Newsletter June
New customs statute
With the execution of Decree 0659 of 2024, a new Customs Statute has entered into force. The new Decree seeks to streamline Colombia’s international trade; will allow the National Tax and Customs Directorate (DIAN) to improve controls against smuggling; will allow DIAN to have new technology and to facilitate the operations of importers.
The main modification brought about by this new legal framework is the mandatory implementation of the “Advance Goods Import Declaration”. Under this measure, importers must report to the DIAN what merchandise they are going to bring into the country 48 hours before it enters the national territory. This advance declaration was already mandatory for textiles, footwear, and machinery parts, among other products.
For example, when importers declare their goods in advance, customs clearance time takes, on average, six (6) days less at El Dorado airport and 3.3 days less at the port of Buenaventura, compared to those who do not declare their goods in advance. In this way, importers will be able to dispose of their products faster and this agility will translate into shorter times and lower costs that will benefit the country’s economy.
The Statute also makes the use of satellite tracking devices mandatory for goods moving through the country that are still under customs control.
The new Customs Statute also requires the development of a new import management system. This new system will replace the current SYGA (Customs Information and Management System), which is technologically obsolete and has security vulnerabilities that make the control operations on the entry of goods less effective.
Source: https://www.dian.gov.co/Prensa/Paginas/NG-Comunicado-de-Prensa-032-2024.aspx
Strengthening of penalties for tax offenses in tax reform law 2277 of 2022
The Constitutional Court has strongly supported the changes introduced by Law 2277 of 2022 regarding tax crimes. In its recent Ruling C-019 of 2024, the Court affirmed that the amendments made comply with the principles of “consecutivity and flexible identity proper to the legislative process”. This decision reinforces the legitimacy of the provisions that seek to combat tax evasion and tax fraud in the country.
One of the main provisions contemplated in the reform is the imposition of harsher penalties for those taxpayers who incur in omissions or false declarations in their income tax returns. It establishes that those who omit assets, declare a lower value than the real value of assets, or declare non-existent liabilities for amounts higher than 1,000 legal monthly minimum wages in force (smmlv), equivalent to $1,300 million (approximately $340,000 USD) with this year’s minimum, may face prison sentences between four and nine years.
In addition, the law provides for an escalation of penalties depending on the amount evaded. If the tax value of the evaded amount is between 2,500 and 5,000 minimum wages, the penalties will be increased by one third. In the event that it exceeds 5,000 minimum wages, the penalties will be increased by half, which reflects the seriousness with which tax evasion in the country is sought to be addressed.
The Superintendence of Companies recommends that the general shareholders’ meeting approve the sustainability report at its ordinary meetings.
At the end of last year, the Superintendence of Companies issued External Circular No. 100-000010 of 2023, where recommendations for the preparation of a Sustainability Report are suggested. These recommendations include that such report should be prepared annually by a designated person in charge and, if prepared, it should be presented during the ordinary meeting where the Financial Statements are approved.
Although the preparation and presentation of the Sustainability Report during the ordinary meeting is not mandatory so far, the Superintendency of Companies has expressed its intention to make these recommendations mandatory for companies that exceed certain thresholds. Therefore, it is suggested to initiate their preparation and approval during this year’s ordinary meetings in order to be prepared for possible future regulatory changes. The Superintendency of Companies clearly expressed its desire and plan to convert these recommendations set forth in the Circular into fully enforceable obligations for those companies that exceed the thresholds defined in Article 5 of said Circular.
To which companies does the recommendation to prepare the Sustainability Report apply?
- Companies that are under surveillance or control by the Superintendence of Companies and that have reached total revenues or assets equal to or greater than forty thousand (40,000) smlmv, as of December 31 of the immediately preceding year.
- Companies that are part of the following sectors: (i) mining – energy, (ii) manufacturing, (iii) construction, (iv) tourism, or (v) telecommunications and new technologies and that comply with the requirements established in paragraph 5.2 of the Circular.
Content of the Sustainability Report
- Name of International Reporting Standard
- Table of Contents
- Company profile.
- Context and sustainability strategy of the companies.
- Disclosure of management performance
- Assignment of a person responsible for the Sustainability Report.
Publication:
- Annual internal communication to all company employees.
- Recommended publication on the company’s website.
When can the alternate replace the principal legal representative?
The alternate legal representative of a Colombian company only has powers of representation in the permanent or temporary absence of the principal legal representative, since he/she lacks the capacity of representation while the principal is in office. The above was remarked by the Superintendence of Corporations in its official notice 220-060152 of March 18, 2024.
Substitution: Action and effect of substituting a person during a period of action that may not be joint or concomitant to the substituted one. The substitution does not depend on a territorial factor since the legal representative can represent and act for the legal person from any part of the world. On the contrary, the substitution only applies in the event of the impossibility of exercising functions such as bereavement, illness, incapacity, etc.
Alternate Representation: The alternate will not have the capacity to represent a company as long as the principal legal representative is capable, the above also includes not being able to make decisions contrary to those previously made by the principal legal representative and to subscribe documents that the principal has denied.
The alternate L.R. has the obligation to remain permanently available to replace the principal L.R. in his functions when the latter does not have the effective possibility to manage. Otherwise, the alternate does not have the capacity or power to represent the legal entity, for example, he/she could not call a meeting of the General Assembly of Shareholders if the principal previously refused to do so, among other cases.
Legal issues of M&A in the fintech sector
Introduction
Mergers and acquisitions (M&A) play a significant role in the Fintech sector. The Fintech industry is known for its rapid innovation and disruption. Mergers and acquisitions allow companies to consolidate their market position by acquiring competitors or supplementary businesses. This consolidation helps firms to achieve economies of scale, expand their customer base, and increase market share.
Fintech companies often acquire other firms to gain access to specialized talent and cutting-edge technology. This can accelerate their product development cycles and enhance their ability to innovate. For example, a company might acquire a smaller startup with expertise in artificial intelligence or blockchain technology to strengthen its offerings.
M&A activities enable Fintech companies to diversify their product and service offerings. By acquiring companies in adjacent or ancillary sectors, they can expand into new markets or offer a broader range of financial products. This diversification can help Fintech firms to mitigate risks associated with relying too heavily on a single product or market segment.
Regulatory compliance is a major challenge for Fintech companies, especially as they expand into new markets or offer new financial services. Acquiring a company that already has expertise in navigating regulatory frameworks can help expedite the compliance process and reduce legal risks.
Mergers and acquisitions can also facilitate strategic partnerships between Fintech firms and traditional financial institutions. For example, a Fintech startup specializing in payment processing might be acquired by a large bank seeking to modernize its digital banking offerings. These partnerships can drive innovation and improve the overall competitiveness of the companies involved.
Mergers and acquisitions are important for the Fintech sector because they enable companies to achieve growth, innovation, and market leadership in an increasingly competitive industry.
The Fintech Industry in Colombia
In the most recent study “Fintech Snapshot 2023-2” by Colombia Fintech, the following statistics are presented:
- Fintech is generating more than 26,000 jobs.
