As anticipated by the Government, the text of the tax reform introduces strong income tax changes for free zones. Perhaps the first thing that is not recognized, in the exposition of motives, is that the companies have accessed the regime complying with their investment commitments, employment generation and, in general, with all the purposes of Law 1004 of 2005. What we see is that they are directly accused of not exporting.
The corresponding article essentially states that in order for free zones to continue applying the 20% rate, they must have an "Internationalization Plan approved and in force as of January 1st of the taxable year, which complies with the minimum export threshold determined by the National Government. "Thus, in case of not having such requirement, the applicable income rate would be the general rate, i.e. 35%.
The final blow is for the single enterprise free zones, also known as special permanent zones, since the reform states that the tariff will be 35% and does not even give them the possibility of having an internationalization plan.
Now, in the Congress of the Republic the whole reform will be submitted to debate and, as always, it is possible that the texts do not end up as initially proposed and, in this case, we really hope that this will be the case and the legislator will be made to see reason about the benefits and advantages of the free zones. It is also true that this is not the first time that the regime is in the eye of the hurricane.
If this initiative is approved, there are several impacts that should be considered. Let us think that the regime, on the occasion of Law 1004 and due to the commitments that Colombia acquired before the World Trade Organization (WTO), was conceived as a mechanism to attract new investments, generate employment, be development poles, promote economies of scale, among others. Objectives that the free trade zones, together with the users, had to comply with for their declaration and that today they are surely complying with and many of them with more than enough, because if they do not, they would be called to be cancelled.
Nothing was mentioned about exports in Law 1004, since Colombia's commitment before the WTO is precisely that no performance requirements, in this case export commitments, can be created in exchange for receiving a differential benefit in terms of direct taxes, such as income tax. This restriction is applicable only for the export of goods and not for services.
In view of the above, it is important that the Government, in the area of goods, plan the export commitment very well, since in the medium term Colombia could be in the WTO courts, accused of failing to comply with its commitments. Could it be that the Government wants to "buy" a dispute in advance?
On the other hand, it is also important that before the law is enacted, a constitutional review is made on the matter, since the tax rate can only be set by law, not by the Executive. Therefore, although the law would establish two income tax rates, the truth is that it would be the Government who would decide which rate a taxpayer may declare, since it will be the Executive Branch who will have to approve or not an internationalization plan. Therefore, in the end, it would be the President who would determine which rate would be applicable to a Colombian company.
We cannot stigmatize free trade zones because they do not export. We do agree that the challenge of promoting exports from the free zones and in general from the whole country should be assumed. Therefore, in order not to incur in possible breaches of commitments or risks of unconstitutionalities, it should be considered to maintain that the regime is conceived as a mechanism to attract investment and employment, and that the export component is a requirement to be demonstrated according to the type of industry, business, size of the company, but that an income rate is not conditioned to an internationalization plan, whose approval could well be contaminated with subjectivities and policies contrary to competitiveness, growth and economic development.
In other words, that the export requirement be included in the approval process, but not as the only ingredient to be taken into account in the creation of a free zone and much less that the income rate be left to the whim of the Executive. The internationalization plan currently exists as a requirement for single enterprise free zones.
On the other hand, we do not see any practical, legal, academic or economic reason to give unequal treatment to the single enterprise free zones in terms of income. We welcome the fact that the Government is reconsidering this position, since these free zones are not part of the problem but of the solution and progress of the country.
Finally, it is also important to give a scope to the transitory paragraph of the article we are analyzing, since it establishes that the users of the free zones "will have a term of 1 year to comply with the requirement and their rate will correspond to the rate in force during the taxable year 2023". Let us remember that the 20% rate will be conditioned to the approval of an internationalization plan, therefore, what this paragraph indicates is that the rate in force for 2023 will be 35% for all free zones without exception and that the users have one year to present the internationalization plan. Very serious.
We hope that the procedure in Congress will be carried out on the basis of technical debate, without stigmatization, without judgments that lack truth and reality, recognizing the benefits and without being blinded by a questionable argument such as that of the alleged unfair competition or inequality that has been erroneously appealed to.
Article by: PORTFOLIO
