20. Compliance Checks for Avoiding Tax Evasion Fines

This is an Insight article, written by a selected partner as part of Latin Lawyer's co-published content. Read more on Insight


Active management to ensure the proper fulfilment of tax compliance obligations has become a critical issue for companies and their directors, not least because any inaccuracy could result in economic and criminal penalties. Moreover, international taxation trends led by the Organisation for Economic Co-operation and Development (OECD) and its BEPS project[2] have prompted the enactment of new legislation with the aim of deterring tax evasion and abuse of the system by taxpayers. Recently, these trends have yielded local provisions in several Latin American countries, such as general and specific anti-abuse rules and information disclosure duties concerning beneficial ownership.

In this context, tax compliance professionals seek to identify the risks that a company faces in its business activities, and to create efficient tools that protect an undertaking from economic sanctions and its legal representatives from criminal consequences, bearing in mind that some jurisdictions link the criminal liability of legal representatives to non-compliance with anti-abuse regulations. Specific examples from Colombia, Peru and Spain are used in this chapter to illustrate how tax compliance regulations differ across jurisdictions.

Anti-abuse rules

Tax administration authorities have established anti-abuse provisions, known as general anti-avoidance rules (GAARs) and specific anti-avoidance rules (SAARs), which are used as interpretative rules, whereby abusive arrangements may be identified. In broad terms, these rules seek to identify objectively when a transaction lacks a substantial business purpose.

A GAAR is a broad provision with certain criteria to qualify a transaction as abusive, given certain circumstances relating to the economic purpose of a transaction.

An SAAR addresses particular operations traditionally identified as potentially abusive.

By applying both GAARs and SAARs, tax administration authorities will not take into account certain transactions for tax purposes (e.g., contracts and some types of payments) and not qualify them as abusive. Therefore, it is essential that companies first identify the circumstances and elements of these rules to avoid being subject to any such attributions and then act accordingly.


A general anti-abuse rule was included in the Colombian tax system in 2013, according to which the tax administration authority is granted the power to recharacterise operations that have no business purpose. This rule does not define the scope of the business purpose concept or how the rule interacts with other specific anti-abuse clauses.

The law considers three elements in determining whether a transaction lacks business purpose: the transaction was conducted on terms that are not economically reasonable; the tax benefits do not correspond with the risks assumed; and the substance of the transaction differs from the legal form given to it by the taxpayer.

There is no case law on the application of anti-abuse matters in Colombia to date or any rulings on the subject from tax administration bodies.

In 2020, Colombia’s tax administration authority issued a regulation through which it applies the local GAAR by setting out certain parameters by which tax administration officials can establish that transactions are being set up for the sole purpose of avoiding tax. This regulation, in force since January 2020, defines the terms avoidance and evasion, narrowing the scope of application of the GAAR. It also defines what should be understood by ‘economic purpose’ and ‘economic advantage’ for the analysis of transactions.

On top of that, the regulation determines the powers of the tax administration authority in relation to abuse and the consequences for taxpayers. Finally, the regulation describes the tax abuse procedure for sanctioning taxpayers who engage in such behaviour.

The consequence of a transaction being considered as abusive is that the tax administration authority will recharacterise the operation to reflect what it considers is its true economic nature. This true nature will be considered for tax purposes according to the rules applicable to the transaction resulting from applying the anti-abuse rule, with the resulting taxes, penalties and interest derived from this qualification.

Qualifying an arrangement as abusive could have the result that, besides being exposed to the economic burden derived from such a qualification, shareholders may also be directly liable, owing to the piercing of the corporate veil, if it is verified that the vehicle was used for fraudulent purposes.

In Latin America, the tax administration authorities in Chile and Peru have issued blacklists of arrangements they consider to be abusive, which are essential tools in implementing compliance policies by taxpayers.


The Peruvian GAAR (Rule XVI) was enacted in 2012, but did not enter into force until 2019, following publication of Supreme Decree 145-2019-EF, by which regulation of formal and substantive parameters was approved. The government has thereby established a non-exhaustive list of situations in which a tax authority can consider an operation as abusive and apply anti-abuse rules.

The GAAR enables Peru’s National Superintendency of Tax Administration (SUNAT) to consider the actions, situations and economic activities performed, executed or established by taxpayers and so determine the real nature of the taxable event. Recently, the Supreme Court in the Casación No. 25942-2019, Lima, published 15 January 2021, has confirmed the application of Rule XVI in a case of cross-selling of shares on the Lima Sotck Schange.