- Around 45% of fintechs that have between 20 and 249 employees have been in the Colombian market for six to 20 years.
- 46.4% of fintechs invest more than 30% of their operational income in technological capital.
- 28.6% of the country’s Fintech companies are financed with their own resources (Bootstrapping). The analysis of the investment rounds in which Colombian fintechs are found reveals a diversity in financing sources and development stages.
- The two leading verticals in the fintech ecosystem continue to be Digital Credit (35.6%) and Digital Payments (28.8%)
- 63% of the country’s fintech companies are microbusinesses. Half of the companies have been established between one and five years. Likewise, 95% do not exceed 20 years of incorporation.
- The distribution of Fintech companies in Colombia reflects a strong concentration in Bogotá. The capital is the undisputed epicenter of fintech activity in the country. However, a significant presence is observed in Antioquia, with 19% of the Fintech companies in the country.
Risks and Challenges of the Fintech Industry
The Fintech industry is characterized by a certain degree of risk, stemming from various factors inherent to its nature and operating environment.
Fintech companies often operate in highly regulated sectors such as banking, payments, lending, and securities. Navigating complex and evolving regulatory frameworks can be challenging, and changes in regulations can significantly impact business models, operations, and compliance costs.
Fintech companies handle sensitive financial data, making them attractive targets for cyberattacks and data breaches. Security vulnerabilities in technology systems, inadequate data protection measures, and sophisticated cyber threats pose significant risks to Fintech firms and their customers.
The Fintech industry is subject to rapid technological development, changing consumer preferences, and market disruptions. Fintech startups face competition from traditional financial institutions as well as other agile startups, and market dynamics can shift quickly, impacting business viability and growth prospects.
Fintech companies rely heavily on technology and digital infrastructure to deliver their products and services. Operational risks such as system failures, IT disruptions, technical glitches, and service outages can result in financial losses, reputational damage, and loss of customer trust.
Fintech firms engaged in lending, crowdfunding, or peer-to-peer finance activities are exposed to credit risk, including the risk of borrower default or non-payment.
Additionally, Fintech companies may face counterparty risks related to their relationships with other financial institutions, service providers, or business partners.
Fintech companies collect and process vast amounts of customer data, raising concerns about data privacy, confidentiality, and compliance with data protection regulations. Failure to adequately protect customer data or comply with regulatory requirements can lead to legal liabilities, fines, and reputational harm.
Fintech firms operating in payment processing, digital banking, cryptocurrency, and online lending sectors are susceptible to fraud, money laundering, and other financial crimes. Implementing robust fraud detection and prevention measures is essential to mitigate these risks and maintain trust with customers and regulators.
Rapid growth and scalability are common goals for Fintech startups, but scaling operations while maintaining quality, compliance, and customer satisfaction can be challenging. Inadequate infrastructure, insufficient resources, and organizational complexities can hinder scalability efforts and impede long-term success.
Many Fintech companies rely on partnerships with banks, technology providers, payment networks, and regulatory bodies to deliver their products and services. Dependency on third-party providers and ecosystem dynamics can introduce risks related to reliability, performance, and strategic alignment.
Despite these risks, the Fintech industry also presents significant opportunities for innovation, disruption, and value creation. Managing and mitigating risks effectively through robust risk management practices, compliance programs, cybersecurity measures, and strategic planning is essential for Fintech companies to succeed in a rapidly evolving and competitive landscape.
¿IPO or M&A in the Fintech industry?
There following are some of the reasons why there may be more merger and acquisition (M&A) deals than initial public offerings (IPOs) in the Fintech sector:
- Market Maturity and Consolidation: The Fintech industry has matured significantly over the past decade, leading to increased consolidation as larger companies seek to acquire smaller startups to expand their market reach, enhance their technology capabilities, and gain access to new customer segments. M&A deals are often seen as a faster and more efficient way for companies to achieve growth and scale compared to pursuing an IPO, which can be time-consuming and costly.
- Access to Capital: Fintech startups and emerging companies may find it challenging to access public capital markets through an IPO, particularly if they have not yet achieved profitability or established a track record of sustained growth. In contrast, M&A deals provide an alternative source of capital for startups by allowing them to be acquired by larger, more established companies with the financial resources to support their growth and development.
- Valuation Considerations: Valuation can be a significant factor influencing the decision between an IPO and an M&A deal. In some cases, Fintech startups may receive more attractive valuation offers from potential acquirers than they would receive in the public markets through an IPO, particularly if there is strong strategic interest or competition among buyers.
- Risk Mitigation: M&A deals can help mitigate various risks associated with scaling a Fintech business, including regulatory compliance, cybersecurity, competitive pressures, and market volatility. By joining forces with a larger, more established company, Fintech startups may gain access to additional resources, expertise, and support to address these challenges and accelerate their growth trajectory.
- Strategic Alignment: M&A deals often occur when there is strategic alignment between the buyer and the target company, such as complementary product offerings, technology capabilities, or market presence. For example, a Fintech startup specializing in payment processing may be acquired by a larger financial institution seeking to strengthen its digital banking capabilities. These strategic synergies can create value for both parties and drive M&A activity in the Fintech sector.
- Exit Opportunities for Investors: M&A deals provide liquidity and exit opportunities for Fintech investors, including venture capital firms, private equity investors, and early-stage backers. When a Fintech company is acquired, investors may realize returns on their investments sooner than if they had waited for an IPO, which can be appealing for investors seeking timely exits and capital deployment opportunities.
While M&A deals may be more prevalent than IPOs in the Fintech sector, both pathways offer advantages for companies seeking to raise capital, achieve liquidity, and pursue growth opportunities. The choice between an IPO and an M&A deal depends on various factors, including the company’s strategic objectives, financial position, market dynamics, and investor preferences.
Types of legal structures in the Fintech´s M&A transactions
The legal structure of a deal in the Fintech sector can vary depending on various factors such as the nature of the transaction, the parties involved, regulatory considerations, tax implications, and the strategic objectives of the parties.
- Asset Purchase Agreement (APA): In an asset purchase agreement, the buyer purchases specific assets and liabilities of the target company rather than acquiring its stock or equity interests. This structure allows the buyer to acquire specific assets such as intellectual property, technology, customer contracts, and goodwill while avoiding assuming certain liabilities of the seller.
- Stock Purchase Agreement (SPA): A stock purchase agreement involves the purchase of the target company’s stock or equity interests, either in part or in whole. This structure provides the buyer with ownership and eventual control of the entire business, including its assets, liabilities, contracts, and intellectual property rights.
- Merger Agreement: A merger agreement involves the consolidation of two or more companies into a single entity through the absorption of one of the entities or the creation a new one. Depending on whether they fall within the general authorization regime, merger transactions may or may not require a prior approval by the surveilling government agency.
- Joint Venture Agreement: Joint ventures often operate through merely contractual schemes or through the incorporation of a business entity. Except for unincorporated joint-ventures in public procurement regulation (consortia and temporary unions), joint ventures in Colombia are not specifically regulated but are possible under general contract and corporate laws. Incorporated joint-ventures may take any form available to business entities (stock corporations, limited liability corporations, simplified stock corporations, partnerships).
