COLOMBIA Law and Practice Contributed by: Rodrigo Castillo Cottin, Ana María López and Alejandra Becerra, Rimon, P.C.
assets to be passed down to intended beneficiaries, thereby successfully circumventing Colombian forced heirship rules. 4.3 Transfer of Partial Interest Partial Interest in an Entity Transferred During Life If a partial interest is transferred during someone’s lifetime, it is presumed that the fair market value of the interest cannot be lower than its cost basis and its net asset value ( valor intrínseco ) increased by 30%. If the partial interest being transferred is received as consequence of a gift, the value of the interest is its cost basis. Partial Interest in an Entity Transferred After Death However, if a partial interest is transferred at death, any amount received as consequence of an estate, legacy, donation or conjugal portion is considered as a capital gain subject to capital gains tax at a 15% rate. The value of the interest is its cost basis. 5. Wealth Disputes 5.1 Trends Driving Disputes Reporting Obligation Regarding Estates, Trusts, Foundations and Other Similar Entities Regarding estates, trusts, foundations and similar entities, regulations introduced by Law 1943 of 2018, and later by Law 2010 of 2019, Law 2155 of 2021 and by Law 2277 of 2022, have been widely criticised and subject to lawsuits for failing to acknowledge the legality and validity of the actions of Colombian tax - payers before said rules came into force. Private interest foundations and foreign trusts were not subject to tax regulations in Colombia until 2012, with the entry into force of Article 103 of Law 1607. Said article established that distributions made by foreign trustees, private interest foundations or other similar fiduciary arrangements to Colombian residents are considered capital gains and are therefore taxed at a 15% general rate on the gross distributed amount as of FY 2023. Subsequently, by means of Article 37 of Law 1739 of 2014, the possession of rights held in foreign trusts,
private interest foundations or other similar fiduciary arrangements had to be reported for normalisation tax purposes. Similar rules were included in the wording of the nor - malisation tax proposed for FY 2022 included in Law 2155 of 2021 and of the net worth tax re-introduced by Law 2277 of 2022, as well as in the new defini - tion of ultimate beneficial owners. It is anticipated that these could lead to new discussions with the CTO in the future. Article 263 of the CTC As set forth by Article 263 of the CTC, possession is understood to mean the economic benefit, whether potential or real, of any asset to the credit of the tax - payer. It is presumed that whoever has legal title as owner has the economic benefits of the assets. The above-mentioned article would only apply for beneficiaries not subject to any condition in a for - eign trust or private interest foundation, or a settlor or founder of a trust or private interest foundation of a revocable and non-discretionary nature. However, no possession can be established if ben - eficiaries are conditioned and only have an expecta - tion, and the settlor or founder of an irrevocable and discretionary trust or foundation irrevocably grants all economic and disposition rights to an independent third party. Tax Ruling No 34071 This interpretation was confirmed by the CTO through Tax Ruling No 34071 of 20 December 2017, which determined the main aspects to be considered by a taxpayer as settlor, contributor and designated third party of a trust to be that: • the contributor assigning assets to a revocable trust must file the foreign assets return and has the obligation to report them in its income tax returns at a cost basis as provided by the CTC; and • the contributor assigning the assets to an irrevo - cable trust must report the assets in its income tax returns and in any other applicable tax return, if it derives the economic benefits according to Article 263 of the CTC.
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