SUNAT also has the power to apply anti-abuse rules to improper or artificial transactions and structures, but only tax benefits without business purpose. When fraudulent transactions are detected, SUNAT shall collect the tax debt (taxes, penalties and interest), reduce the amount of the balances due or tax credits, or eliminate any tax advantages, without prejudice to recover any amount that was wrongfully reimbursed.

In February 2019, SUNAT published the first list of cases in which the GAAR could be applied.[3] As further operations considered by the tax authorities to be abusive come to light, they will be added to the list. It is permissible, however, in a market economy based on choice, to extend an appropriate legal option if the transaction has a substantial business purpose other than reducing the overall tax burden. The tax authorities may apply the anti-abuse rules and recharacterise the operation only during a comprehensive tax audit, prior to obtaining the review committee’s authorisation to put the GAAR provisions in place.

The GAAR establishes that a company’s legal representatives and its board of directors will be jointly liable for the tax debt in the event that they have collaborated with the design, approval or implementation of the actions deemed by SUNAT to be abuse or fraud. However, joint liability will not apply to board members who explicitly express their disagreement in the meeting at which those actions are discussed and approved.

The Peruvian anti-abuse rules impose on companies that have a board of directors the obligation that the board define the tax strategy and approve, or not, the tax plans in order for board members to be jointly liable. In this context, companies must comply with appropriate policies to evidence that the legal representatives and directors acted diligently at the time of evaluating and approving transactions that may be challenged by SUNAT.


In the Spanish tax system, there are two main anti-abuse clauses that establish the concepts of tax avoidance and tax evasion,[4] as these terms are commonly accepted. There are no remarkable or special features that require further comment for the purposes of this chapter.

The most significant distinctive feature of these anti-abuse clauses is probably that found in the penalty regime for tax avoidance. Application of the tax avoidance clause,[5] which had been conceptualised as ‘tax law fraud’ until the reform of the Law on General Taxation (the GT Law) in 2003, has been quite limited. The main reason for this stems from the specific procedure set forth in the GT Law (a favourable report from an ad hoc advisory commission ‘Comisión Consultiva’ is required) and, essentially, due to the difficulty of imposing penalties when a taxpayer is found liable for tax avoidance under Article 15 of the GT Law according to the current provisions established in Section 2 of Article 206 bis of GT Law. Specifically, Spain’s Tax Agency must prove the existence of a substantial similarity between the case at hand and a specific published precedent.[6]

As a result, the Tax Agency has generally applied the concept of tax evasion, or a sort of ‘relative tax evasion’, as an anti-abuse clause, for which it is has received severe criticism.[7]

Furthermore, it is important to note that within the framework of the current legislative works carried out in the European Union, essentially in light of the measures adopted through the Council Directive (EU) 2016/1164, of 12 July 2016, laying down rules against tax avoidance practices that directly affect the functioning of the internal market (commonly referred as ATAD I), a GAAR was intended to be introduced into the domestic legislation of the Member States for the purposes of calculating the corporate income tax liability (the deadline for transposition of this measure was 31 December 2018).

The Spanish anti-abuse clauses have a significantly broader scope of application than that required by ATAD I not limited to corporate income tax and, therefore, it was not necessary to amend the Spanish domestic legislation accordingly.

Beneficial owner

The concept of beneficial owner has been used in different fields with different connotations, but always with the same purpose: the identification of the individual who ultimately owns a vehicle or the natural person on whose behalf a transaction is being conducted.[8] Also, the beneficial owner approach has been used to identify an individual to whom a certain stream of income (dividends, interest payments or rental income) is actually addressed and the corresponding tax effects that should be applied, regardless of any arrangements or structures put in place.

The usefulness of this concept is still under review, and whether it proves to be effective will depend on the approach used and the purpose of its application. Further, the beneficial owner notion has been used in the context of obligations relating to the exchange of tax information, so that subsidiaries, trusts and financial entities are obliged to report their clients, beneficiaries and shareholders’ beneficial owners to the tax administration authority, that is to say the individuals owning share capital or holding financial products with them.

However, under certain legislation, there is no certainty as to who must be reported in complex tax structures, such as foreign private interest foundations and trusts. In these types of structures, a person known as a constituent or settlor generally contributes assets to a foundation or a trust, whereas other individuals are entitled to receive proceeds or the assets themselves to be distributed by a trust or private interest foundation.

