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AREAS OF PRACTICE

International Contracting

We advise our clients in all aspects related to the area of international contracting, including the following contractual arrangements:

Commercial contracts
Financial contracts
Cooperation agreements
Technology transfer contracts
Distribution contracts
Commercial agency contracts
Brokerage contracts
Representation and mandate contracts
Supply contracts
Partnership contracts
Consignment contracts
Operation contracts
Contracts for the provision of services
Atypical and unnamed contracts

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.

The proposed regulation of franchises, a legal problem in Colombia

By: Daniel Peña Valenzuela & Juan Simon Larrea – Peña Mancero Abogados Colombia

ABSTRACT

The Colombian government intends to issue a regulatory decree to regulate the franchise agreement in Colombia under the framework of an entrepreneurial-fostering law. This has given way to a new debate on the constitutionality of this type of regulation by means of a regulatory decree and the establishment of limits to the autonomy of the will by the executive branch.
Franchise agreements have existed for decades in Colombia. Even though they were not contemplated in our statutes or regulation, they were still broadly used mainly on the basis of international templates and the free will of the parties involved. The big international brands have their stores and commercial establishments open to the Colombian public in full competition with other international players and also with local merchants. Almost no activity or branch of commerce escapes from this business scheme.

Local entrepreneurs have found in franchising a collaborative relationship model that allows them to expand their businesses without having to assume the total investment to participate in regional markets, other cities and to grow their income. The franchising offer is not risk-free for those who have achieved brand recognition, as well as the development of know-how, and in general, have managed to package a successful business model. Nor is the franchise market risk-free for those who take on the business of another with independence, but also with close ties to replicate the success. Not infrequently the expectation and the reality of the business, both for the franchisor and the franchisee, do not materialize.

In this business scenario and without the existence of a specific and proper regulation of the franchise agreement in the Code of Commerce (dating back to 1971) or in subsequent amending laws, Law 2069 of December 31, 2020 has intended to establish a regulatory framework fostering entrepreneurship, growth, consolidation and sustainability of companies.
Within this framework, the government is empowered to present, via regulatory decree, the technical conditions that define the franchise, the obligations and the liability regime of the franchisor and the franchisee. In other words, it is intended that the Colombian government regulate a category of commercial contract that has no regulation of its own in the Colombian legal system.

The first major debate focuses on the fact that this regulatory power is unconstitutional. For the government, limiting the contractual exercise of the autonomy of the will by means of a regulatory decree and not by means of a bill, as it should be in accordance with the constitutional provisions that guarantee the freedom of enterprise. Article 333 of the Constitution states that economic activity and private initiative are free. Its requirements, as in this case to limit its exercise and to regulate the content and fundamental characteristics of the franchise agreement, are reserved by law. Article 151 of the Constitution, in paragraphs 21 and 24, stipulates that only the Colombian Congress may issue laws on economic intervention. Even more so when it expressly refers to the intellectual property regime, patents and trademarks or other forms of intellectual property that are inherent to the franchise, since a structural element of this contract is the license of the trademark, trade name and commercial name. Therefore, it is the Colombian State, through the legislature, and not the executive branch, who has the exclusive power or competence to delimit the scope of economic and/or contractual freedom.

As of the date of writing this article, the Colombian Constitutional Court has not passed any judgment with respect to the aforementioned defects of Law 2069. Rather, recently, the draft regulatory decree has been published by the Ministry of Commerce, Industry and Tourism. Through this draft several objectives and purposes are intended:

(a) To define the franchise contract.
b) To establish the characteristics, elements and requirements of the franchise contract.

It is clear that the requirements are restrictive and contain broad limitations in practice for franchises that had been operating with full exercise of contractual autonomy, in the exercise of commercial custom, under the postulate of good faith between the contracting parties. To mention one of the requirements of the pre-contractual phase, the Franchise Offering Circular is one of the different documents that will be requested in order to carry out the business. It requires that, at least twenty working days prior to the date of execution of the franchise contract or the date of initial payment, the franchisor must deliver in writing a set of information that must be clear and truthful.

It is important for the Government to consider that this regulation may be an obstacle to foreign investment, as well as establish unbalanced conditions compared to other similar contracts such as trademark licensing, distribution and commercial agency. The additional requirements may affect the legal traffic of goods and services vital for the economic reactivation of the country and excessive burdens on individuals at the time they plan to plant a franchise. For now, the decree is subject to comments and we will see if the government weighs correctly the different interests at stake: (a) the protection of franchisees, (b) legal certainty, (c) respect for private autonomy in business between individuals, and (d) the stimulation of foreign investment and economic reactivation.

Let´s wait and see.