- In the Fintech sector, joint ventures may be established to collaborate on product development, market expansion, or technology sharing initiatives. This structure allows parties to combine their resources, expertise, and capabilities while maintaining separate legal entities.
- Franchising or Licensing Agreement: A licensing agreement allows one party (the licensor) to grant another party (the licensee) the right to use its intellectual property, technology, or other proprietary assets in exchange for a fee or royalty. In the Fintech sector, licensing agreements may be used to commercialize software, patents, trademarks, or other technology assets. In more sophisticated schemes, franchises may also allow to replicate the whole look & feel of a business together with its know-how, suppliers and business methodology.
- Strategic Partnership Agreement: A strategic partnership agreement involves a collaboration between two or more parties to pursue common business objectives, such as developing new products, entering new markets, or leveraging complementary strengths. Strategic partnerships in the Fintech sector may involve banks, technology companies, payment networks, or regulatory bodies.
- Subscription Agreement: A subscription agreement is used in equity financing transactions, such as seed rounds, venture capital investments, or private placements. This agreement sets forth the terms and conditions under which investors subscribe to purchase equity securities (e.g., common stock, preferred stock, or convertible notes) issued by the Fintech company.
- Service Agreement: A service agreement outlines the terms and conditions governing the provision of services by one party to another party. In the Fintech sector, service agreements may cover various services such as software development, IT support, payment processing, data analytics, or regulatory compliance.
The choice of legal structure depends on various factors, including the specific goals of the transaction, regulatory requirements, tax implications, risk allocation, and the preferences of the parties involved. It is essential for parties to consult with legal and financial advisors to determine the most appropriate structure for their particular circumstances and to ensure compliance with applicable laws and regulations.
Due Diligence in the Fintech´s M&A transactions
Performing due diligence before acquiring a Fintech company is crucial to assess its value, risks, and potential synergies.
The key areas to consider are the following:
- Financial Due Diligence: This involves a comprehensive analysis of the target company’s financial statements, including revenue, expenses, profitability, cash flow, and debt. It aims to verify the accuracy of financial information provided by the target and assess its financial health and sustainability.
- Regulatory and Compliance Due Diligence: Fintech companies operate in a highly regulated environment. Assessing the target company’s compliance with relevant laws and regulations is essential to identify any legal risks or compliance issues. This includes reviewing licenses, permits, regulatory filings, and any past or ongoing legal disputes or regulatory actions.
- Technology and Intellectual Property (IP) Due Diligence: Fintech companies rely heavily on technology and intellectual property assets such as software, algorithms, patents, and trademarks. Evaluating the target company’s technology infrastructure, development processes, cybersecurity measures, and IP portfolio helps assess its technological capabilities and potential for innovation.
- Market and Competitive Analysis: Understanding the target company’s market position, competitive landscape, customer base, and growth prospects is essential for assessing its strategic fit and growth potential. This involves analyzing market trends, customer feedback, market share, and competitive strengths and weaknesses.
- Operational Due Diligence: Examining the target company’s operational capabilities, including organizational structure, management team, business processes, and scalability, helps identify operational risks and integration challenges. Assessing factors such as employee retention, culture, and key operational metrics is also important.
- Cybersecurity and Data Privacy Due Diligence: Given the sensitive nature of financial data handled by Fintech companies, assessing the target company’s cybersecurity measures, data protection practices, and compliance with data privacy regulations is critical. This involves evaluating the effectiveness of security controls, incident response procedures, data encryption, and privacy policies.
- Customer and Partner Relationships: Understanding the nature of the target company’s relationships with customers, partners, suppliers, and other stakeholders is essential. This includes assessing customer satisfaction, contract terms, partnership agreements, and any dependencies or risks associated with key relationships. It also involves measuring consumer-protection compliance. Consumers are nowadays well educated about their rights and new mechanisms are being introduced for them to claim against Fintech entities when alleged violations occur. Recently the consumer-protection agency in Colombia, Superintendence of Industry and Commerce (SIC), issued instructions (Circular letter No. 02 of 10 October 2023) to tackle multiple complaints filed by FINTECH consumers and even imposing in recent days historic sanctions for this type of commerce. The SIC’s instructions include the following obligations by Fintech entities:
- To inform consumers at the time of entering into the contract and in writing about the remunerative interest rate and the delay interest rate expressed in terms of annual effective rate, the periodicity of payments, the number of installments and value of each one.
- To apply default interest only with respect to late installments and to provide sufficient information on credit assignments to third parties, securities, guarantees granted, the right of consumers to make early payments without generating penalties and the values or additional expenses to the credit operation, such as credit studies, insurance and guarantees, the type of credit and indications on collection costs.
- To refrain from making collections under conditions of threat, coercion and intimidation to the consumer and third parties.
- To ensure that the service offered does not cause damage to the integrity of the consumer and that its provision is given with the characteristics informed. Likewise, that the information to be provided is clear, truthful, sufficient, timely, verifiable, understandable, precise, suitable and in Spanish, and that they exclude from their contracts any clause considered abusive.
- Synergy Assessment: Identifying potential synergies between the acquiring company and the target company is crucial for maximizing the value of the acquisition. This involves assessing how the combined entities can leverage their respective strengths, capabilities, and resources to achieve strategic objectives, such as expanding market reach, enhancing product offerings, or improving operational efficiency.
- Environmental, Social & Governance (ESG) Due Diligence: It addresses companies’ potential controversial conduct or failure to adhere to legal regulations, while providing information on responsible ESG programs. ESG issues now constitute a crucial part of the investment decision-making process and portfolio management.
By conducting thorough due diligence across these key areas, acquiring companies can make informed decisions, mitigate risks, and maximize the success of their acquisitions in the Fintech sector.
Standard Reps and Warranties in the Fintech Industry
In a merger and acquisition (M&A) transaction involving a Fintech company, representations and warranties (reps and warranties) are contractual statements made by the seller regarding the condition, performance, and legal status of the company being sold. These provisions serve to protect the buyer by providing assurances about the accuracy and completeness of the information disclosed during due diligence.
The standard reps and warranties typically included in a Fintech M&A deal are the following:
- Corporate existence and authority: The seller represents that it is a legally formed and validly existing entity with the authority to enter into the transaction.
- Title to assets: The seller warrants that it has good and marketable title to all assets being sold, free and clear of any liens, claims, or encumbrances, except as disclosed.
- Compliance with laws and regulations: The seller represents that it has complied with all applicable laws, regulations, and industry standards relevant to its business operations, including financial services regulations, data protection laws, and anti-money laundering (AML) requirements.
- Intellectual property rights: The seller warrants that it owns or has the right to use all intellectual property (IP) assets necessary for its business, including software, patents, trademarks, and trade secrets, and that there are no third-party claims against such IP rights.
- Financial statements and performance: The seller represents that its financial statements are accurate, complete, and prepared in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS), and that there have been no material adverse changes in its financial condition since the date of the latest financial statements.