The scope of the beneficial owner concept also covers the individuals who may be entitled to benefits to relieve double taxation under double taxation treaties, so that benefits provided for in those treaties are not used by persons who are not the actual beneficiaries to whom the treaty benefits are addressed.

These are just some of the uses of the concept of beneficial owner. However, as with anti-abuse regulations, the relevant content and application is usually defined by the tax administration authority of each country.


Following the recommendations of the Financial Action Task Force (FATF), the tax administration authority in Colombia has introduced the notion of beneficial owner for different purposes. Certain entities are obliged to report the individuals behind the structures. This information must be provided by Colombian companies that are controlled by other companies or individuals. They must also report the natural person who is the beneficiary of the accounts managed by them.

These reporting obligations seek to comply with international and multilateral information exchange commitments acquired by Colombia. This is the case with the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and with the exchange of information under specific clauses in double taxation treaties and bilateral exchange of information in international conventions (for example, for the purposes of the US Foreign Account Tax Compliance Act in exchanges of information with the United States).

Failure to provide beneficial ownership information by any of the entities obliged to do so, in any of the three cases mentioned, gives rise to sanctions, such as the potential closure of an entity’s financial accounts in the case of a failure to identify financial accounts. Further, a failure to provide information to management would be considered abusive conduct. Consequently, a failure to provide the beneficiary’s information may imply a breach of tax laws and lead to sanctions, as well as qualifying the actions as abusive behaviour. In addition, it is a particular concern that this concept is used for different purposes simultaneously, since what should be a simple tool focused on tax purposes to identify a natural person, becomes a complicated and difficult task for taxpayers.

Recent tax reforms[9] have broadened the definition of beneficial owner for the purposes of information exchange and have included a new procedure for identifying beneficial ownership. However, there are still some conflicting issues that can make it difficult to report beneficial ownership. One example of this is reference to the FATF definition instead of creating a definition for tax purposes that may differ from other practices, taking into consideration the purposes of beneficial ownership as regards tax matters.

The tax administration issued a draft regulation by which it would remove the obligation to include within the annual information for tax purposes the information regarding the identification of the beneficial owners. This could be a clue related to the creation of an independent beneficial ownership registry, which was introduced by the last tax reform (Law 2010, 2019) to consolidate this information to be shared with other jurisdictions.

Because the requirements to be considered a beneficial owner under current rules have proven to be difficult to identify by Colombian taxpayers, it is expected that, in the upcoming tax reform announced recently by the government, there will be changes to this regulation.


The Peruvian government has signed a Multilateral Information Exchange Agreement for the purpose of implementing tax and economic development measures proposed by the OECD in September 2018. This allows SUNAT to access and share tax information, subject to certain standards, with more than 100 countries.

In this context, the government issued Legislative Decree No. 1372, which requires Peruvian companies and legal entities to report their beneficial owners in order to access accurate and updated information to strengthen the fight against tax evasion and tax avoidance; guarantee compliance with the obligations of the Convention on Mutual Administrative Assistance in Tax Matters;[10] and combat money laundering and the financing of terrorism. This Legislative Decree requires resident companies and legal entities (funds, investment funds, trusts, foreign trusts with a Peruvian administrator, joint ventures, etc.) to notify SUNAT regarding the natural persons who hold, directly or indirectly, more than 10 per cent of its capital, or those who are not shareholders but exercise control of financial, operational or commercial decisions, or have the right to appoint or remove directors or executives of the entity. Those persons are deemed beneficial owners and they must be reported registered, even if they are not Peruvian residents.

If it is not possible to identify the beneficial owners under these criteria, the general manager or the board of directors will be designated as beneficial owner. If this is the case, the company must publish, permanently, on the home page of its website that it could not identify the beneficial owners. If there is no website, then this information must be published once a year in a daily journal. The regulations also oblige companies to implement an internal due diligence procedure to obtain updated information and the necessary supporting documents about the identification of their beneficial owners.

Failure to notify SUNAT has legal consequences. For example, the legal representatives of the company (directors and managers) are jointly liable with the company or legal entity for its tax debts; moreover, they are forbidden from executing transactions before public notaries, among other effects. Further, public notaries are required to certify whether a company’s notifications to SUNAT have been duly filed and report monthly to SUNAT regarding those entities that have failed to meet their obligations. If companies fail to comply with any legal obligation relating to the identification of the beneficial owner, SUNAT can impose several penalties, which can range between three and 50 tax units (UIT).[11] Under the regulations, entities considered ‘principal taxpayers’ must have filed the beneficial ownership affidavit from 13 to 23 December 2019. SUNAT will be publishing a schedule for the rest of legal entities and arrangements not considered ‘principal taxpayers’. As at the time of writing, this schedule has not yet been issued.


