COLOMBIA Law and Practice Contributed by: Rodrigo Castillo Cottin, Ana María López and Alejandra Becerra, Rimon, P.C.
5.2 Mechanism for Compensation Compensation for aggrieved parties in wealth dis - putes or disputes involving trusts, foundations or similar entities implies civil liability (torts) in Colombia. Requesting compensation for damages is usually car - ried out before the Colombian courts, which determine the type of damage and amount of compensation. 6. Roles and Responsibilities of Fiduciaries 6.1 Prevalence of Corporate Fiduciaries Local Trusts Local trusts are used in Colombia as instruments to manage properties or businesses with a specific pur - pose or to grant guaranties or collaterals, considering that trustees are professional regulated entities. Only those companies duly authorised by the SFC may offer trust services and act as trustees. Such enti - ties are subject to supervision and special regulations. Colombian law sets forth a number of legal duties for trustees, which cannot be delegated to third parties or waived. These include the following: • the duty to carry out trustee activities in a diligent manner; • the segregation of assets; • assets in a trust must be managed in accordance with the trust agreement; • a trustee must act on behalf of and for the benefit of the beneficiaries; • a trustee must consult the SFC when in doubt regarding its duties or when it deems necessary, potentially acting against the instructions set forth in the trust agreement; • a trustee must utilise its best efforts in maximising the trust’s profitability; • upon a trust’s termination, the trustee must transfer assets to the final beneficiary set forth in the agree - ment; and • a trustee must report accounts at least every six months.
However, for income tax purposes, Article 882 of the CTC (introduced by Law 1819 of 2016) determined that any income realised by a foreign entity whose place of effective management is located in Colombia, had to be reported. Law 1943 With the entry into force of Law 1943 of 2018, these guidelines took a massive turn by establishing that if the underlying assets of an irrevocable and discretion - ary foundation cannot be attributed to the beneficiar - ies, the settlor, contributor or originator must report the latter, without any consideration of the structure’s irrevocable and discretionary character. Based on the above, as of 1 January 2019, taxpayers who acted in good faith and followed the Tax Office’s prior guidelines were considered as taxpayers hold - ing unreported assets. This situation led to serious questioning from taxpayers who had acted in good faith, and resulted in lawsuits being filed. After close review by the Colombian Constitutional Court, on 26 October 2019, the tax reform introduced by Law 1943 of 2019 was declared unconstitutional. The court made this decision based on various pro - cedural mistakes made during the discussions held in Congress. In order to mitigate any fiscal impact, the court gave the Colombian government until the end of 31 December 2019 to file a new tax bill; otherwise, the tax rules that were applicable before the enactment of Law 1943 of 2019 would once again come into force. Despite this short timeframe, the Colombian govern - ment filed a new tax bill. Based on previous discus - sions with both taxpayers and academics, it was expected that the rules for reporting irrevocable and discretionary trusts would be modified. However, these rules were left untouched and were once again introduced by Law 2010 of 2019. Similar rules were included in the last tax reforms enacted by the government (Law 2155 of 2021 and Law 2277 of 2022), which could lead to new discus - sions with the CTO.
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