Tax Controversy 2024 Comparisons

Tax controversies arise from audit programmes that could be initiated as a consequence of official tax audit programmes or a return request of balances in favour filed by the taxpayers.

The audit programmes can arise from one of two sources:

• broad programmes, generally carried out with the support of technology such as artificial intelligence (AI); and
• specific programmes, addressed to specific industries and/or specific situations (net operating loss (NOL), tax incentives, etc).

There is a non-official, but growing source for tax audits, which are anonymous third-party complaints before the tax authorities.

Most tax controversies arise from corporate income tax (transfer pricing included), wealth tax and VAT. For 2022, the values involved in the decisions adopted by the State Council in tax litigation were USD222 million, USD118 million and USD66 million, respectively.

Proper care when making decisions with tax consequences and proper care from the beginning of a tax audit are the best practices to avoid or reduce tax controversies. When talking about tax planning, in the authors’ view, keeping records of the analysis made in the form of a defence file is an example of a good practice.

This care implies for the taxpayers to update their knowledge of the official interpretation of the tax authorities, since this interpretation is compulsorily applied by tax auditors in the audit programmes. The need to update the knowledge includes the Court Rulings in tax matters produced mainly by the Constitutional Court and the State Council, because in most of the cases those Rulings adopt mandatory criteria.

Domestic rules adopted in Law 2277, 2022, include rules based on Pillars 1 and 2 of the OCDE which are intended to increase tax collections. Because these are new rules there is no certainty about the results, but the increase in tax controversies is expected. In fact, a kind of Pillar 2 adopted as Article 240, paragraph 6 of the National Tax Code, has four lawsuits before the Constitutional Court against that rule.

Gradually the double taxation treaties have reduced the tax controversies in some cross-border payments provided by the lower withholding tax rates established in those treaties.

The tax assessment is formally initiated though an administrative act called a “special requirement”. Within the three months following the deadline to answer that administrative act, the tax authorities can issue a new one strengthening the initial one or with a new completely different proposal for assessment. Following the formal tax assessment (“official liquidation”), there is no possibility for additional tax assessments for the same tax and period.

Taxpayers are not required to pay or guarantee the payment of taxes to file administrative or judicial phases. However, once the administrative phase ends, the tax authorities can initiate a coercive collection process to collect the amounts due. Nevertheless, that coercive collection process must be stopped when the lawsuit is filed before the Tax Courts.

In additional to the administrative procedure, criminal filings are not unusual for not paying withholding tax and/or VAT by the due dates.

There are tax audit programmes for different industries, which vary annually. The access to that information is not formally informed by the tax authorities. Clearly the continuous accumulation of NOLs and substantial transactions subject to transfer pricing and with free trade zones are audited.

Other sources for tax audit are differences in tax information provided formally by taxpayers and other actors such as banks, notaries, customs authorities, social security authorities, and others, and the information provided by the individual taxpayer, detected using technology including AI.

It is expected that in the near future a strong emphasis on controlled foreign company (CFC) rules (effective tax residence and passive income) and wealth tax is coming, according to tax authorities’ messages.

The first notice for a tax audit is a request for information, which can be followed by several tax requests and a tax inspection.

The formal tax audit starts with a request for amendment or an administrative act called a “special requirement”. The statute of limitations is three years. In the case of liquidation or compensation of NOLs it is six years, and five years in the case of transfer pricing.

The statute of limitations can be suspended for one month if a request for amendment is provided and/or three months more if a tax inspection is initiated.

The tax audit is carried out at the tax authority’s offices but some visits and tax inspection can be done during the audit.

The audit requires printed documents or data made available electronically, including that which has been provided for other taxpayers as information provided by any anonymous third party.

The key areas that call the attention of the tax authorities are omission of income, business purpose of the transactions and, in the case of costs and expenses, causal relationship with the business, need and proportionality.

To speed collection, a significant part of the audit currently is focused on formal requirements, such as invoices fulfilling legal requirements, tax registration before the tax authorities and contributions to social securities in the case of payments to individuals.

Cross-border exchanges of information have provided, especially, material for tax audits on Wealth Tax for individuals. Recently this activity has been reduced, but could increase because of the permanent Wealth Tax for individuals adopted since 2023 by Law 2277, 2022.

Currently collaborations from or for tax authorities from other jurisdictions are not usual.