- Contracts and agreements: The seller warrants that all material contracts, agreements, and commitments are valid, enforceable, and in full force and effect, and that there are no breaches or defaults under such contracts, except as disclosed.
- Regulatory compliance: The seller represents that it holds all necessary licenses, permits, and approvals required to conduct its business and that it is not subject to any pending or threatened regulatory actions or investigations.
- Litigation and claims: The seller warrants that there are no pending or threatened litigation, claims, or disputes that could materially affect its business, operations, or financial condition, except as disclosed.
- Data security and privacy: The seller represents that it has implemented adequate measures to protect the security and privacy of customer data and that it is in compliance with applicable data protection laws and regulations.
- Employment matters: The seller warrants that it is in compliance with all employment laws and regulations, including those related to wages, benefits, discrimination, and termination, and that there are no pending or threatened labor disputes or employee claims.
The specific terms and scope of reps and warranties may vary depending on the nature of the transaction, the parties involved, and the specific risks and considerations relevant to the Fintech sector. It is essential for both the buyer and the seller to carefully negotiate and document these provisions to allocate risks appropriately and facilitate a successful transaction.
Exit Clauses in a Fintech´s M&A transactions
Exit clauses in Fintech deals, like in any other sector, are provisions that outline the circumstances under which a party can exit the transaction or terminate the agreement. These clauses are essential for providing parties with options to exit the deal if certain conditions are not met or if unforeseen events occur. Here are some common exit clauses found in Fintech deals:
- Termination for Cause: This clause allows either party to terminate the agreement if the other party breaches a material provision of the contract. The breach must be significant enough to justify termination, and the terminating party may be required to provide notice and an opportunity to cure the breach before termination.
- Termination for Convenience: Some agreements include a termination for convenience clause, which allows one or both parties to terminate the agreement without cause upon giving notice within a specified timeframe. This clause provides flexibility for parties to exit the deal for any reason or no reason at all, subject to contractual requirements.
- Change of Control: In Fintech deals involving equity investments or acquisitions, change of control clauses may be included to address what happens if there is a change in ownership or control of one of the parties. This clause may give the non-acquiring party the right to terminate the agreement or require the acquiring party to obtain consent before completing the transaction.
- Force Majeure: Force majeure clauses excuse parties from performing their obligations under the agreement in the event of unforeseen circumstances beyond their control, such as natural disasters, acts of war, or government actions. If a force majeure event occurs and prevents the parties from fulfilling their obligations, the agreement may be terminated or suspended until the event is resolved.
- Material Adverse Change (MAC) Clause: A MAC clause allows a party to terminate the agreement if there is a material adverse change in the financial condition, business operations, or prospects of the other party or the target company. These clauses are often subject to negotiation and may include specific thresholds or carve-outs to limit their applicability.
- Exit Rights for Investors: In equity financing transactions, such as venture capital investments or private placements, investors may negotiate exit rights that allow them to sell their shares or redeem their investment under certain conditions, such as the failure to achieve specified milestones or the passage of a certain period of time.
- Drag-Along Rights: Drag-along rights empower majority shareholders to force minority shareholders to sell their shares in the event of a sale of the company. This clause ensures that all shareholders are treated equally and can facilitate the sale of the company by eliminating the need to obtain consent from every shareholder.
- Tag-Along Rights: Tag-along rights, also known as co-sale rights, give minority shareholders the right to join in a sale of the company initiated by majority shareholders on the same terms and conditions. This clause protects minority shareholders from being left behind in a sale transaction and allows them to participate in the sale process.
The speed with which technological innovation in the provision of financial services has evolved is undeniable. There are currently more than 700 fintech ventures in Latin America, and Colombia is the country with the third highest number of fintechs in the region. Traditional players like banking entities in Colombia have deployed different strategies to adapt to the transformation process by entering into alliances with fintechs including the implementation of digital labs to boost innovation in an organic way.
Having specialized legal advice in each of the areas related to the Fintech business can allow companies to develop their ventures in a more secure environment and with clear competitive advantages.
Legal protection for innovation strategies
INTRODUCTION
Innovation is crucial for the long-term success and competitiveness of companies in the rapidly evolving business landscape. To foster innovation, companies employ various strategies and approaches. To protect your innovation, you can utilize various forms of intellectual property (IP) rights. The choice of which IP protection to pursue depends on the nature of your innovation and your business goals.
Before pursuing any form of IP protection, the following steps are recommended:
- Conduct a Prior Art Search: To ensure your innovation is truly novel and eligible for protection, conduct a thorough search to identify prior art (previous similar inventions or creations) that might impact your ability to obtain protection.
- Consult Legal Experts: Intellectual property laws can be complex and vary by jurisdiction. Consult with intellectual property attorneys who specialize in the relevant field to guide you through the process and help you make informed decisions.
- Strategize: Develop an IP strategy aligned with your business goals. Some innovations may benefit from a combination of protections, while others may require choosing the most suitable single form of protection.
Obtaining IP protection is just one step; enforcing and maintaining these rights require ongoing attention and legal vigilance.
COMMON INNOVATION STRATEGIES THAT COMPANIES OFTEN USE:
- Open Innovation: This approach involves collaborating with external partners such as customers, suppliers, universities, and even competitors to bring in fresh ideas, technologies, and expertise. Companies share and exchange knowledge to accelerate the innovation process.
- Research and Development (R&D): Companies allocate resources to research and develop new products, services, or technologies. This can involve creating dedicated R&D departments or innovation labs to focus solely on generating novel ideas and solutions.
- Design Thinking: Design thinking is a human-centered approach that emphasizes empathy, collaboration, and iteration. Companies using this strategy involve cross-functional teams to deeply understand user needs, brainstorm solutions, prototype, and test ideas before implementation.
- Disruptive Innovation: This strategy involves introducing new products or services that create a significant shift in the market and often target underserved or overlooked customer segments. Disruptive innovations can reshape industries and change consumer behaviors.
- Incremental Innovation: Companies continuously improve existing products, services, or processes to enhance efficiency, performance, and user experience. This strategy involves making small, incremental changes over time.
- Blue Ocean Strategy: This approach focuses on creating entirely new market spaces where competition is limited or nonexistent. Companies aim to offer unique value propositions, differentiating themselves from competitors and attracting new customers.
- Acquisitions and Mergers: Some companies acquire or merge with other firms to gain access to their technologies, products, or intellectual property, thereby accelerating their own innovation efforts.
- Lean Startup Methodology: Popularized by Eric Ries, this strategy involves quickly building and testing minimal viable products (MVPs) to gather user feedback and iterate rapidly based on that feedback. This approach minimizes waste and reduces the risk of launching products that don’t meet customer needs.
- Crowdsourcing: Companies solicit ideas and solutions from a large group of people, often through online platforms, competitions, or challenges. This approach leverages the collective intelligence of a diverse group to solve problems and generate new ideas.
- Corporate Venture Capital: Companies invest in startups or innovative ventures that align with their strategic goals. This approach provides the company with insights into emerging trends and technologies while supporting external innovation.
