibilities given to Tax Authorities for the collection of taxes due in other jurisdictions

New rules enhancing Tax Authorities capabilities are expected to come into force

Tax haven Colombian criteria

Tax haven list

Implications on investment structures

Implications on contractual structures

Transfer pricing

Effects on the General Anti-Avoidance Rule

Implications on residency of Colombian citizens

• No or nominal tax on the relevant income

• Lack of effective exchange of information

• Lack of transparency

• No substantial activities

Colombia follows the criteria set in the 1998 OECD report

• “In addition to the fore-mentioned criteria, the Colombian Government may have as reference the internationally accepted criteria to determine tax havens”

• OECD, UN and other criteria set by the G20

• Colombia is formally applying to belong to the OECD (campaign launched on October 25, 2013)

Wide room for new principles being developed (Tax Code)

Bla

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Grey list

1. Barbados

2. Bermuda

3. United Arab Emirates

4. Kuwait

5. Qatar

6. Guernesey

7. Panama

Tax havens

•1. Anguilla

•2. Antigua and Barbuda

•3. Archipelago of Svalbard

•4. The Territorial Collectivity of

•Saint-Pierre and Miquelon

•5. Commonwealth of Dominica

•6. Commonwealth of the

•Bahamas

•7. Kingdom of Bahrain

•8. Nation of Brunei, the Abode of

•Peace

•9. Independent State of Samoa

•10. Grenada

•11. Hong Kong

•12. Isle of Man

•13. Qeshm Island

•14. Cayman Islands

•15. Cook Islands

Tax havens

•16. Pitcairn, Henderson, Ducie and Oeno Islands

•17. Solomon Islands

•18. British Virgin Islands

•19. Bailiwick of Jersey

•20. Labuan

•21. Macau

•22. Principality of Andorra

•23. Principality of Liechtenstein

•24. Principality of Monaco

•25. Hashemite Kingdom of Jordan

•26. Co-operative Republic of Guyana

•27. Republic of Angola

•28. Republic of Cape Verde

•29. Republic of Cyprus

•30. Republic of the Marshall Islands

Tax havens

•31. Republic of Liberia

•32. Republic of the Maldives

•33. Republic of Mauritius

•34. Republic of Nauru

•35. Republic of Seychelles

•36. Republic of Trinidad and Tobago

•37. Republic of Vanuatu

•38. Republic of Yemen

•39. Lebanese Republic

•40. St. Kitts & Nevis

•41. Saint Vincent and the Grenadines

•42. Saint Helena, Ascension and Tristan da Cunha

•43. St. Lucia

•44. Sultanate of Oman

• Inclusion conditioned to the execution of an exchange of information agreement

• The tax haven list is subject to review after one year of it being enacted

• Chances of subscription of an exchange of information agreement

Panama

Investments (Colombia)

Holding (Tax Haven)

TAX IMPLICATIONS

• Remittance of dividends and profits

• Sale of the Colombian investments

– Applicable tax

– Income tax withholding

Investment structures

Investments

Holding (Tax Haven)

Private Foundation

Investments

Holding (Tax Haven)

Trust

Other Assets

Real Estate

Holding (Tax Haven)

Trust/Private Foundation

Local Trust

Holding (Tax Haven)

Trust/Private Foundation

Local fund

Holding (Tax Haven)

Trust/Private Foundation

Portfolio Investment

Custody account

Investor (Tax Haven)

• Listed shares

• Securities

• Government Bonds

• Investment made through local custody accounts

• Taxation by means of the withholding system

• General withholding rate of 14%

• If the investor is located in a tax haven, the withholding rate would be 25%

• Interests

• Royalties

• Rent payments

• Technical services

• Technical assistance services

• Consultancy services

• Software benefits

• Any other payment

Payments or deposits for any concept

• Conditioned to income tax withholding

• Not applicable to financial operations

• Requires evidencing and supporting of the functions, assets and risks assumed by the service provider

Costs and deductible expenses

Tran

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Payments to tax havens

Individuals, companies, or entities in tax havens.

Related or not

Regardless of their gross equity

Regardless of their gross income

Obligations

Formal

Informative return

Supporting documentation

Substancial

• Operations entered into and between related entities

• Price or consideration differs in more than 25% of the value under market conditions

• Involve any of the following: (i) Special tax regime entity; (ii) Exempt entity; (iii) An entity not subject to tax; (iv) An entity whose applicable tax rate is different from the ordinary one

• Lack of a material clause, person, or act, that may derive in an abusive tax advantage

With two other, there could be a tax abuse

Residents of tax haven jurisdictions are deemed

Colombian residents

Taxation over worldwide income and asset

Eventual double taxation

• Aim: “Full exchange of information on requests in all tax matters without regard to a domestic tax interest requirement or bank secrecy for tax purposes” (OECD – Countering tax evasion)

• Obligations attributed to the Tax Authorities of all member States

• Collection of taxes and other mutual assistance between Tax Authorities