Recurrent sources for disputes with the tax authorities are errors and lack of information in the initial stages of a tax audit. The right approach is the opposite, which means attending the initial requests for information with diligence, and asking for the review from the tax attorneys if there are sensitive transactions or if there is notable information.

The best strategy to avoid tax disputes when feasible is to provide complete, clear and accurate information to the tax authorities, from the beginning.

The administrative phase before the judicial phase is mandatory as well the fulfilment of some terms and legal requirements. For example, substantial differences between the “special requirement” and the formal tax assessment (“official liquidation”) would trigger that the tax judges declare the administrative acts illegal, cancelling those acts.

The usual administrative process is that after the formal tax assessment, the taxpayer appeals that act before the tax authorities, and just after the final decision is made through a formal resolution, both acts can be sued before the tax judges.

Nevertheless, when the answer to the “special requirement” is filed in a timely manner, completed and duly supported with arguments, proof and evidence, the taxpayers can decide to leave out the appeal and go directly to the judges with the lawsuit. This option is chosen frequently because usually the appeal before the tax authorities does not produce any total or partial change in favour of the taxpayer. Before the tax judges, the situation for the taxpayer cannot be worsened.

The investigation at the administrative phase is made by the tax audit team. Its work is finished with the “special requirement”. The term to answer this act is three months.

The answer to the special requirement is evaluated by the liquidation team of the tax authorities. Its work is finished with the notification of the formal tax assessment.

The appeal to the tax assessment is evaluated by the legal department of the tax authorities. The tax prosecution against the formal tax assessment, and the resolution to the appeal, must be filed to the tax judges within the following four months after the resolution to the appeal.

Along the administrative phase, when the taxpayer considers that their rights and interests are not fully protected, or that some irregularity may arise, they can ask for the accompaniment of the Taxpayer Advocate Service (“Defensoría del Contribuyente”) whose participation is usually useful.

The legal department of the tax authorities has 12 months to make a decision about the appeal filed by the taxpayer. If the decision is not made and notified to the taxpayer within that term, the decision is considered totally in favour of the arguments of the taxpayer (positive administrative silence), according with the law. Any lawsuit related to the positive administrative silence can be filed by the taxpayer at any time.

The lawsuit must be filed within the following four months after the resolution to the appeal presented by the taxpayer against the formal tax assessment. The lawsuit must be aligned with the arguments previously presented to the tax authorities during the administrative phase. Nevertheless, accordingly with the jurisprudence of the State Council, new and better arguments and evidences can be presented to the tax judges.

What is not allowed is presenting new facts during the lawsuit. For this reason, diligence in the administrative phase is essential. In fact, a key fact not presented to the tax authorities in the administrative phase could result in a lack of consideration by the tax judges.

Generally speaking, the idea of not using all the facts, arguments, proof and evidence from the beginning could be a poor strategy. Nevertheless, under extraordinary circumstances that could be the right strategy.

There are two phases in the judicial tax litigation. The competence for the first phase varies based on the amount of discussion, considering taxes and sanctions but not delaying interest payment.

If the amount is lower than USD170,000, the first phase corresponds to an administrative judge and the second phase corresponds to an administrative tribunal/court.

If the amount is equal to or higher than USD170,000, the competence for the first phase corresponds to an administrative tribunal/court and the second phase corresponds to the State Council, which is the closing court in Colombia.

In both cases, after the filing and admission of the lawsuit, the law has established three stages for the first phase. The initial hearing, the stage for proof and evidence, and the stage for allegations and judgment. Just the first and the third stages are mandatory when there is new proof/evidence to be collected.

The initial hearing is essential because on it the judge established their understanding of the case, that would influence the process development. An active, prudent and propositional participation of the attorney is usually relevant for protecting the taxpayer’s interest to avoid improper understanding of the case by the judge or magistrate.

The stage for allegations could be oral or written. When the case is clear for the judge/magistrate, usually they choose to ask for written allegations.

After the judge or the tribunal produce the decision, the taxpayer’s attorney has ten working days to appeal. The appeal is presented to the judge or the tribunal that produces the decision which would grant the appeal to the tribunal or the State Council which could potentially admit the appeal. Usually an appeal filed in a timely manner is admitted.

Once the decision (tax court ruling) is made, the decision is irrevocable.

There are some extraordinary awards, but they are only awarded in very restrictive situations.

Historically the requirement for proof and evidence has been frequent in tax litigation. Nevertheless, the need for suitable and appropriate proof and evidence has grown in recent years.