- Technology Scouting: Companies actively search for emerging technologies, ideas, and trends outside their industry and then adapt or integrate them into their own operations or products.
- Intrapreneurship: This strategy involves encouraging employees to act as entrepreneurs within the company, empowering them to propose and develop new ideas and projects.
- Hackathons and Innovation Challenges: These events encourage employees or external participants to collaborate intensively over a short period to solve specific problems or develop innovative solutions.
- Agile Development: Agile methodologies, often used in software development, emphasize iterative development and collaboration, allowing companies to respond quickly to changing market demands.
- Successful innovation strategies are often tailored to a company’s industry, culture, and specific goals. The key is to create a conducive environment that encourages creativity, experimentation, and a willingness to embrace change.
KEY POINTS OF AN INNOVATION STRATEGY IN A COMPANY:
An effective innovation strategy in a company should encompass various key points to guide and support the organization’s efforts in creating and implementing innovative ideas. Here are some essential points to consider when developing an innovation strategy:
- Clear Objectives: Define specific innovation goals that align with the company’s overall mission and business strategy. These objectives should be measurable and time-bound, providing a clear sense of direction for the innovation initiatives.
- Alignment with Business Strategy: Ensure that the innovation strategy is closely aligned with the company’s core business strategy. Innovation efforts should contribute to the company’s competitive advantage and long-term growth.
- Leadership Support: Obtain commitment and active support from top leadership. Leaders should champion the importance of innovation and allocate necessary resources to foster a culture of creativity.
- Resource Allocation: Allocate dedicated resources, including funding, time, and personnel, to support innovation projects. Adequate resources are essential for experimentation and development of new ideas.
- Cross-Functional Collaboration: Encourage collaboration between different departments and teams. Innovative ideas often emerge at the intersection of different disciplines, so fostering a culture of collaboration can lead to breakthroughs.
- Open Communication: Establish channels for open communication that allow employees to share their ideas, feedback, and suggestions. Creating an environment where employees feel valued and heard fosters innovation.
- Risk Tolerance: Cultivate a culture that embraces calculated risk-taking. Innovation involves experimentation, and not all ideas will succeed. It’s important to learn from failures and iterate on ideas.
- Customer-Centric Approach: Focus on understanding customer needs and pain points. Innovations that directly address customer challenges are more likely to gain traction in the market.
- Continuous Learning: Encourage continuous learning and professional development. Provide opportunities for employees to acquire new skills and stay updated on industry trends and emerging technologies.
- Idea Generation and Management: Implement processes for generating, capturing, evaluating, and selecting innovative ideas. This might involve brainstorming sessions, idea submission platforms, and cross-functional evaluation teams.
- Innovation Metrics: Define key performance indicators (KPIs) to measure the effectiveness of innovation efforts. These metrics could include the number of new products launched, revenue from new products, or percentage of revenue from products developed in the last few years.
- Innovation Culture: Nurture a culture that values creativity, curiosity, and continuous improvement. Recognize and reward employees for their innovative contributions.
- Innovation Pathways: Develop a framework for moving innovative ideas from concept to implementation. This could include stages for idea validation, prototyping, testing, and scaling.
- External Partnerships: Explore opportunities for collaboration with external partners, such as startups, research institutions, and industry experts. These partnerships can bring fresh perspectives and accelerate innovation.
- Intellectual Property Protection: Establish procedures for protecting intellectual property generated through innovation. This could involve patent applications, copyrights, and trade secrets.
- Adaptability: Recognize that the innovation landscape is constantly evolving. Be prepared to adapt the strategy as new opportunities and challenges arise.
- Measurement and Feedback Loop: Regularly review and assess the progress of innovation projects against established objectives. Use feedback to refine and improve the strategy over time.
An innovation strategy should be tailored to your company’s unique circumstances, goals, and industry context. It’s important to create a strategy that resonates with your organization’s culture and capabilities.
KEY ELEMENTS OF A LEGAL PROTECTION FOR AN INNOVATION STRATEGY:
Protecting your innovation strategy involves a combination of legal measures to safeguard your intellectual property, proprietary information, and competitive advantage. The advisable steps to ensure comprehensive legal protection for an innovation strategy are the following:
- Intellectual Property (IP) Strategy:
- Patents: If your innovation involves a novel, non-obvious, and useful invention, consider filing for patents. Patents grant exclusive rights to your invention for a specific period, preventing others from making, using, selling, or importing it without your permission.
- Copyrights: If your innovation includes original creative works such as software code, artistic designs, or written content, consider obtaining copyrights to protect against unauthorized copying or distribution.
- Trademarks: Register trademarks for unique brand names, logos, and symbols associated with your innovation strategy. Trademarks protect your brand identity and prevent others from using similar marks that might cause confusion.
- Trade Secrets: Implement strict confidentiality measures to protect sensitive information that provides your company with a competitive advantage. This could include proprietary processes, customer lists, formulas, and more.
- Non-Disclosure Agreements (NDAs): When sharing confidential information with employees, partners, contractors, or potential collaborators, use NDAs to legally bind them to maintain confidentiality and prevent unauthorized disclosure.
- Employee and Contractor Agreements: Include clauses in employment and contractor agreements that specify that any innovations or intellectual property developed during their tenure belong to the company. This helps ensure the company’s ownership of innovations created by its workforce.
- Partnership and Collaboration Agreements: Clearly outline intellectual property ownership, usage rights, and profit-sharing arrangements in agreements when collaborating with external partners, vendors, or research institutions.
- Licensing Agreements: If you’re interested in monetizing your innovation by allowing others to use it, consider licensing agreements that define the terms under which others can use your intellectual property.
- Innovation Disclosure Policies: Develop internal policies and procedures for employees to disclose their innovative ideas and developments. This establishes a framework for capturing and evaluating new concepts.
- Regular IP Audits: Periodically assess your intellectual property portfolio to ensure that your patents, copyrights, trademarks, and trade secrets are up to date and aligned with your innovation strategy.
- Global Considerations: If your innovation strategy has an international component, be aware of intellectual property laws and regulations in various jurisdictions. File for protection in countries where you plan to operate or expand.
- Litigation Preparedness: While prevention is the primary goal, it’s wise to have a plan in place in case of IP infringement. Consult legal experts to understand your options for enforcing your rights and pursuing legal action if necessary.
- Legal Counsel: Consult with intellectual property attorneys who specialize in the relevant areas, such as patent law, copyright law, and trademark law. They can provide tailored guidance based on your specific innovation strategy.
MAIN CONTRACTUAL CLAUSES TO PROTECT INNOVATION MODELS AND PRODUCTS:
Some examples of clauses to be considered in contracts to protect innovation and intellectual property (IP):
- Confidentiality and Non-Disclosure Clause:
“Confidential Information” refers to all information disclosed by one party to the other that is not publicly available and is marked or communicated as confidential. The recipient agrees not to disclose or use the Confidential Information for any purpose other than the intended collaboration/project and to protect its confidentiality.
