In Colombia, is real estate titled for less than its real cost of sale?
Article 90 of the Colombian Tax Code
Article 90 of the Colombian Tax Code is categorical in stating that “the price of the sale is the commercial value in money or in-kind”.
Real Estate Transactions
For real estate, the same rule states that the acceptable sale price for tax purposes cannot be lower than the cost, cadastral appraisal, and/or self-appraisal. However, it does admit a higher commercial value.
All of the above are required with the warning that in the public deed of sale, the parties, under oath, must declare that the price recorded therein is true and that there are no private agreements in which a different value is indicated. If there were any, the real agreed price must be informed.
In addition to the above, it contemplates that it must be stated in the same deed that there are no amounts agreed or invoiced in parallel to this or, in case there were, the agreed value must be included.
Failure to comply with the aforementioned implies the proceeding of a penalty equivalent to the liquidation of income tax, occasional gain, registration tax, registration fees, and notary fees, on a basis equal to four times the value of the property recorded in the deed.
In addition, the notary is obliged to inform the tax authorities of the irregularity, and the DIAN has the power to establish the real value of the transaction.
Inspection and Compliance
Now, if the value determined by the parties is notoriously far from the commercial value of the property on the date of the sale, the official in charge of the inspection may reject it for tax purposes and indicate a new price of sale based on the nature, conditions of the property and statistical data of the state entities.
In line with the above, the value assigned by the parties notoriously differs from the current average one when it deviates by more than 15% from the commercial prices for properties of the same species, quality, nature, condition, state, and on the same date of the sale.
Legal Implications
Under this legal context, it is imperative to insist that the real value of the property must be accurately stated in the public deed and that in no way can a price different from this be declared. If it is, the consequences contemplated in Article 90 of the Tax Code will be effective as mentioned, without prejudice to the criminal actions against the violators.
Despite the clarity of the provision, different misguided judgments affirm that it is possible to declare a value different from the real value of the negotiation in the public deed, under the erroneous understanding that the article allows the parties to record only 85% of the real value.
This argument is clearly wrong and contrary to the provision because this parameter is only established for the inspecting officer to object and determine the real price of sale, but in no way enables the parties to declare the sale price reduced by 15%. This is an interpretation far from the regulations, thus openly contradicting the sixth paragraph of article 90 mentioned above.
In this sense, it would be illogical for the provision to indicate at the beginning that the declaration of the price in the public deed must be following reality while allowing a percentage of the same to be hidden.
In this way, it is completely ruled out any interpretation that, using the percentage (85%) that constitutes the value that notoriously differs from the real one, seeks to report a lower price than the real one.