There is some proof, eg, invoices fulfilling requirements provided by the law that cannot be replaced by other proof. The same happens, for instance, with certain tax registrations, such as the previous registration before the tax authorities of contracts for importation of technology services.

All the proof and evidence must be presented with the lawsuit if those are within reach of the taxpayers, the others, as witnesses, must be requested within the lawsuit. Only under extraordinary circumstances would additional proof that appears after the lawsuit filing be considered. The judge or magistrate has the power to ask for other proof and evidence but this is exceptional.

The stage to discuss such is that of proof and evidence provision, before the stage for allegations and judgment.

The burden of proof is very demanding for the taxpayers but less demanding for the tax authorities.

The taxpayer can have clear and strong arguments but if the proof/evidence is weak, the possibility for losing the case is high. There are some widely known cases in which, for the community of tax litigators, the proof was appropriate, but not for the State Council.

The law provides the possibility of paying at the administrative phase but continuing with the litigation, which is used to avoid the increase in penalties and delay payment interests, in case of unfavourable final decision. Some attorneys consider this possibility risky because it could be produce in the mind of the judge or magistrate the idea that the taxpayer has doubts about the strength of the merits of the case.

In case of a final favourable decision, whether partial or total, the reimbursement or the amount paid in excess to the amount due can be claimed back.

According to the Constitutional Court doctrine (Decisions S.U.068 and S.U.113 of 2018), the precedent contained in jurisprudence produced by the Constitutional Court and the State Council is mandatory, if the facts and circumstances are exactly the same. Nevertheless, the Constitutional Court accepts that if dully argued, the precedent cannot be followed. Other sources of jurisprudence can be quoted to support the final decision, including that produced in other jurisdictions, but this is not mandatory.

On the other hand, international guidelines (ie, OECD Double Taxation Treaty and Transfer Pricing Guidelines) are well appreciated and used by the judges and magistrates to guide the analysis.

The tax ruling is mandatory if favourable to the taxpayers and following from the administrative phase to support the defence.

The opportunity for appealing the first phase decision is slim and, in any case, within the following ten days of the notification of the final decision.

Some judicial proceedings can be appealed as well, but this is not common with respect to tax cases. When this happens it is usually due to some irregular procedures from the judge or magistrate; they are very isolated cases in the tax jurisdiction.

The tax appeal is the second phase, mentioned in 4.2 Procedure for Judicial Tax Litigation, which consists of a stage for allegations, which is usually in writing.

As mentioned in 4.2 Procedure for Judicial Tax Litigation, the first phase depends on the value of the case.

If the competence corresponds to a judge, the decision will be produced for them alone. If it corresponds to a tribunal, the decision will be proposed by one in charge of the case, but will be adopted by a group of three magistrates.

In the second phase, when the competence corresponds to a tribunal, the final decision will be proposed by the one in charge of the case, but will be adopted by a group of three magistrates. If it corresponds to the State Council, the final decision will be proposed by the one in charge of the case, but will be adopted by a group of four magistrates.

Mutual Agreement Procedures (MAP), which allow competent authorities to interact with the intent to resolve international tax disputes, were adopted by the tax authorities through Resolution 85 dated August 2020. There is no evidence of the use of this mechanism yet.

There are no alternative dispute resolution (ADR) mechanisms for other matters.

This is not applicable in Colombia.

There are no arbitration mechanisms allowed for tax purposes.

There are some drafts of tax bills to be adopted, but the authorities’ point of view is far away from the view of the taxpayers and attorneys.

This seems to be a priority to the government, because collections from tax arbitration are considered within the 2024 national budget of the country.

Transfer pricing advance pricing agreements (APAs) are considered within the Tax Code in Article 260-10. There is no similar mechanism for areas other than transfer pricing.

The official mandatory rulings for a single taxpayer are not considered in the Colombian tax law. What the law provides is that general tax rulings are mandatory for the tax authorities. This means that if a taxpayer makes a decision based on one of those general tax rulings, the possibility to be audited is remote.

In practice, the taxpayer can file a request for a general tax ruling and, afterwards, if the ruling is aligned with the taxpayer’s interpretation, the risk for a tax audit is low.

This is not relevant in Colombia.

Transfer pricing APAs are considered within the Tax Code in Article 260-10. Just one APA has been signed in Colombia. This means the understanding of the level of effectiveness of this mechanism is currently non-existent.

