Global Tax Alert. Colombia s Central Bank modifies Exchange Regime regulations as well as some forms and exchange declarations

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1 7 August 2013 News from Americas Tax Center Americas Tax Center Ernst & Young s Americas Tax Center brings together the experience and perspectives of over 10,000 tax professionals across the region to help our clients address administrative, legislative and regulatory opportunities and challenges in the 33 countries that comprise the Americas region. Copy into your web browser: Services/Tax/Americas-Tax- Center---borderless-clientservice Colombia s Central Bank modifies Exchange Regime regulations as well as some forms and exchange declarations Colombia s Central Bank Foreign Exchange Department modified External Regulatory Circular DCIN-83 on 19 July 2013, and the Board of Directors of the Central Bank issued Resolution No. 7 of 2013, on 26 July 2013, which makes changes to Resolution No. 8 of Filing of exchange declarations The modifications clarify that exchange declarations regarding trading or transfers of money for payment or reimbursement wired through Intermediaries of the Foreign Exchange Market or Compensation Accounts presented by a legal representative, agent or special agent of the owner cannot include fulfilling internal operations between residents. The modifications also clarify that foreign trade operations do not have to match the importers and exporters set forth in the exchange declarations with those listed in the customs documents, provided that the funds are channeled through the person who made the declaration and not the importer or exporter. This provision only applies in the following circumstances: Operations performed on behalf of pension trusts and trust funds Securitization in Colombia of future cash flows from the export of goods Operations performed on behalf of different units and entities of the National Defense Administrative Sector

2 Payment by the Ministry of Finance and Public Credit with charge to the national budget for the import of goods made by other ministries Foreign trade operations carried out by consortia or joint ventures where allowed by the customs rules Foreign indebtedness The regulations related to reported credit indexing and in lieu of payment indicated in paragraphs and of External Regulatory Circular DCIN-83 apply to foreign indebtedness both granted or received by residents. Procedure in the event payment of guaranties made by residents in foreign currency that should not be reported to the Central Bank become effective If the obligor is a resident and nonresident beneficiary, the resident guarantor should wire the money using the same exchange declaration that corresponds to the operation supported. The return of the guaranty from the obligor to the guarantor is an internal operation that should be paid in Colombian pesos (COP). If the obligor and beneficiary are nonresidents, the resident guarantor should report the operation to the Central Bank as active foreign indebtedness, working capital purposes Active (code 35). The wiring of the currency for the payment of the foreign indebtedness reported on the exchange declaration should be reported on Form No. 3, numeral 4520, Disbursement of loans granted by residents to nonresidents. When the obligor repays the external debt, Form No. 3, numeral 4020, Repayment of loans granted by resident to nonresidents, should be used to report the repayment. If the obligor is a nonresident and the beneficiary is a resident, the resident guarantor should report the operation to the Central Bank as active foreign indebtedness, working capital purposes Active (code 35). The wiring of the currency for the payment of the foreign indebtedness reported on the exchange declaration should be reported on Form No. 3, numeral 4520, Disbursement of loans granted by residents to nonresidents. When the nonresident obligor repays the external debt, Form No. 3, numeral 4020, Repayment of loans granted by resident to nonresidents, should be used to report the repayment. Direct foreign investment in Colombia Advances for future capitalizations The modifications confirm that advances should not entail a foreign indebtedness and within 12 months of the channeling of funds, the nonresident investor must receive the shares or quotas and report the shares or quotas by modifying the initial exchange declaration, changing the numeral and indicating in box 29 the numbers of shares or quotas received. The recipient company must report the shares or quotas on Form No. 15 for the year corresponding to the issuance of the shares. Investment registry with special requirements For investments different than currency, investments must be submitted for registration within 12 months following the date indicated in box 5 of Form No. 11, Register of International Investments, in accordance with the form s instructions. Movement of capital Substitution. The modifications included that when the foreign investor is replaced by other foreign investors, the registry substitution should be requested by the transferor and transferee investor or their agents. Additionally, when there is a substitution as a consequence of change in ownership of fixed assets, for tax purposes, the transferor must present a document certifying statement, settlement and payment of taxes resulting from the transaction. Cancel. When the cancellation occurs as a result of change in ownership of fixed assets, from a foreign investor to a resident for tax purposes, a document certifying that the statement, settlement and payment of taxes resulting from the transaction took place should be filed. Change in the composition of capital. The modifications clarify that any changes to the composition of capital for increases or decreases to the shares or quotas for changes in its nominal value, should be reported to the Central Bank by the statutory auditor of the company receiving 2

3 the direct foreign investment within a month following the date of the registration of the statutory reform before the commercial registry. That date must be stated in the communication used for registration. Colombian direct investment abroad The substitution for a change in investment ownership by other Colombian investors must be requested by the investor, the transferee investor or their agents. Compensation accounts Besides owner s own transactions, compensation accounts may be used to channel foreign investment transactions related to the foreign investors or the operations of trust companies in the development of commercial trust agreements or trust management agreements that have the purpose of serving as collateral and a continuing source of payment obligations acquired by constituents. The registration of compensation accounts of consortia, joint ventures or partnerships must be made with the name and identification number of one of the participants and the other participants information should be included in the space provided on Form No. 9, Compensation Accounts Registry. The deadline for registering compensation accounts before the Central Bank is one month as from the completion date of the first operation that must be mandatorily channeled through the foreign exchange market by the filing of Form No. 9 either in paper form or electronically. For electronic registry, the new account owner must have registered other active compensation accounts or have sent Form No. 15, Equity Reconciliation Companies and Branches of the General Regime, or the Report Reconciling Equity Companies With Shares Listed on a Stock Exchange. The compensation account owners must report any movement of capital until the cancellation date indicated in the Date box of paragraph VII of Form No. 10. Modifications to forms and exchange declarations The Central Bank modified Form Nos. 4, 9 and 10 and the instructions to Form Nos. 1, 2, 4, 9, 10 and 11. Resolution No. 8 of 2000 The amendment is related with paragraph 2 of Article 82 of Resolution No. 8 of 2000, which establishes that the income and outcome of foreign currency, Colombian Pesos or representative securities of foreign currency, that correspond to those operations mentioned in article 7 of the resolution should be carried out in accordance with the dispositions of this Article 82. The channeling shall be carried out in accordance with the procedure established under Resolution 8 of

4 For additional information with respect to this Alert, please contact the following: Ernst & Young Ltda., Bogotá, Colombia Ximena Zuluaga ximena.zuluaga@co.ey.com Mariela Tamayo de Lauschus mariela.tamayo@co.ey.com Diego Vega diego.vega@co.ey.com Co-Directors of America s Tax Center Global Tax, Eric Solomon, Washington, DC Global Tax, Michael Mundaca, Washington, DC America s Tax Center Chief Operating Officer Declan Gavin, Washington, DC ATC - Customs William Methenitis, Dallas ATC - Global Compliance and Reporting (GCR) Ken Brown, Dallas ATC - Global Tax Desks Gerrit Groen, New York ATC - Tax Controversy Debbie Nolan, Washington, DC ATC - Tax Effective Supply Chain Management (TESCM) Lisa Lim, New York ATC - Tax Performance Advisory (TPA) Gary Paice, Chicago ATC - Tax Policy Ricardo Escobar, Santiago, Chile ATC - Value Added Tax (VAT) Jean-Hugues Chabot, Montreal, Canada ATC - Insurance Terry Jacobs, Washington, DC 4

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