Colombia – Junk Food Tax – LAW 2227 OF 2022 AND DIAN RULINGS

The 2022 tax reform introduced, with effect from November 1, 2023, a tax classified as healthy, called the tax on industrially ultra-processed edible products and/or with a high content of added sugars, sodium or saturated fats (hereinafter the “ICUI” for its acronym in Spanish).

REASONING IN THE BILL SUBMITTED TO CONGRESS

The ICUI does not pursue collection purposes, strictly speaking.

According to the reasoning in the bill sent to Congress:

“On the other hand, ultra-processed foods, also known as ‘junk food’, have been the cause of chronic non-communicable diseases, such as hypertension, obesity, diabetes and some types of cancer, generating an expense to the health system of approximately 25 trillion pesos per year (2.1% of GDP) (Portfolio, 2022).

“One way to reduce the negative externalities associated with the consumption of sugar-sweetened beverages and ultra-processed foods is to implement a consumption tax on these products. These types of taxes correspond to a Pigouvian measure, and are generally used to reduce the consumption of some goods that result in negative externalities on the health of the population, in order to reduce the expenses of the health system associated with the incidence of diseases derived from the consumption of sugary drinks and ultra-processed foods and improve the well-being of the population.”

As can be seen, the ICUI is planned to correct the negative externality derived from the consumption of junk food on the health of the population through two mechanisms: the disincentive to their consumption and the generation of public resources that contribute to financing the requirements of the health system derived from related diseases.

THE TAX STATUTE PROVISIONS

The ICUI is regulated in articles 513-6 to 513-13 of the Tax Code.

In accordance with these provisions, the main features of the ICUI are as follows:

The Tax Administration

The tax administration of this levy is the Directorate of National Taxes and Customs (“DIAN” for its acronym in Spanish).

Taxable Persons

The producer and/or importer of these products, as the case may be, are responsible for the ICUI.

Taxable Events

Except for exports and certain donations that are excepted, the ICUI taxes:

  • The production, sale, removal of inventories or acts involving the transfer of ownership free of charge or for consideration of these products.
  • The importation of the aforementioned edible products.

However, it should be noted that this tax is not levied on all such edible products, but only those that have added sugars, salt/sodium and/or fats as ingredients and their content in the nutritional table exceeds the following values:

To calculate the percentages established in the table, the procedure in Paragraph 1 of Article 513-6 of the Tax Code should be followed. Paragraph 1, in addition to establishing the procedure to determinie the values, makes an extremely important clarification, namely, that, in the case of imported goods, the values of sodium, sugar and/or saturated fat content in the nutritional table must be reported in the import declaration. In other words, it will be based on the values contained in line 90 of the import declaration that, at the time of nationalization, determination is to e made as to whether or not the payment of the ICUI is appropriate.

But, as an additional limitation, only goods of the following tariff headings and subheadings are subject to ICUI, to the extent that they contain sodium, sugars or saturated fats in accordance with the definitions referred to below:

Taxable Base

The taxable base of this tax is the sales price.

In the case of donations or removal of inventory, the taxable base is the commercial value.

In the case of imported godos the taxable base on which the ICUI is to be calculated will be the same as that taken into account to settle customs taxes, increased by the value of this tax.

In the case of finished products produced in free zones, the taxable base will be the value of all production costs and expenses in accordance with the integration certificate plus the value of customs taxes. When the importer is the buyer or customer in the national customs territory, the taxable base will be the value of the invoice plus customs. taxes

Tax Rate

The tax rate is determined as follows:

Triggering Events

The ICUI is triggered as follows:

Definitions:

Article 513-6 of the Tax Code contains the following definitions:

  • Ultra-processed products are industrial formulations made from substances derived from food or synthesized from other organic sources. Some substances used to make ultra-processed products, such as fats, oils, starches and sugar, are derived directly from food. Others are obtained through the further processing of certain food components, such as the hydrogenation of oils (which generates toxic trans fats), the hydrolysis of proteins, and the “purification” of starches. The vast majority of ingredients in most ultra-processed products are additives (binders, cohesives, colours, sweeteners, emulsifiers, thickeners, foamers, stabilisers, sensory ”enhancers” such as flavourings and flavourings, preservatives, flavourings and solvents).
  • Ultra-processed products are industrial formulations mainly based on substances extracted or derived from food, as well as additives and cosmetics that give color, flavor or texture to try to imitate food. They are high in added sugars, total fat, saturated fat, and sodium, and low in protein, dietary fiber, minerals, and vitamins, compared to unprocessed or minimally processed products, dishes, and meals.
  • Ultra-processed products are understood as having salt/sodium added to them; those to which any salt or additive containing sodium or any ingredient containing added sodium salts has been used as an ingredient or additive during the manufacturing process.
  • An ultra-processed product shall be understood as having fats added to it; those to which vegetable or animal fats, partially hydrogenated vegetable oils (vegetable shortening, vegetable cream or margarine) and ingredients containing added greases have been used as ingredients during the manufacturing process.
  • Added sugars are monosaccharides and/or disaccharides that are added during food processing or packaged as such, and include those contained in syrups, fruit or vegetable juice concentrates.
  • Processed and/or ultra-processed food product that have added sugars will be understood as those to which sugars have been added during the manufacturing process according to the definition of the previous paragraph.

Additional Considerations

  • Cancelled, rescinded or terminated transactions of the related to the products subject to the ICUI will result in a lower value of the tax payable, without giving rise to a refund.
  • The ICUI constitutes for the buyer a deductible cost in income tax as a higher value of the product, under the terms of article 115 of the Tax Code.
  • The ICUI does not generate deductible taxes on sales tax – VAT.
  • The ICUI must be itemized in the sales invoice, in addition to the sales tax -/VA itemized on the invoice.
  • The taxable period for ICUI will be bimonthly. The bimonthly periods are: January-February, March-April, May-June, July-August, September-October, November-December.
  • The deadlines to file the returns and pay the ICUI, other than the ICUI corresponding to imports, will be as follows:

The deadline to pay the taxes corresponding to the November-December 2023 two-month period will be extended from January 10th to the 23rd, 2024, according to the last digit of the TIN.

  • In the case of imports, the tax will be assessed and paid together with the settlement and payment of customs taxes, using forms 500, 505 and 690.
  • The ICUI return will not be filed in periods in which no transactions subject to these taxes have been carried out.
  • The penalty for non-payment of the ICUI is 20% of the value of the tax that has to be paid or 10% of the gross income that appears in the last tax return.

DIAN RULINGS

With respect to this tax, the DIAN has issued various rulings, among which we may highlight the following points:

  • The manufacturer of the inputs or ingredients used to manufacture the products subject to the ICUI is not liable for the ICUI, as would be the case – by way of example – of the producer of sugar, fats, oils and starches.  The foregoing, unless such inputs or ingredients, individually considered, correspond to ultra-processed sugary beverages (including concentrates, powders and syrups) or to industrially ultra-processed edible products and/or with a high content of added sugars, sodium or saturated fats in the terms defined by the Law.
  • The inputs or ingredients used to make industrially ultra-processed edible products and/or with a high content of added sugars, sodium or saturated fats are not taxed with the ICUI, unless such inputs or ingredients, individually considered, correspond to industrially ultra-processed edible products and/or with a high content of added sugars, sodium or saturated fats in the terms defined by law.
  • The taxable base of the ICUI on imports consists of the sum of the customs value, customs duties, other duties, taxes or surcharges levied on importation or on the occasion of importation and VAT.
  • It is essential that all the legal requirements are met for a product to be considered taxed with the ICUI, one of which is that the product is edible.  In this regard, the Dictionary of the Spanish Language contains the following:

(i) “Edible” is that which can be eaten.

(ii) “Eating” means “Chewing and swallowing solid food”.