European Court of Justice judgments of 26 February 2019

As a result of two judgments issued by the European Court of Justice (ECJ) on 26 February 2019,[12] within the scope of the benefits of the exemptions set forth in Parent-Subsidiary Directive[13] and the Interest and Royalty Directive[14] – known as the Danish Judgments – the interpretation of the concept of beneficial owner has been significantly modified for all Member States.

Specifically, this case law seeks to limit access to the benefits of the aforementioned exemptions to those entities that act as the beneficial owner of the payments they receive (i.e., dividends, interest or royalties) from their subsidiaries located in the European Union.

Thus, broadly speaking, and for the purposes of this chapter, three conclusions can be summarised in the light of these ECJ precedents. First, the ECJ has stated that the notion of beneficial owner does not refer to a formally identified subject, but to the entity that economically benefits from the payments receiving them for its own benefit and not acting as a mere intermediary, and, therefore, determines their use and application. Second, both precedents show a tendency to apply a dynamic interpretation of this concept to adapt its definition to future changes (essentially from the perspective of the OECD). Finally, in the Danish Judgments, the ECJ reasoned that the SAAR established in the aforementioned Directives is directly applicable in Member States, despite not having been transposed into national law. Hence, national tax authorities and courts seem to be under the obligation to refuse to grant the benefits of the exemptions from payments provided for in the Parent-Subsidiary Directive and Interest and Royalty Directive even in cases where domestic law does not include such SAAR.

Although the Danish Judgments specifically refer to the EU Directives exemptions, it is our understanding that the Spanish tax authorities will follow a similar approach when interpreting the beneficial owner clauses in the double tax treaties entered into by Spain.[15]

Central Economic-Administrative Court rulings of 8 October 2019

The criteria stated by the ECJ in the Danish Judgements have been followed by the Central Economic-Administrative Court (CEAC), a non-judicial body incardinated in the Spain’s Tax Administration, in two controversial rulings issued on 8 October 2019. In both precedents, CEAC adopts a restrictive approach to the application of the benefits of the withholding tax exemptions provided for in the Parent-Subsidiary Directive and Interest and Royalty Directive, and transposed into the Spanish domestic legislation in Sections C and H of Article 14.1 of Royal Legislative-Decree 5/2005 of 5 March approving the recast text of Non-Resident Income Tax Law (NRIT Law) without the SAAR.

CEAC concludes, among other matters that for the purposes of this chapter cannot be covered, that so as to benefit from the withholding exemption, the entity receiving the relevant payments must qualify as its beneficial owner in the terms stated by the ECJ in the Danish Judgements. Consequently, the SAAR understood as the obligation to prevent granting the withholding tax exemptions to non-EU beneficial owners, although not specifically transposed into the Spanish domestic legislation, constitutes a material requirement in order to apply the benefits established in Sections C and H of Article 14.1 of NRIT Law (and, extensively, the reduced tax rate established in the relevant double tax treaty).

However, this interpretation may lead to significant inconsistences; for example, Spanish tax legislation already has its own anti-abuse clause, which has been overturned in favour of that which was set out in the Directives, since the latter has been applied directly by CEAC in the above-mentioned rulings. In addition, and despite the fact that Spanish tax legislation has not implemented a domestic clause regarding the concept of beneficial owner, CEAC states that the SAAR included in the EU Directives intended by these EU legislation are directly applicable in Spanish taxation legislation. Finally, this approach taken by the Spanish Tax Agency generates considerable uncertainty as to the nature of holding entities (mainly those included in the intermediate stages of payment chains) and the corresponding requirements of substance for them to be considered as beneficial owners of dividends, royalties and interest.

Criminal consequences


Criminal law regulates human interactions, and one of its most important characteristics is dynamism, which allows criminal law to adapt to societal changes. This dynamism expands the scope of criminal law, resulting in new criminal offences.

