FATCA in Columbia

Under FATCA, United States taxpayers with specified foreign financial assets that exceed certain thresholds are required to report those assets to the IRS. This reporting is made on Form 8938, which the taxpayers attach to their individual federal income tax returns. To help the individuals understand how FATCA may impact their filing and reporting responsibilities, one must understand what information is needed for U.S. Taxpayers on Form 8938 Requirements.

INFORMATION FOR FOREIGN FINANCIAL INSTITUTIONS

FATCA requires the foreign financial institutions to report to the IRS, through DIAN, information about financial accounts being held by US taxpayers or held by foreign entities in which US taxpayers hold a substantial ownership interest. It is possible that the Colombian financial institutions contact Colombia’s DIAN regarding the implementation of the FATCA intergovernmental agreement with the United States.

COLOMBIA TAXES COLOMBIAN RESIDENTS ON THEIR WORLDWIDE INCOME

• Colombia has been in the process of becoming a member of the OECD and is willing to follow OECD’s initiatives, such as the OECD Common Reporting Standard (CRS).
• The Colombian government has also adopted general anti-avoidance rules in its 2012 tax reform.
• The 2014 tax reform established a special return to report the assets that were held abroad. Additionally, a temporary “normalization tax” was also imposed in order to legalize the omitted assets and non-existent liabilities.
• Some exchange of information agreements has also come into effect (e.g., OECD’s Convention on Assistance in Tax Matters). Additionally, Colombia has recently signed a double tax treaty with Panama, but no official text was released.
• There is no CFC regime in place in Colombia. However, in the legislative history of the year 2014 tax reform, the Colombian government announced its desire to establish an anti-deferral regime.
• Columbia even had an agreement in substance for implementation of the US FATCA regime and had even implemented the CRS in the year, 2017 with the reporting data of FY2016.
• Since the US FATCA and CRS are reciprocal reporting regimes, non-residents of Colombia with accounts in Colombia would be reported to in their home country. Furthermore, Colombia residents with offshore accounts in the participating countries would also be reported to the Colombia tax authority.

DIRECT AND INDIRECT OWNERSHIP OF INVESTMENT ACCOUNTS

US FATCA regime and the OECD CRS regime, both require the reporting of accounts that are held directly by the individual taxpayer and indirectly, through personal investment companies, trusts, or foundations.

AMNESTY AND DISCLOSURE REGIMES

There was a usual disclosure program from 2015 to 2017 which was not specific to offshore accounts, that was provided for penalty abatement. This voluntary program has enabled a tax on omitted assets or unreal debts and has been declared as a complaint with the Colombian Constitution by the Constitutional Court.