There are criminal consequences for individuals and, in the case of corporations and other entities, for all the legal representatives in seven cases.

• Not include all the assets in the tax returns, included the assets for a lower amount than the tax basis or declared debts that are not real.
• Avoid the duty of filing tax returns.
• Declare costs or expenses non-existent.
• Claim tax credits, withholdings or advance payments without the right to them.
• Not paid national withholdings within two months from the due date.
• Not paid VAT collected within two months from the due date.

There are administrative consequences for the accountant and the statutory auditor who signed the financial statements or the tax return, in the case of inaccuracy in a tax return. The consequence is that the professional work of the person can be interrupted for one year in the first opportunity; two years in the second; and indefinitely in the third.

These hard consequences for the professional have been contained in the law since 1992, but they have been applied just in extreme cases. Nevertheless, the use of this provision contained in Article 660 of the Tax Code has been increasing since 2022.

Generally speaking, there is no relationship between the administrative and criminal processes, because the individuals affected are different; firstly the accountant and the statutory auditor are affected, and secondly the legal representatives are affected.

There is a connection between a tax audit for the taxpayer and the administrative process against the accountant and the statutory auditor; if the first one is closed, the second follows.

The administrative process starts within the tax audit, with the “special requirement”, in the same administrative action.

The criminal process could be initiated just at the end of the administrative process, when the appeal is decided.

The administrative process follows a different path after the final decision is made by the tax authorities, because the body with the legal capacity to make effective the fine imposed by the tax authorities is the Colombian professional body for accountants (Junta Central de Contadores). Despite this, another process can be initiated separately against that fine, before the tax judges or tribunal.

The competency for the judicial process corresponds to another court other than the Tax Court.

If the taxpayers accept the adjustments within three months of answering the “special requirement”, the penalty is reduced to a fourth and the delay payment would be liquidated with a reduced tax rate.

Afterwards, if the taxpayers accept the adjustments within two months to appeal the formal tax assessment (the “official liquidation”), the penalty is reduced to half but the delay payment would be liquidated with the ordinary rate for tax purposes.

It is possible to stop a criminal tax trial by paying the tax assessed, plus delay payment interest and penalties, just twice, since 2023.

Before that date, this possibility was not limited to two opportunities.

After a tribunal makes the decision in a criminal case, the only possibility is an extraordinary appeal (“recurso extraordinario de casación”) before the Supreme Court.

This is not applicable in Colombia.

In order to resolve a cross-border tax dispute, Colombia adopted, in 2019, a mutual agreement procedure (MAP). In 2020 the government issued the corresponding regulations for such procedures, however, Colombia has only received a couple of cases of MAP related to the interpretation or application of tax treaties. Therefore, even though the use of MAPs for solving an international dispute is not common, the mentioned procedures will be more effective, hence it is possible that MAPs will be used in a more frequent way in the disagreements involving international controversies.

In 2017 Colombia signed the Multilateral Convention to Implement Tax Treaty Related Measures to prevent Base Erosion and Profit Shifting (MLI) aiming to modify the MAP section of the tax treaties signed by Colombia applying Action 14, Minimum Standards. Colombia did not make a reservation in Section 16 of the MLI regarding the mutual procedure.

There is no jurisprudence in Colombia regarding GAAR or SAAR in cross-border disputes, however, the regulation of MAPs includes the use of treaty anti-abuse provisions, LOB, PPT and GAAR provisions.

The PPT introduced in the MLI and in which Colombia did not choose to apply a reservation will have an effect on the DTTs included in the multilateral instrument (eg, Canada and Spain), considering that it will limit the application of the benefits applicable in the DTTs and, therefore, the court decision will take into account the application of GAAR or SAAR provisions. Colombia chooses the application of provisional PPT while a LOB or PPT is negotiated with the jurisdictions of the DTTs included in the MLI.

Colombia included transfer pricing cases within the MAP regulation for those that could be resolved by such mechanism. However, there are no public cases to confirm the application of international transfer pricing adjustments, and the domestic courts have only decided on transfer pricing adjustments assessed by the tax authority based on the local tax regulations.

APAs are recognised in Colombian legislation. The types of agreements covered by local legislation are the following.

• Unilateral Advance Pricing Agreements;
• Bilateral Advance Pricing Agreements; and
• Multilateral Advance Pricing Agreements.

The stages of the process are:

• (i) the pre-filing meeting;
• (ii) formal application;
• (iii) evaluation;
• (iv) negotiation;
• (v) drafting and execution; and
• (vi) annual compliance.