As a consequence, the Colombian Criminal Code, through Law 599 of 2000, broadened its scope to include new criminal offences. By the enactment of Laws 1819 of 2016 and 2010 of 2019, two new criminal offences have been established to penalise several types of behaviour[16] that were not previously relevant in the Colombian criminal context. Through these laws, Articles 434A and 434B were added to the Criminal Code, with the purpose of protecting public administration.

According to debates held by Congress in Colombia, counteracting tax evasion is the main purpose of the new legislation, seeking to increase resources for the Colombian state that will allow it to carry out its activities and to safeguard people’s rights.

Article 434A sets forth the criminal offence of omission of assets or inclusion of non-existent liabilities, which penalises taxpayers who wilfully (1) omit assets, (2) report them for a lower value or (3) report non-existent liabilities, for income tax purposes, for an amount equal to or higher than 5,000 times the legal monthly minimum wage in Colombia. The penalty is imprisonment for between 48 and 108 months, or more, depending on the value of the assets omitted or the non-existent liability reported.[17]

Article 434B sets forth the criminal offence of tax fraud or evasion, which penalises taxpayers who wilfully (1) fail to file a tax return, (2) fail to report all income received, (3) include non-existent expenses, or (4) claim inappropriate tax credits, withholdings or tax advances for an amount equal or higher than 250 times the legal monthly minimum wage in Colombia. The penalty is imprisonment for between 36 and 60 months, or more, depending on the value of the tax credits, withholdings or tax advances.

Both the aforementioned offences contemplate that criminal liability will not exist and the criminal action will be extinguished, even if the above-mentioned actions are committed, if the taxpayer files or corrects an income tax return during the time established for this purpose in tax law, and makes all the tax, sanctions and interest payments.

That said, if a person is found guilty of committing the above-mentioned criminal offences, or any other, there is no Article in Colombian criminal regulations that refers to compliance programmes as a penalty mitigating instrument. Nevertheless, we believe that this legal mechanism can be considered when a judge is determining the penalty for the wrongdoer.

According to Article 447 of Law 906 of 2004 (Colombian Criminal Procedure Code) and Article 61 of Law 599 of 2000 (Colombian Criminal Code), following a guilty plea, the defence attorney can raise with the judge, in mitigation, the background and the need for and function of the penalty in the specific case.

Therefore, compliance programmes can be used to reduce the extent of a penalty as the defence attorney, or even the prosecutor, can argue that several actions and strategies have been established, for example (1) to prevent the same or similar misconduct from occurring in the future; or (2) that the damage resulting from a criminal offence has been mitigated by the offender by ensuring that the wrongful behaviour has been addressed.

In conclusion, although Colombian criminal law does not specifically include compliance programmes as an attenuation for a penalty, judges have the subjective power to evaluate the weight that these programmes could have on the criminal offence to reduce the severity of the criminal sanction.

A compliance programme aimed at preventing criminal behaviour as laid down by criminal law must be based on a compliance policy of tax regulations. Owing to the nature of the behaviour that the law seeks to punish, taxpayer behaviour must be analysed from a technical tax standpoint. For these purposes, it is very important to develop internal proceedings that assure compliance with the substantial and formal rules in tax matters, so that companies have some guidance in assessing whether they may face tax or criminal proceedings

A significant problem with Colombian legislation in classifying this type of conduct as punishable is that prosecutors rely exclusively on the position of the tax administration authority. As a final resolution issued by a court of law is not necessary, taxpayers may face criminal prosecution even before a tax court has determined whether the behaviour is in accordance with tax law.


Tax offences are regulated by Legislative Decree No. 813 (the Tax Criminal Law (DL 813)). Article 1 of DL 813 regulates the basic crime of tax fraud[18] and sanctions the conduct of those who ‘for their own benefit or that of a third party, who use any device, deception or other fraudulent form, to stop paying all or part of the taxes established by law, in either of the two modalities’.

One form of tax fraud is to conceal, in whole or in part, goods or income, or to consign totally or partially false liabilities, or to nullify or reduce the tax payable. The second form of tax fraud is not to hand over to the tax creditor the amount of withholdings or levies on taxes that are payable within the period fixed by the relevant laws and regulations.

Under Peruvian law, the criminal liability of a legal entity is regulated by Law No. 30424,[19] which is applicable in respect of offences relating to transnational bribery, generic active bribery, specific active bribery, simple and aggravated collusion, influence peddling, money laundering and financing terrorism. However, it is not applicable to tax offences per se. In accordance with Article 17 of Law No. 30424, if a legal entity implements a compliance programme before any such crimes are committed, it may be exempt from criminal responsibility.