Therefore, dietary supplements and reconstitution powders that are designed to be ingested in liquid form are not considered edible for the purposes discussed here. Therefore, they do not generate ICUI.

  • In relation to sodium, the legislator did not distinguish between added sodium and that which is naturally part of the edible product.

In relation to sugars and fats, only free sugars and saturated fats are taken into account. Therefore, for tax purposes, sugars and fats other than the above that are part of the edible product should not be taken into account.

To illustrate the above: If an edible product in its natural state has 299 milligrams of sodium per 100 grams and 2 milligrams of sodium per 100 grams are added to it, it would exceed the value from which the product is considered taxed with the ICUI (≥ 300 milligrams per 100 grams).

  • The definitions contained in Article 513-6 of the Tax Code on processed and/or ultra-processed products that “have added salt/sodium”, “have added fats” and “have added sugars” are not cumulative, although they may concur with each other; therefore, it will be sufficient for one of them to be present for purposes of the ICUI.
  • The information related to the ICUI must be included in the XML of the electronic invoice, under Code 35

As of December 1, 2023, discrimination (…) must be carried out under the terms set forth in the technical annex to electronic sales invoice version 1.9

  • Finally, although it is not a ruling per se, in a document related to the inflationary effects of the ICUI, the DIAN stated that the products taxed with the ICUI will be those that, as ingredients, have been added sugars, salt/sodium or fats sufficient to carry the front warning label established by the Ministry of Health.

CONCLUSION

The rules of the Tax Statute and the rulings issued by the DIAN, discussed above, leave open a good number of issues.

BéndiksenLaw has the experience and team to assist you with any concerns you may have regarding this lien. Contact us.

Jaime G. Béndiksen

The Impact of Regulatory Compliance in the Food Industry: Sebastián Béndiksen’s Vision at AndinaPack 2023

This Wednesday we had the privilege of being represented at AndinaPack 2023 with a talk by Sebastián Béndiksen, managing partner of BéndiksenLaw, in the Legal Forum “How Can Legal Tools Contribute to Circularity?” Sebastián, with his experience in the food and additives sector, tackled a crucial topic: compliance with regulations and labeling requirements in the food industry.

His presentation delved into how comprehensive knowledge of food and labeling regulations is essential for successful operation in the Colombian market. Sebastián emphasized that adhering to current regulations is not only a legal obligation but also a guarantee of quality and trust for consumers and a safeguard against potential sanctions. He highlighted the responsibility of companies to stay updated and comply with legislation to ensure their continuity and growth in the market.

Sebastián’s intervention served not only to illustrate the importance of regulatory compliance but also to underscore how BéndiksenLaw, with its expert and dedicated team, can be a strategic ally in this process. We believe that keeping up with regulations is not just a matter of compliance but also an opportunity to improve business practices and strengthen market confidence. Through the legal advice and guidance we offer, we help companies navigate the complex legal framework governing the food industry.

Our commitment to excellence and integrity in legal advice motivates us to continue actively participating in events like Andina Pack, where we can share our knowledge and learn from other industry leaders.

We invite those interested in these topics to visit our website for more information and discover how we can support them in complying with food and labeling regulations, a key step in ensuring the success and sustainability of their operations in the Colombian market.

Contact us.

BéndiksenLaw: A New Era of Opportunities with the U.S. Chamber of Commerce

BéndiksenLaw is proud to announce its recent membership in the U.S. Chamber of Commerce, a world-leading organization in advocating for business interests. With its motto of advocating, connecting, informing, and fighting for business growth and success, this affiliation marks a significant milestone for our firm.

The U.S. Chamber of Commerce, known as the largest business organization in the world, encompasses everything from small businesses and local chambers of commerce to leading industrial associations and global corporations. For BéndiksenLaw, joining this prestigious network means accessing an unparalleled platform of business connections, learning opportunities, and a stronger voice in advocating for trade and investment-friendly policies.