Based on the Executive Order 85 of 2020 and Guideline on Advance Pricing Agreements issued by the Colombian Tax Authorities:

(i) Pre-filing meeting – even though it is an optional stage, it is highly recommended. The taxpayer and tax authorities in Colombia will assess the probability of success of the proposed advance pricing. In this pre-filing meeting the taxpayer must present the general information of the transaction (ie, covered transaction amount, brief business description and proposed Transfer Pricing Method) and it can be anonymous.

(ii) Formal application – the taxpayer must request in writing before the Tax Authorities in Colombia, describing with detail its core business and any additional activities carried out by the requesting party and the related parties. Also, there should be a detailed description of the transaction covered and the method and treaties or pricing proposal approved by the tax administration of other states with the corresponding pricing methodology proposed. The application can be accepted or rejected, and the mentioned decision has to be notified by the Tax Authorities within nine months of the confirmed receipt of the application. For bilateral and multilateral APA applications, the decision has a different deadline agreed jointly by the Colombian Competent Authority and one or more double tax convention partners.

(iii) Evaluation – once it is accepted, the Tax Authorities will perform a detailed and specific analysis; if such entity comes to a different conclusion from the position of the taxpayer, a discussion will be opened to seek an agreement that will be mutually accepted.

(iv) Negotiation – the taxpayer and the Tax Authorities will begin a formal negotiation in order to conclude the applicable APA position. In the bilateral or multilateral APA the Colombian competent authority will negotiate with the foreign jurisdictions.

(v) Drafting an agreement – if the negotiation is positive, the tax authorities will prepare an advance pricing agreement that will be signed by the taxpayer.

(vi) Annual compliance – the taxpayer is obliged to file a compliance notice and the tax authorities can audit the operations covered by the APA.

From a general perspective the tax disputes that are generating or will generate more litigations will be transfer pricing, withholding taxes applied for provision of services and corporate profits. The correct application of the DTT and the case studies will eventually mitigate the mentioned litigation.

State aid disputes involving taxes are not applicable in Colombia.

This is not relevant in Colombia.

No information has been provided concerning challenges by taxpayers for the jurisdiction of Colombia as it is not applicable.

Refunds invoking extra-contractual civil liability are not applicable in Colombia.

Colombia chooses not to include Part VI of the MLI, primarily for sovereignty protection and to maintain jurisdictional control over tax matters that could be subject to court decisions. Although there is no constitutional prohibition on tax arbitration in Colombia, it is not applicable in practice. Nevertheless, Colombia has signed the DTT with France, including an arbitration clause.

In Colombia at present, there is no rule applicable to the resolution of conflicts in arbitration instances for tax purposes. However, recently there have been discussions about the extension of arbitration to tax matters, understanding that its purpose is not to replace ordinary jurisdiction but to complement it, guaranteeing taxpayers more accessibility, speed and efficiency in the resolution of disputes, and of course, to contribute to one of the biggest problems that the judicial branch has in Colombia, judicial congestion.

For this reason, in tax matters, arbitration has never been applied. Despite this, it is worth highlighting that in the DTT signed by Colombia, dispute resolution clauses have been agreed upon that, in only two cases, leave the door open to resorting to arbitration.

In the CDIs signed by Colombia, Article 25 of the OECD model has been applied, with certain variations, which speak of friendly agreement, mutual agreement, and arbitration. However, in cases where the possibility of accessing arbitration as a conflict resolution mechanism is left open, it can be problematic in practice, understanding the legal vacuum that exists in Colombia on the subject. Despite this, it is likely that this instance will be extended to tax matters soon.

The current panorama regarding dispute resolution in the CDIs signed by Colombia is as follows.

• Japan – includes mutual agreement procedure.
• Italy – includes mutual agreement and arbitration procedure.
• France – includes friendly procedure and arbitration.
• United Kingdom of Great Britain and Northern Ireland – includes mutual agreement procedure.
• Czech Republic – includes friendly procedure.
• Portugal – includes mutual agreement procedure.
• Republic of India – includes mutual agreement procedure.
• Republic of Korea – includes mutual agreement procedure.
• Mexico – includes mutual agreement procedure.
• Canada – includes mutual agreement procedure.
• Switzerland – includes friendly procedure.
• Republic of Chile – includes mutual agreement procedure.
• Spain – includes friendly procedure.
• Andean Community of Nations – includes mutual agreement procedure.