DL 813 penalises legal entities with ancillary sanctions, which may include monetary fines, suspension of business activities, closure of commercial establishments, cancellation of administrative licences or dissolution of the legal person entity.[20] The Supreme Court of Justice, in Plenary Agreement No. 7–2009/CJ–116, has called these ‘special’ criminal sanctions.

The Supreme Court has established[21] that the general criterion for the imposition of ancillary sanctions is that the legal entity has been used to commit, collaborate or cover up the crime, owing to an absence of sufficient organisation and internal controls (that is, a compliance programme) to ensure tax compliance.

In conclusion, under Peruvian criminal law, the practical benefit of tax compliance is that it allows legal entities to prevent and mitigate criminal risks, and it protects the legal entity itself from being liable to ancillary sanctions.


Along with the regularisation imposed on the tax situation of a taxpayer as a result of a tax procedure (usually initiated by a tax audit conducted by the Spanish Tax Agency), the corresponding authority, as per the wide range set forth in GT Law, can impose different administrative penalties triggered not just by infringements relating to the incorrect filing of tax returns, but also as a result of applying tax benefits that do not correspond to or acting under tax avoidance or tax evasion schemes (Article 191 et seq.). The following situations display a lack of care and diligence that taxpayers must otherwise apply when filing tax returns to avoid tax infringements as well as when they try to take advantage of artificial structures that only intend to obtain a tax benefit:

  • failing to comply with the duty to file tax returns properly and completely or to file the documents required to carry out tax assessments (Article 192);
  • failing to file tax assessments and self-assessments without economic damage to the Treasury, or for failing to comply with the duty to communicate tax residence or the conditions of certain authorisations (Article 198);
  • failing to comply with accounting and registration obligations (Article 200);
  • failing to comply with invoicing and documentation obligations (Article 201); and
  • realisation of acts and businesses specifically regularised by the Spanish Tax Administration in application of the anti-tax avoidance clause (Article 206 bis).

Further, under certain conditions, the directors of the taxpayer (if it is a legal person), may be held liable and penalties imposed accordingly.

The Tax Agency can apply different levels of administrative penalties for these types of infringements depending on the amount of economic damage caused to the Treasury and the methods used to avoid or evade tax payments. Thus, the penalties can be categorised as mild, severe (should there be an intent to conceal) or very severe (i.e., in addition to the concealment, the taxpayer benefited from fraudulent mechanisms).

Criminal offences and penalties

Broadly speaking, in the course of a specific criminal procedure, the infringements listed above may constitute criminal offences if the economic damage caused exceeds €120,000[22] (namely the unpaid tax). In these situations, the taxpayer can face a prison sentence of between one and five years, and a fine of up to six times the amount defrauded.[23]

Each specific tax period shall be considered in determining the amount that has been defrauded.

Notwithstanding the foregoing, a taxpayer can avoid committing a criminal offence if he or she settles his or her tax situation prior to an audit by the Tax Agency.

Compliance measures

Once the aspects on which the tax administration authorities are to focus their attention have been identified, the issues on which a company should focus in terms of the risks it might face are not just local but also international, which necessitates a greater effort when creating a compliance programme.

The use and enforcement of any tax compliance tool is beneficial for a company and should be prepared in an organised manner so to be ready for any inspection by the tax administration authority or tax auditors.

When developing a compliance programme, it is of the utmost importance to bear in mind the following five principles of effective compliance:

  • Real: a compliance programme should be more than just another company policy and more than the paper it is written on. There must be determination within the legal entity to interiorise the compliance programme as a manifestation of its good corporate governance. In other words, it must be put into practice.
  • Complete: an effective compliance programme must have the entire business and its management standards as its scope, including all stages of all procedures, with the aim of mitigating any possible risks resulting from any misconduct committed by the company’s employees.
  • Dynamic: a compliance programme must be adaptable to the business activities, the legal system and any changes they undergo.
  • Applicable: as well as a compliance programme not being admissible if it is just ‘on paper’, neither is a programme in which ambition precludes its application. A programme must correspond to the company’s competence. Compliance cannot nullify the development of the business, and it must be contemplated that there are risks intrinsic to each activity and, as such, those risks can only be managed rather than eliminated.
  • Public: finally, a compliance programme must be accessible to all people connected to the company and who contribute to the development of the business.[24]

If the intention is to mitigate risks inherent in the operation of a business, as carried out by individuals linked to the legal entity, compliance must be aimed at those individuals and therefore they must have easy access to it.