At BéndiksenLaw, we have always been committed to growth and innovation, and this new partnership with the U.S. Chamber of Commerce allows us to further expand our reach and capabilities. This step is an affirmation of our dedication to providing quality international legal services and our desire to drive economic growth and prosperity in both Colombia and the global stage.

We invite our clients and partners to discover how this new strategic alliance can benefit their businesses. Together, with the support and resources of the U.S. Chamber of Commerce, we are ready to face tomorrow’s challenges and blaze new trails in the world of international trade and investment.

Contact us to learn more about how we can help you make the most of this exciting new chapter for BéndiksenLaw.

Get ready for December! Obligations and key dates for Transfer Pricing in Colombia

In the complex Colombian business and tax world, Transfer Pricing plays a crucial role. Multinational companies engaging in transactions with each other must comply with this regime to ensure fair taxation. Here, at BéndiksenLaw, we break down the obligations and deadlines you need to keep in mind for the upcoming December 2023.

Transfer Pricing focuses on assigning values to transactions between related companies in different jurisdictions. In Colombia, these obligations apply to companies conducting operations with affiliated entities abroad, in free trade zones, or in low-tax jurisdictions.

Formal obligations: What should you do?

  1. Informative Return: Companies with assets exceeding 100,000 tax units (UVT) or annual income surpassing 61,000 UVT must file it.
  2. Local Report: If transactions with economic affiliates exceed 45,000 UVT or involve entities in low or no-tax jurisdictions, filing this report is required.
  3. Master Report: For taxpayers consolidating financial statements in multinational groups.
  4. Country-by-Country Report: Applicable to the parent company or corporate office of the multinational group, filing is necessary for those meeting certain conditions.

December deadlines: Act in advance

From December 11 to 22, based on the last digit of the Tax ID number (NIT), companies must submit master and country-by-country reports to the tax administration (DIAN), for fiscal year 2022. Ignoring these dates can result in penalties and legal issues.

Claudia González Béndiksen, partner at BéndiksenLaw, emphasizes, “Complying with these obligations is essential to ensure fair taxation and avoid penalties. Companies must stay informed about the requirements to contribute to a transparent and fair business environment in Colombia.”

Master Report – Fiscal Year 2022

Country-by-Country Report – Fiscal Year 2022

Act now! Ensure you meet these deadlines to maintain transparency and fairness in your business transactions.

Need guidance? Contact BéndiksenLaw today.

Sebastián Béndiksen’s Talk with the Media on International Arbitration in Colombia

After discussing the topic of international arbitration in Colombia, our managing partner and BéndiksenLaw have received notable mentions in various media outlets, including Diario La Economía, Valor Y Dinero, Economía en Serio, Revista Alternativa, Marcas y Estrategias and many others.

Don’t miss the opportunity to learn more about this relevant interview.

See the news (in Spanish) here:

Valor y Dinero: https://valorydinero.com/2023/10/06/el-arbitraje-internacional-en-colombia-y-el-caribe-fomenta-la-inversion-extranjera/

Diario La Economía: https://diariolaeconomia.com/economia-al-derecho/item/8190-arbitraje-clave-en-seguridad-de-inversionistas-por-controversia.html

Economía en Serio: https://economiaconedmer.com/economiaenserio/10/11/arbitraje-internacional-en-colombia-le-abre-paso-a-la-seguridad-juridica/destacados/2023/

Revista Alternativa: https://www.revistalternativa.com/noticias-economia/procedimientos-y-requisitos-del-arbitraje-internacional-en-colombia-42105

Marcas y Estrategias: https://marcasyestrategias.com/2023/10/20/procedimientos-y-requisitos-del-arbitraje-internacional-en-colombia-2/

Contact us for more information, we will be happy to address your concerns.

Promoting Future Lawyers: BéndiksenLaw in the Business Trial Competition

In the business sphere, the law establishes the bases that guide the operation and management of companies. Without a firm understanding of the legal framework, they could face challenges that hinder their trajectory to success. For this reason, events such as the Student Business Trial Contest, organized by the Bogotá Chamber of Commerce, are crucial as they provide a platform where the next generation of legal and business professionals can interact, learn and grow.