Although Colombia signed a DTT with the possibility to start arbitration if necessary, Colombia does not apply arbitration in tax matters. However, there is a current constitutional evaluation of this mechanism.

Colombia has been updating its tax treaties in accordance with the latest trends proposed by the OECD and, above all, considering most of the changes implemented in the MLI. An example of these are the treaties signed with France and the United Kingdom.

Even though it is not public a couple of MAP requests have been filed, therefore there are cases that have been initiated.

In Colombia, the suggestions of Pillars One and Two have not been applied, however, for some, the inclusion in the recent tax reform with Law 2277 of 2022, of the concepts of Significant Economic Presence (PES) and the Minimum Rate of Taxation, meant the materialisation, good or bad, of said Pillars.

However, by observing each of these figures adopted in Colombia in detail, it can be made clear that the proposals of Pillars One and Two of Base Erosion Profit Shifting (BEPS) have some differences with respect to what is proposed in the country.

First of all, the concept of Significant Economic Presence (PES) can be understood as a measure adopted unilaterally, which to a certain extent contradicts what is suggested by BEPS. This is because the figure of PES in Colombia, inspired by Pillar One, basically consists of modifying the rules of what was understood as income from a national source, in order to expand this criterion to the PES of non-residents in the country.

What is related to the Pillar One figure is that it specifically includes digital service platforms. There are other criteria for it to be considered that PES exists in Colombia, but the problem is that it is likely that the income to which the person for whom PES is configured is obliged to be taxed again in the country of residence. Despite this, the door is left open that if an international agreement that prohibits this figure is implemented in Colombia, the PES figure will no longer apply.

For this reason, for many it is a temporary measure that Colombia adopts regarding the digitalisation of the economy, but it is still a unilateral measure, something that Pillar One sought to avoid. Therefore, it is possible that this measure, modified, of Pillar One, can lead to generating greater international disputes, in relation to more double taxation scenarios.

Second of all, the new concept of the Minimum Tax Rate can be associated with Pillar Two, which establishes a minimum tax rate of 15%. The problem is that, in principle, this rate applies to all legal entities, with only a few exceptions. Therefore, a BEPS recommendation that was initially aimed at multinational companies with high annual income, was transformed into a measure that is estimated to affect hundreds of thousands of companies in the country, as it does not distinguish by income level, nor by taxpayer groups.

Although arbitration has not been implemented in Colombia, it must be said that in the last agreements signed, Colombia has implemented the arbitration clause and, in the domestic legislation, it has taken great care to improve the regulation of the mutual agreement procedure. This shows the interest of the tax authorities in Colombia to implement, in a good way, alternative dispute resolution mechanisms.

Currently there are no settlement mechanisms available. See 10.7 Publication of Decisions.

Considering that arbitration does not apply in Colombia, it has not been determined who exactly chooses the independent professionals. However, for MAP taxpayers there is the possibility to hire an advisor.

No fee will be charged at the administrative phase by the government, the only cost will be the advisor if the taxpayer considers such advice necessary.

There are no fees for court litigation in Colombia, however, if the taxpayer or the authorities lose/s they may claim the cost or expense incurred in the litigation.

This type of indemnity is not applicable in Colombia.

In the administrative or court litigation there is no possibility to apply ADR mechanisms, therefore no cost will be applicable.

According to the Judicial Management Statistics Control Board provided by the Judicial Branch of the Superior Council of the Judiciary, for the year 2023, in the Administrative Courts and courts throughout the country, there were 8,181 cases related to tax matters in the first or only instance. In the second instance there were 1,885 cases.

According to the Statistical Development and Analysis Unit of the Superior Council of the Judiciary, in the fourth section, which is responsible for hearing tax matters, of the Administrative Litigation Chamber of the Council of State, there were 2,808 effective process entries in 2023, and there were 2,519 effective process exits, leaving an inventory at the end of the year of 1,114 processes. Monthly, 234 processes entered, and 209 processes were discharged to this high court.

Data on pending cases for 2023, and their values, have not been revealed to the general public to date.

The number of processes that entered and left the Council of State (high court) can be found in 12.1 Pending Tax Court Cases. The information related to the processes related to different taxes and tributes, and the value of each process, has not been revealed to the general public.

Neither the Statistical Development and Analysis Unit, nor the Judicial Management Statistics Control Board of the Superior Council of the Judiciary, have provided data regarding the parties that succeeded in litigation in 2024.