- Intellectual Property Ownership Clause:
“Any inventions, designs, works of authorship, developments, concepts, ideas, or other intellectual property created during the term of this Agreement shall be the exclusive property of [Company Name], regardless of which party contributed to their creation.”
- Assignment of Intellectual Property Rights Clause:
“Employee/Contractor hereby assigns and transfers to [Company Name] all rights, title, and interest in and to any and all intellectual property created in the course of employment/engagement, and agrees to execute any necessary documentation to effectuate such assignment.”
- Joint Ownership Clause (for collaborations):
“Any jointly developed intellectual property shall be owned jointly by the parties in proportion to their respective contributions. The parties agree to work together to secure appropriate protection and make commercialization decisions.”
- Non-Compete and Non-Solicitation Clause:
“During the term of this Agreement and for [X] years thereafter, the Employee/Contractor agrees not to engage in any business that competes with [Company Name] or solicit [Company Name]’s clients, customers, or employees.”
- Dispute Resolution Clause:
“Any dispute arising under or in connection with this Agreement, including disputes related to intellectual property rights, shall be resolved through mediation or arbitration, with [Arbitration/Mediation Provider] acting as the mediator/arbitrator.”
- Indemnification Clause:
“Employee/Contractor agrees to indemnify and hold harmless [Company Name] from any claims, damages, or liabilities arising from any breach of intellectual property rights or misuse of confidential information.”
- Termination and Return of Property Clause:
“Upon termination of this Agreement, Employee/Contractor shall promptly return to [Company Name] all confidential information, documents, and materials related to the project, including any prototypes, designs, and research.”
- Use of Company Resources Clause:
“Employee/Contractor shall not use [Company Name]’s resources, facilities, or equipment for any purposes other than the project specified in this Agreement, without prior written consent.”
- Governing Law and Jurisdiction Clause:
“This Agreement shall be governed by and construed in accordance with the laws of [Jurisdiction]. Any disputes arising under or in connection with this Agreement shall be subject to the exclusive jurisdiction of the courts of [Jurisdiction].”
CONCLUDING REMARKS:
Failing to seek IP protection in a timely manner can result in the loss of rights. It’s important to initiate the protection process as soon as your innovation is ready to be disclosed to others.
Not keeping thorough and organized records of the development process, dates of invention, and interactions with collaborators or partners can weaken your ability to prove the originality and ownership of your innovation. Neglecting to conduct a thorough search for existing patents, copyrights, trademarks, and other IP rights similar to your innovation can lead to conflicts, rejections, or invalidations of your claims.
Drafting incomplete or vague agreements, such as nondisclosure agreements (NDAs) or partnership contracts, can leave gaps in IP ownership and usage rights, leading to disputes later on. Not properly safeguarding trade secrets through contractual agreements and security measures can result in leaks of sensitive information, compromising your competitive advantage.
Disclosing details about your innovation to the public before applying for IP protection can impact your ability to obtain patents or certain types of protection. Public disclosures can trigger statutory grace periods in some jurisdictions. Failing to include strong IP ownership and assignment clauses in employee agreements can lead to uncertainties about who owns the rights to innovations created by employees.
If you plan to operate globally, not considering international IP protection can leave your innovation vulnerable in jurisdictions where you haven’t secured rights.
Licensing your IP without clear terms, usage limitations, and enforcement mechanisms can lead to unauthorized use or disputes. Confusing the differences between patents, copyrights, trademarks, and trade secrets can result in pursuing the wrong type of protection for your innovation.
Assuming that you don’t need to take any legal steps to protect your innovation can leave you exposed to IP theft or infringement. Forgetting to renew trademarks, pay maintenance fees for patents, or keep documentation up to date can lead to the loss of your IP rights.
Not actively monitoring for IP infringement and taking appropriate legal action when needed can weaken your IP position and allow others to infringe on your innovation. Relying on inexperienced or uninformed legal advisors can result in inadequate protection or misguided strategies.
The Supreme Court of Justice unifies the requirements for electronic invoicing as a value title:
Decision STC11618 of the Civil Cassation Chamber of the Supreme Court of Justice (SCJ), issued on October 27, 2023, established unified criteria on the requirements necessary to consider an electronic invoice of sale (EIS) as a value title. These requirements are divided into two categories:
Formal requirements:
- The EIS must be generated in electronic format (XML) and include a description of the goods or services invoiced, as well as the name “electronic invoice” and the Unique Electronic Invoice Code (CUFE).
- The CUFE must be validated by the National Tax and Customs Directorate (Dian) and delivered to the purchaser. This requirement does not apply to physical invoices, or to situations where validation is not possible due to technological problems attributable to Dian.
It is important to note that, according to the Supreme Court of Justice, registration of the EIS in RADIAN is necessary for its circulation, but not for it to be considered a title.
Substantive requirements:
- The EIS must mention the right it represents, including the author’s signature and the expiration date.
- Acknowledgement of receipt of the EIS is required.
- Acknowledgement of receipt of goods or services is required.
- Express or tacit acceptance of invoice must be made within three days of receipt of goods.
With regard to acceptance, the Supreme Court of Justice has chosen to follow the position of Decree 1154 of 2020 and not to apply Law 1231 of 2008. The Decree erroneously stipulates that express acceptance must take place within three days of receipt of the goods or services, whereas Law 1231 of 2008 states that the period begins on receipt of the invoice. This SCJ decision is contested for several reasons:
- The hierarchy of norms establishes that the law prevails over the regulatory decree, despite its specific nature: the decree does not have the power to override the law, which remains in force and applies in full to both electronic and physical sales invoices. Where the rule makes no distinction, it is not for the interpreter to create one.
- The Supreme Court of Justice underlines the speed of e-commerce, which often leads to invoices being issued before goods or services are delivered. However, this is contrary to Article 1 of Law 1231 of 2008, which stipulates that all invoices must correspond to goods or services that have actually been delivered or provided. This applies to both electronic and physical sales invoices.
- Finally, acceptance of the invoice, whether express or tacit, serves as proof of delivery of the goods or service, as indicated by the SCJ in STC9542-2020. Acceptance implies that the purchaser of the goods or service has validated that the contents correspond to reality.
This recent position of the Supreme Court of Justice regarding acceptance is not only contrary to the law, but could also lead to practical difficulties when it comes to proving “receipt of the goods” by the party executing the action. Despite the existence of a certain flexibility in terms of evidence to support this fact, it is undeniable that some judicial operators tend to apply very strict criteria with regard to these requirements.
The Council of State clarifies the requirements for the application of the VAT exemption for services rendered in the country and used exclusively abroad
In order for exporters of services to benefit from the VAT exemption, they must comply with a number of requirements (section c of article 481 of the Tax Statute) among which are that the services are rendered from Colombia; that their use or exploitation is carried out exclusively abroad; and that the beneficiary does not have any business or activities in Colombia.
In its ruling number 27317 of July 19, 2023, the Council of State has reiterated that a service is understood to be used abroad when the benefit or profit derived therefrom takes place outside the national territory, provided that the activities that constitute the service, whose export is claimed, have been performed in Colombia, the foregoing in accordance with the provisions of paragraph c) of Article 481 of the Tax Statute.
