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Upcoming tax bill and taxation of unproductive land

During the past weekend, both the future agriculture and finance ministers of the upcoming
Government that will start as of August 7th. 2022 in Colombia, referred to the imposition of
taxes on unproductive land.

The future Minister of Agriculture, Cecilia Lopez gave an interview in El Tiempo newspaper,
and established:

  • Qualification of unproductive property
    Specific indexes will apply to qualify any terrain as unproductive, which will be
    based on a series of variables determining how much to expect from a particular
    terrain in terms of production.
    Areas where there is a conflict of use, (i.e., areas that can be destined to
    agriculture or to reforestation and are not) will be determined. Ms. Lopez
    mentioned that terrains destined to cattle breeding in Colombia occupy much
    more extension than they should. To date, she said, big areas of fertile land for
    the production of food, are destined to extensive cattle breeding.
  • Multipurpose land registry
    A multi- purpose land registry will be elaborated by official experts reflecting the
    productive capacity of the land.
  • Taxation of unproductive property
    A tax would apply on deemed earnings that the terrain should be producing if it
    was properly exploited. ( it is not clear whether the unproductive tax would apply
    on the value of the estimated income or on the appreciation of value deriving
    from the estimated earnings).
  • Active subject
    The municipalities would be the competent authorities to implement the tax.
    (Municipality Councils would be determined the rates and the taxable basis
    within specific ranges established by Law).
  • Insolvency of unproductive landowners
    Insolvent landowners required to pay taxes on unproductive land, will have to
    choose between partnering with someone else or selling the land to the
    Government. The Government in turn, will distribute the purchased land to
    owners of small lots so that the latter may hold a minimum basic area that allows
    them to be productive.
  • Legal proceeding to enact the tax on unproductive property
    The new Government will not file a bill before Congress to formalize the Agrarian
    Reform. Ms. Lopez argued that sufficient legal instruments exist in Colombia to
    proceed.

On the other hand, the upcoming Finance Minister, Mr. Jose Antonio Ocampo, gave an
interview to Revista Semana, confirming that regulations on taxes on unproductive land and
expropriations, will be dealt with in the upcoming tax bill to be filed before Congress.

  • The questions rising from the above-mentioned comments seek preliminarily to conciliate
    the implementation of the new tax and the following constitutional principles on taxation:
    The Principle of Unity of Law, established in section 158 of the Colombian Constitution
    requiring that any draft bill refers to the same matter and determines that dispositions
    that do not relate to the main subject, are not admissible.

How will the expropriation of land be included in the new Tax Bill?

  • The Principle of Legality under section 338 of the Colombian Constitution requires that
    the Law directly establishes the active and passive subjects of the tax and the taxable
    event.
    How will the taxable event be established by December 31st 2022 when the upcoming
    tax bill is to be enacted, if the basis for the valuation of unproductive land is not
    determined by then?
  • The prohibition that taxes are confiscatory under section 35 of the Colombian
    Constitution forbidding confiscation penalties when the origin of the assets is not illicit,
    damaging to the public treasury or contrary to social ethics. This principle has been the
    basis for jurisprudence by the Constitutional Court that deems a tax as confiscatory
    when the individual’s earnings are destined exclusively to cover the amount of taxes in
    a way that does not generate any profit.
    How do you keep the new tax from violating section 35 of the Colombian Constitution?
    RA will be reporting any advances on the upcoming tax bill and on the implementation of
    the mentioned measures. https://www.reyesaa.com/en/

Founding Partner of Reyes Abogados Asociados. Mónica Reyes has extensive experience in International Tax Planning, including aspects related to taxes and contributions, foreign exchange, commercial and labor regulations.

She has participated in important mergers and negotiations and is recognized for her work at the National Tax and Customs Office of Colombia. At Occidental Petroleum she supervised the company’s tax planning. As a partner at Brigard y Urrutia Abogados, she oversaw the tax practice area for ten years.

Taxation of unproductive land

Mónica Reyes

Reyes