In general terms, for a compliance programme must include, the following elements.

Design and approval

The written structure of the compliance programme must be drawn up in accordance with the following three steps, in order of priority.

Identifying risks

All the internal procedures must be evaluated to determine and interpret the relevant pressures of the company. With this information, it will be easier to establish the risks that are inherent to the company’s activity, and assess them in accordance with the law and the company’s standards of practice.

In tax matters, by way of example, it is beneficial to use some of the risks that have been defined internationally in respect of compliance since these can be realised as follows:

  • Contagion risk: considering that this risk arises through improper practices by one official being applied by others, it is highly probable that it has tax implications since, for example, if a company’s officer miscalculates withholding taxes or offsets for value added tax, and further actions and decisions made by other employees or directors of the firm are based on those mistakes, the contingency increases in time and quantity and the officers may be involved in an extreme breach of tax law. This potential risk is even greater for companies that have a presence in several jurisdictions, since they will need to identify different tax obligations and to report requirements for the design and implementation of a compliance policy that take account of all the relevant tax issues.
  • Legal risk: managing risk is critical for tax purposes, because the tax system is highly regulated and failure to comply with tax provisions can result in higher taxes and additional penalties.

Management measures

This step consists of adopting the most effective measures related to managing the company’s risks. As a general rule, the company’s board of directors must approve the adopted measures. These measures must be suitable and proportional to the company’s scope and capacity. Nevertheless, it is important to remember that adopting measures that affect a company’s procedures disproportionately is not the purpose of compliance.

Risk occurrence

As stated earlier, it is impossible to eliminate all the risks involved in a company’s activities and it is therefore necessary to incorporate a contingency plan in case any of these risks emerges, to mitigate the possible effects of a given risk.


This goal is the creation of a compliance culture within the company. If this objective is achieved, the compliance programme will not be just a paper manual or ‘fake compliance’.

To achieve this compliance culture, it is necessary to communicate effectively the entire content of the programme to employees and other personnel who are involved in any procedures in which risks are inherent. This involves clients and counterparties, among other third parties with whom the company has commercial, business or legal relationships. Further, a company must be able to demonstrate that its employees have gained a correct understanding of the compliance programme.

It is critical for companies to follow up the application of a compliance programme by making improvements whenever practice shows that certain aspects need to be modified.

Accordingly, the fulfilment of a compliance programme must be an obligation in the working relationship between employers and employees, and employers must document the enforcement procedures and keep relevant records.


The purpose of this last step is to ensure that the compliance programme remains current and is recognised as part of a company’s good corporate practices. The company must be able to confirm that the programme has been enforced and continue to incorporate any necessary improvements.

To confirm its compliance programme, the company must ensure that employees regard the guidelines part of their working practice. This can be accomplished by instituting awards for those employees who show a proper interest and are proactive in implementing the compliance programme. It is equally important to have an internal disciplinary procedure for employees who do not follow the programme.

Improvements to the programme should be made in response to the results of evaluations that reveal the failures that have become evident during its application, and when there are updates to applicable regulations.

Companies must design and enforce compliance programmes that are supported by adequate continuing advice, considering that the tax administration authority’s powers may consider that simply complying with tax obligations without the support of an internal policy and procedure does not constitute sufficient defence against tax contingencies.

In Latin America, examples of measures under a solid tax compliance programme may include the following:

  • Drafting of a manual for employees in charge of tax compliance. The manual should include the step-by-step process for filing tax returns and supporting documentation.
  • Information checklists before making payments. It is paramount to determine and require information regarding beneficial owners of payments made by the company, the types of payments made (services, acquisitions, dividends, interest), the tax residency of payees and the legal definition of payees (private, public, corporation, partnership, individuals).
  • Information concerning arrangements or structures relating to payments made or received by the company, to enable the company to assess whether it is at risk of being in a tax abuse situation.
  • Reports and documentation to support the business purposes of any transaction or arrangement apart from tax efficiencies. For instance, contracts should be clear about the purposes of all transactions, along with financial and commercial documentation. Transfer pricing analysis and comparable operations are also valuable tools in demonstrating business purposes, and can help to mitigate the risk of arrangements being qualified as abusive for tax purposes.

Similarly, under Spanish law, it is important to consider the compliance checks that relate to diligent accounting and back-up documentation, the purpose being to give a true and accurate picture of a taxpayer’s current situation.