Thus, the requirements for the VAT exemption on the exportation of services are as follows:
- That the service had been rendered in Colombia to a foreign country.
- That the service was used or consumed exclusively abroad.
- That the consumer is one or several persons, individual or business entity, without any business or activities in Colombia.
- That, even if the consumer is national or has ties with Colombia, the service object of the exemption must be used abroad.
- That the other requirements indicated by article 2 of Decree 2223 of 2013 were met which are:
- To be registered as an exporter of services in the RUT.
- Keep the invoices, service offers and/or quotations with their respective acceptances, the contract between the parties or the purchase/service order plus the acknowledgement of receipt of the service.
- To have the certification of the provider or legal representative stating that the service was provided to be consumed exclusively abroad.
The Council of State explained that a difference exists between the acquisition of a service in Colombia and its use abroad. Even if a service is acquired in national territory, if this (i) is provided from Colombia (ii) is consumed exclusively from abroad as, for example, a medical assistance service that is acquired in Colombia to be used outside the territory in case of a contingency (iii) that the service is used abroad by a person without business or activities in Colombia for the specific service as in the case of the traveler and (iv) even if he/she has them, this service is used exclusively abroad because the advantage, benefit or consumption of the same is given outside Colombia.
It is always necessary to identify the final destination of the operation where the service acquired from Colombia is going to be materialized in order to apply section (c) of article 481 of the Tax Statute. The concept of business or activity cannot be confused as all the actions that are performed in Colombia to acquire the service that will be performed abroad, since the previous acts do not prevent the application of the exemption since, in the end, the client must benefit from the service abroad. Nor can the non-exemption be claimed if the consumer of the service abroad has businesses unrelated to the business subject to exemption in Colombia if the activity to be exempted complies with all the requirements of art 481 already referred to.
Obligation to enter data in the Beneficial Ownership Single Registry “RUB”
By: Juan Simon Larrea & Javier Moya
With the issuance of Law 2155 of September 14, 2021 “Social Investment Law”, articles 631-5 and 631-6 of the Tax Statute (hereinafter “ET”) were modified and the Single Registry of Final Beneficiaries (hereinafter “RUB”) was created, which was regulated by Resolution 164 of December 2021, subsequently modified by Resolution 37 of March 17, 2022, issued by the National Tax and Customs Directorate “DIAN”. In addition, the Identification System for Structures Without Legal Personality “SIESPJ” was created.
Acronyms and Abbreviations
- SWLP – Structure Without Legal Personality
- RUB – Single Registry of Beneficiary Owners
- RUT – Single Tax Register
- SIESPJ – Identification System for Structures Without Legal Personality
- BO – Beneficiary Owner / Final Beneficiary
- DIAN – Directorate of National Taxes and Customs
1. Single Register of Beneficial Owners “RUB”
1.1. What is RUB?
The RUB is the registry that is an integral part of the Single Tax Registry (RUT) that must be completed virtually and in which legal entities and unincorporated or similar structures must provide the information of their Beneficiary Owners.
1.2. Who are the Beneficiary Owners of legal persons?
The BO of Colombian legal entities, according to article 631-5 of the ET, is any individual who:
- Acting individually or jointly, holds, directly or indirectly (through third parties), five percent (5%), or more of the capital or voting rights of the legal person, and/or benefits in five percent (5%), or more of the assets, yields or profits of the legal person.
In order to better understand the above condition, by way of example we can establish that any individual who is a shareholder of any type of corporation with a percentage greater than 5% is a Final Beneficiary. Likewise, if he/she is a shareholder in this proportion, but indirectly (through a legal entity), he/she would also be considered as a Final Beneficiary.
- Acting individually or jointly exercises direct and/or indirect controls[1] over the legal entity by any means other than those set forth in the preceding point.
Regarding this second condition, the Inter-American Development Bank’s Manual on Beneficial Ownership establishes that the individual may exercise direct or indirect control through a significant percentage of the voting rights, or the ability to appoint or remove members of the board of directors of an entity.
It can also be exercised in other ways. For example, through a power of influence or veto over the decisions made by an entity, through agreements between shareholders or partners through family or other ties with decision makers, or through the ownership of negotiable obligations or other debt securities of an entity convertible into shares.
Thus, according to the manual and the recommendations issued by the Financial Action Task Force (FATF), the beneficial owner must be identified through other means such as exercising control without having an ownership interest in a company.
Now, as a residual condition and only when no beneficial owner is identified (in non-corporate legal persons such as: national or foreign non-profit entities) under the criteria indicated above, the individual who holds the position of legal representative shall be considered as the beneficial owner, unless there is an individual who holds greater authority in relation to the management or direction functions of the legal person, in which case the latter individual must be reported.
1.2.1. Who are the BO in unincorporated or similar structures?
The Beneficiary Owner of an Unincorporated Structure o structures without legal personality (hereinafter referred to as “ESPJ”) are the individuals who hold the status of:
- Trustor(s), settlor(s), constituent(s) or similar or equivalent position.
- Trustee(s) or similar or equivalent position.
- Trustee committee, finance committee or similar or equivalent position.
- Trustee(s), beneficiary(ies), or conditional beneficiary(ies); and
- Any other individual exercising effective and/or final control or having the right to enjoy and/or dispose of the assets, benefits, results or profits.
Based on the above, a resident or non-resident individual who holds five percent (5%) or more of the capital of a legal entity and/or benefits from five percent (5%) or more of its assets, yields or profits, carries out transactions with the assets of another person or makes decisions in the administration, direction or management of a company or benefits from the activities of a private non-profit entity, is a beneficial owner and must be registered in the RUB. Likewise, if he/she holds the status of beneficiary in the ESPJ.
1.2.2. Who is obliged to provide information?
The following legal entities and structures without legal personality or similar, are required to provide information in the RUB, with respect to their beneficial owner:
- Corporations and national profit or non-profit entities in accordance with the provisions of Article 12-1 of the ET, including those whose shares are registered or listed in one or more stock exchanges.
- Permanent establishments, i.e., those that have a fixed place of business in the country, through which a foreign company, whether a corporation or any other foreign entity, or individual without residence in Colombia, performs all or part of its activity.
- National companies and entities, including those listed on the stock exchange and registered in its respective list, that have their main domicile in Colombian territory; or that make effective commercial, administrative or management decisions in Colombia; or that have been incorporated in Colombia.
- All structures without legal personality or similar that were created or that are administered in Colombia or that are governed by Colombian regulations or whose trustee or similar is a national legal person or individual resident for tax purposes. An example of the above are trusts or trusteeships, if these are administered or were created in Colombia, their beneficial owner must be in the RUB.
- Foreign legal entities, when the totality of their investment in Colombia is not made in legal entities, permanent establishments and/or ESPJ obliged to provide information in the RUB.
