Colombia: Stamp Taxes

Pursuant to article 519 of the Colombian Tax Code, all public instruments and private documents whereby the creation, existence, amendment, extinction, extension or assignment of obligations is evidenced, and that are (i) executed or accepted in Colombia, (ii) executed abroad to be performed in this country, or (iii) whereby obligations in this country are established, are subject to stamp taxes at a rate of 1.5% applicable over (x) the total amount of the contract, if determined as of the date of execution of the relevant document, or (y) the amount of each payment, if the value of the relevant contract could not be determined at the time of execution, provided the following conditions are met:

1. The amounts contained in the document must exceed US$26,222.22 approximately (at an exchange rate of $2,250 Colombian pesos per US dollar).
2. A company or an individual (dedicated to commercial activities in a professional manner), must act in the relevant document as grantor, acceptant or subscriber. In addition, in the case of individuals, they must have had a gross income or gross capital in the previous year exceeding US$413,466.66 approximately.

Pursuant to article 540 of the Colombian Tax Code, the stamp taxes applicable to a document had to be paid in order for said document to be admitted by any authority or considered as evidence within judicial or administrative proceedings.

Therefore, in Colombia for a document to be used to initiate judicial or administrative proceedings or to be admitted as evidence therein the interested party had to provide proof of payment of the relevant stamp taxes accrued.

This changed at the end of last year, when a Colombian citizen filed a suit before the Colombian Constitutional Court against the above-mentioned article 540 to obtain a declaration of unconstitutionality in respect of said article arguing that it breached the following principles of the Colombian Constitution:

1. The principle of good faith
2. The prevalence of substance over form in justice administration.
3. The right to due process.

1. The objective of article 540 was to obtain effective payment of the stamp taxes applicable to documents by conditioning their value as evidence to the payment of the relevant taxes.
2. Thus, the provisions of article 540 would be justified as a means of assuring the efficiency and effectiveness in tax collection, which is an expression of a constitutional tax principle.
3. However, said article 540 is affecting the constitutional right of defence (due process), which includes the possibility for anyone to submit objections in connection with evidence filed against them and to submit evidence in their favour within judicial and administrative proceedings.
4. Article 540 denies the taxpayers the possibility to exercise said right of defence by disregarding the value as evidence of documents subject to stamp tax (if it has not been paid or, in practice, if proof of payment cannot be submitted together with the document).
5. Therefore, although article 540 pursues a constitutional purpose (collecting taxes) it does so in a disproportionate manner since it goes beyond the scope of taxation by restraining a higher constitutional right such as the right of defence.

In view of the above, as from judgment C-1714 of December 12, 2000 the lack of payment of the stamp tax (or of proof thereof) is no longer an impediment to use a document in administrative or judicial proceedings in Colombia.

On the other hand, it is worth noting that there is another article of the Colombian Tax Code in this connection that has not been declared unconstitutional. This is article 544, whereby public servants that admit documents subject to stamp tax without it having been paid are subject to fines.

However, it could be argued that this article has become inapplicable since the legal prohibition to admit such documents on which it is based (article 540) is no longer a part of Colombian law and, therefore, any public servant that admits these documents would not only not be violating any legal provision but instead would be giving effect to the Constitutional Court's ruling.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.