This year, we are honored to announce that BéndiksenLaw’s Managing Partner, Sebastián Béndiksen, will participate as a judge in the competition that will take place on Friday, October 27. With a distinguished track record in the corporate legal field, Sebastián Béndiksen represents BéndiksenLaw’s dedication, experience and commitment to excellence and continuing education. The participation of our managing partner as a judge underlines the importance that BéndiksenLaw places on the connection between academia and professional practice. This competition is an opportunity for students to experience the practical application of legal concepts in a business setting, while receiving valuable feedback from experts in the industry.

At BéndiksenLaw, we are proud to be part of initiatives that nurture knowledge and collaboration between the legal and business sectors. Our firm is committed to providing exceptional legal solutions that meet the unique needs of each client in today’s dynamic business environment. We invite you to learn more about how BéndiksenLaw can assist you with your legal needs and how our experience and collaborative approach can provide the legal support your firm needs to thrive.

Contact us today.

Weaving Global Networks: BéndiksenLaw at the 2023 International Business Meeting

The business world is a dynamic and constantly evolving field, where interaction between different actors is crucial for development and expansion. Along these lines, the 2023 International Business Meeting, organized by the Colombian-American Chamber of Commerce, stands as a privileged platform for meeting and collaboration between national and international companies. BéndiksenLaw, as an active member of this Chamber, participated in the event, represented by our managing partner, Sebastián Béndiksen.

AmCham Colombia, responsible for the event, has as its mission to promote trade relations between Colombia and the United States, and the 2023 International Business Meeting was a palpable manifestation of this objective. With the participation of more than 100 goods and services companies from more than 10 countries, the event offered a place for the formation of alliances, the discovery of new market trends, the strengthening of brand positioning, and the increase of knowledge in good business practices at national and international levels.

Sebastián Béndiksen’s participation not only represented BéndiksenLaw, but also marked the third time that our firm has been part of these significant encounters. These events reiterate our position and active commitment in international trade, highlighting the continuity and consistency in our contribution to strengthening trade relations between Colombia and the United States.

We invite you to explore more about how BéndiksenLaw can assist in navigating the complex legal landscape that accompanies international business relationships. Our firm is committed to providing exceptional legal counsel that enables businesses to operate with confidence on the global stage.

Contact us and find out how we can be the legal partner your company needs to thrive in the international arena.

Legal Triumph: Multinational Client Obtains Authorization before INVIMA with BéndiksenLaw

BéndiksenLaw has obtained an authorization for label depletion in the food sector, past the legal term, for a multinational client. This success was achieved through an innovative argument before the Food and Drug Authority of Colombia (INVIMA) based on the application of the law by analogy, and was led by our managing partner and attorney, Sebastián Béndiksen.

This achievement highlights BéndiksenLaw’s commitment to legal excellence and client satisfaction. BéndiksenLaw goes beyond the mere grammatical interpretation of the text of a legal norm; we are an active actor in the creation and evolution of law. Our commitment to legal excellence drives us to exhaustively analyze and understand the entire legal system, seeking to identify gaps and ambiguities in the legal system, thus contributing to its development and improvement.

We extend our sincere gratitude to our client for their trust in our professional services and for allowing us to be a fundamental part of this important milestone in their business. This achievement exemplifies our continued dedication to provide effective and strategic legal solutions to our clients in an ever-changing business world. We are proud of this achievement and excited for what the future holds in our collaboration.

Sebastián Béndiksen, Our Managing Partner, Reveals the Opportunities and Challenges of Trade between Colombia and Peru in Revista Semana

Our managing partner and specialist in corporate law, Sebastián Béndiksen, shares his insight with Revista Semana on the entry of Peruvian companies into Colombia and its impact on the growing economic and commercial integration between these two nations.

Find out more about this business expansion and its potential contributions.

Read the news (in spanish) here.