However, according to the most recent Volume XI of the “Observatory of Tax and Customs Jurisprudence”, in 2020 (latest publication available), out of 41 rulings handed down by the fourth section of the Council of State, 39% of them had a favourable result for the administration, 41.4% were favourable for the taxpayer, while 19.5% had a partial decision.

When considering a possible dispute with the tax authorities, it is important to take into account several elements that can help achieve a favourable result for the taxpayer.

Formal and Substantial Obligations

Firstly, it is worth being clear about two fundamental aspects of the tax obligation – the formal obligation, consisting of the elements that allow verification of compliance in the payment of taxes, as well as the identification of obligated taxpayers.

Some of the formal obligations include:

• the presentation of declarations according to the forms and formats provided by the tax authority;
• obligation to keep accounting;
• registration in the RUT;
• reporting of exogenous information; and
• obligation to issue an electronic invoice.

The tax administration uses these elements to investigate and collect taxes from taxpayers. This gives way to substantial obligations, which consist of providing the elements that allow the tax to be generated, or in other words, complying with the budgets established in the tax regulations. This implies compliance with the event generating the tax, which must be taken into account when attempting to initiate a dispute with the authorities, since it is the situation that allows the tax authorities to demand payment of the tax obligation from the taxpayer.

Compliance with the generating event is the circumstance through which a person becomes liable for tax in favour of some tax authority. These elements are variable depending on the tax, for example, in Colombia there are national taxes (such as income tax), and territorial taxes (such as industry and commerce tax), which vary depending on the municipality in which they are located, and meet the circumstances of the generating event.

Therefore, it is important that the taxpayer, advised by their legal consultants, is clear about whether they are immersed in the situation described in the regulations that define the tax (in the generating event). This way, you will know the probabilities of having a successful resolution of the dispute with the tax authorities.

Probationary Regime

The evidentiary regime is a fundamental element when becoming immersed in a tax controversy or considering starting one. It is through the evidentiary regime that in Colombia the fundamental rights of taxpayers can be fulfilled (such as the right to defence, legality and equality), and it is through it that a favourable result can be reached.

Furthermore, it is necessary that in the controversy, the taxpayer and their advisors keep in mind the rules of necessity and opportunity of evidence, in order to fully provide the evidence that supports their case.

It is worth keeping in mind that, sometimes, the taxpayer’s rights, associated with the evidentiary regime, can be violated by the tax authorities and even by the judge in charge of the process. Therefore, it must be kept in mind that the taxpayer is not denied unfounded evidence, that the taking of evidence is denied, that the judge does not incur an improper evaluation of the evidence, and that the opportunity to provide it is respected.

In the event that serious errors are made that disadvantage the taxpayer, this may mean an unfavourable result for the tax administration, which is why it is necessary to have full knowledge of the regime and its operation.

It is also recommended to reserve all evidentiary material that may eventually be necessary in the controversy, since it is on this same issue that the judge resolves, or that the tax authority decides.

It is worth keeping in mind that currently, the evidence appreciation system known as “legal tariff” is still admissible. In this system, the law is what specifically establishes the value of the evidence and the judge only applies what is provided in it. That is why it is worth knowing in depth the value given to each of the means of proof in the controversy (among which are the confession, testimony, indications and presumptions, documentary evidence, accounting evidence, or expert evidence).

Exhaust the Discussion at Administrative Headquarters

Before continuing the discussion of the controversy in judicial instances, it is necessary to know the terms to understand the discussion in administrative media as exhausted. Regarding this, it is understood to be exhausted when the process before the tax administration ends directly. Therefore, before continuing the discussion before a judge, it is necessary to verify that the resources that are mandatory according to the law were exercised.

Economic Impact of the Controversy on the Taxpayer

The economic value of a tax litigation does not focus only on the amount owed for the tax and its penalty; there are also other associated elements that are worth taking into account. For example, at the end of the controversy (which can last up to eight years in the Council of State), it may happen that the penalties and default interest must be adjusted to the date on which the controversy was resolved.

In addition, the impact on the higher tax or lower balance in favour should also be taken into account, and the quantification of the benefits that can be obtained when taking advantage of the reduction of penalties in the legal opportunities. Sometimes it may be more favourable to acquiesce to the charges, obtain a reduction in penalties and avoid litigation that is unlikely to have a favourable solution for the taxpayer.