1.2.3. Who is not obliged to provide information?
Public entities, establishments or agencies or national entities or corporations in which one hundred percent of their capital is public are not required to provide information in the RUB. Neither are embassies, diplomatic missions, consular offices or international organizations and agencies accredited by the National Government. Nor are foreign legal entities or structures without legal personality that do not operate in Colombia or are not incorporated in the territory, and even less foreign legal entities whose assets value in Colombia represents less than 50% of their total assets. In addition, any other situation that does not meet the requirements described in the preceding paragraphs.
1.2.4. What information must be provided and what is the procedure to register data for legal entities in the RUB part of the RUT?
The RUB is an integral part of the Single Tax Registry (RUT) before the DIAN, for legal entities, and the information that must be submitted is the following, according to article 8 of resolution 164 of 2021 DIAN:
- Type of document
- Identification number and country of issuance
- NIT or functional equivalent and country of issuance.
- Names and Surnames
- Date and country of birth
- Country of Nationality
- Location: Country of residence, department or state, city, zip code, e-mail address
- Criteria for determining the final beneficiary
- Percentage of participation in the capital of the legal entity.
- Percentage of benefit in the yields, results or profits of the legal entity, structure without legal entity or similar.
- Date from which it has been the beneficial owner or the condition exists.
- Date from which it ceases to have the quality of beneficial owner or the condition no longer exists.
1.2.5. Deadline for registration of information by legal entities in the RUB
According to the same Resolution 164 of 2021 of the DIAN, modified by Resolution 37 of 2022 and Resolution 1240 of 202, the information must be provided no later than July 31, 2023, by legal entities, structures without legal personality or similar structures constituted or created prior to September 30, 2022.
In the case of legal entities, unincorporated structures or similar that are constituted after September 30, 2022, they will have 2 months from the registration in the Single Tax Registry RUT or in the Identification System of Unincorporated Structures SIESPJ.
1.2.6. What is the due diligence principle?
This principle is developed in Article 12 of Law 2195 of 2022 through which measures of transparency, prevention and fight against corruption are adopted and provides that anyone who has the obligation to deliver information to the RUB, must carry out due diligence measures that allow identifying the final beneficiary(ies) taken these criteria:
- Identify the individual, legal entity, ESPJ or similar that enters into legal business or state contract.
- Identify the beneficial owner(s) and the ownership and control structure of the legal person, legal entity, JSE or similar and verify the information.
- Request and obtain information on the purpose of the legal business or state contract when the state entity is the contracting parties and in order to obtain information on the corporate purpose of the contractor.
- Perform ongoing due diligence on the business or contract by examining that the transactions are consistent, its business activity, risk profile and source of funds.
1.2.7. Which authorities have access to the RUB?
According to Article 13 of Law 2195 of 2022, the Comptroller General of the Republic, the DIAN, the Prosecutor´s General’s Office, the Superintendence of Industry and Commerce, the Superintendence of Finance, Attorney General’s Office and the Financial Information and Analysis Unit UIAF will have access to the RUB.
1.2.8. Penalty
We also remind you that failure to register the data on time may result in the penalties contemplated in Article 658-3 of the Tax Statute, ranging from fines to the temporary closure of the establishment, office, business or headquarters of the owner.
1.2.9 How do I register my beneficial owner in the RUB?
The following link refers to the infographic that explains how individuals and ESPJs, with prior registration in the Unincorporated Structures Identification System as developed below, can register their BO in the RUB.
https://www.dian.gov.co/impuestos/RUB/Documents/Paso-a-paso-2687-RUB.pdf
2. IDENTIFICATION SISTEM OF STRUCTURES WITHOUT LEGAL PERSONALITY “SIESPJ”
The SIESPJ is the identification mechanism, for tax purposes, of unincorporated structures that are not required to register in the RUT. The operation and administration of the System will be the responsibility of the Special Administrative Unit of the DIAN.
2.1.1. What information must be provided and what is the procedure for the registration of data for unincorporated structures in the RUB by SIESPJ
The RUB is an integral part of the Unincorporated Structures Identification System (SIESPJ), for unincorporated structures, before the DIAN and the information to be submitted is the following, according to article 15 of resolution 164 of 2021 DIAN:
1. Type of structure without legal personality or similar.
2. Name and alphanumeric code assigned internally for the identification of the unincorporated or similar structure.
3. Date of creation of the unincorporated or similar structure.
4. Date of termination of the unincorporated or similar structure.
5. Identification number of unincorporated structures – NIESPJ assigned by the Special Administrative Unit of the National Tax and Customs Directorate – DIAN.
6. Start date of administration of the unincorporated or similar structure.
7. End date of administration of the unincorporated or similar structure.
8. Change of administrator of the unincorporated or similar structure.
These percentages are individual and the information must be provided through the electronic system of the Single Registry of Beneficial Owners. Learn the step by step in the following link:
Paso-a-paso-2706-RUB.pdf (dian.gov.co)
In order to register Structures without legal status in the RUB, they must first be registered in the SIESPJ and with the identification provided by the SIESPJ, proceed to register in the RUB.
2.1.2 Deadline to register the information of an unincorporated or similar structure
For unincorporated or similar structures, updates can be made within the month following the event that generated the update.
[1]What is meant by “exercise control”?
To understand what is meant by control, we refer to different sources, among them, the Code of Commerce Arts. 260-261, the Tax Statute Art. 260-1 and Resolution 164 of 2021. It is understood that there is control when a person or a group of persons, natural or legal, exercises dominant influence in the decisions of the administrative bodies. For example, when the shareholders’ meeting makes decisions for the management to implement and the whole company or foundation to undertake new paths. In addition to the influence, these persons must have the right to cast votes constituting the minimum majority of votes in the shareholders’ meeting or in the assembly; or the number of votes necessary to elect the majority of the members of this board of directors. In these cases we may be talking about direct control.
Individuals exercising indirect control, i.e., through an intermediary person or company, are also obliged to be included in the RUB. For example, the owner or sole shareholder of a company that is the parent company of a subsidiary in Colombia that meets the requirements mentioned in previous sections. In this case, it should be registered in the RUB.
As a complement, a situation of control is also present when any of the following situations arise:
- that more than 50% of the capital of a company, directly or through or with the assistance of several of its subordinates or at the same time those that these may have.
- When the parent company and subordinates have in common or separately the right to issue votes.
- When the parent company exercises a dominant influence in the decisions of the administrative bodies of the subordinate company.
One or several legal entities may also be understood as a Parent Company and these parameters apply to them to determine whether they exercise control or not.
“From the above rules it is possible to infer when control is consolidated with respect to commercial companies in Colombia, and the form in which it can be exercised; that is, directly and indirectly; individually or jointly; by participation or simply by dominant influence.” (Concept 220 081921, 2015, S.I.C)
In conclusion, control exists when the decision-making power of a controlled company is subject to the will of another or other persons that will be its parent or controlling company. For example, if a company X in Colombia is controlled by a parent company abroad, and this meets the requirements described in previous paragraphs, the individual who is the ultimate beneficial owner of the parent company must be sought and this person must be registered in the RUB by the controlled company.