Furthermore, the filing period for submitting tax forms must be noted to avoid collection surcharges, late-payment surcharges or interest on arrears, as established in Article 25 et seq. of the GT Law.

From the taxpayer’s perspective, it is essential to be able to evidence before the authorities that all possible action has been taken to ensure compliance with tax obligations. In this regard, it is strongly recommended that a company should implement an internal tax compliance policy and prepare a manual setting out procedures for the prevention of criminal risks to mitigate the potential liability of the taxpayer, its tax advisers and its managers or directors.

To avoid a specific transaction being found to trigger the tax avoidance or tax evasion clauses, the taxpayer can file a tax-ruling request with Spain’s General Directorate of Taxation (GDT), explaining the transaction and the reasons for it, and providing evidence of valid economic reasons. The criteria used by the GDT will depend on each individual case. In this vein, it is important to clarify that tax rulings issued by the GDT always include a brief statement to the effect that, in the event that the taxpayer has not provided all the necessary information to properly explain the purposes and economic grounds of a transaction, the criteria and reasoning used to make the tax ruling could be taken into account (to the detriment of the taxpayer).

Finally, as a result of the transposition into the domestic legislation of the provisions established in the EU Mandatory Disclosure Directive (commonly referred as DAC-6),[25] EU Member States and, consequently, Spain, are required to implement the obligation to disclose certain mechanisms that are perceived as potentially aggressive. This mandatory disclosure must be reported primarily by intermediaries (i.e., persons that design, market or make available for implementation a reportable cross-border arrangement or any persons that could reasonably be expected to have undertaken aid, assistance or advice) and, should no intermediary have been involved or that involved is subject to professional secrecy, the disclosure obligations rest on the relevant taxpayer. Qualification as ‘potentially aggressive’ is determined through the fulfilment of a set of hallmarks linked to the main benefit test (generally or specifically); cross-border transactions, automatic exchange of information and beneficial ownership; and transfer pricing.[26]

Consequently, the adoption of internal protocols to analyse the mechanisms in which an entity may be involved and the obligation to report them to the Spanish Tax Administration under DAC-6 is highly recommended to taxpayers. Furthermore, specific penalties may be imposed if the taxpayer or the intermediary fails to comply with such reporting obligations.


It is highly advisable that companies have an internal tax compliance policy, which should include appropriate manuals and procedures to ensure compliance with tax regulations, especially those that could have criminal consequences for entities and their directors and shareholders, such as tax abuse qualifications and identification of beneficial owners.

Having a tax compliance policy provides the first line of defence before the tax authorities and can provide vital mitigation of the risks inherent in business activities when it comes to tax matters.


[1] Carolina Rozo Gutiérrez and Pamela Alarcón Arias are partners at Phillipi Prietocarrizosa Ferrero DU & Uría. This article was drafted with the collaboration of Luis Suárez de Centi, Carmelo de Andrés, Leonardo Cote, Andrea Succar, Armando Lacouture, Sebastián Santos and Violeta Moncada.

[2] BEPS (base erosion and profit shifting) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying taxes. Colombia and Chile are the only Latin American countries that are part of the OECD (Colombia was accepted last year). Others, such as Peru and Argentina, are generating initiatives and projects that will enable them to be considered as candidates for membership. Those countries that are members are committed to comply with the strict standards developed by the OECD to boost and strengthen their economies. OECD, ‘What is BEPS?’ accessed 20 January 2020 from http://www.oecd.org/tax/beps/about/>).

[4] See Articles 15 and 16 of Law 58/2003 of 17 December on General Taxation in Spain [GT Law].

[5] To apply the anti-abuse clause defined in Article 15 of the GT Law, Spain’s Tax Agency must follow a specific procedure defined in Article 159 of the GT Law and Article 194 of the Tax Procedures and Tax Audits Regulations, as approved by Royal Decree 1065/2007 of 27 July 2007.

[6] At the time of writing, only one such precedent has been published by Spain’s Tax Agency, in September 2018, with regard to the deductibility in the corporate income tax of intragroup financing expenses.

[7] See Rodríguez-Ramos Ladaria, L, ’Carta Tributaria’, Ed. Wolters Kluwer (October 2015).

[8] The Financial Action Task Force [FATF], ‘Guidance on Transparency and Beneficial Ownership’, III. The Definition of Beneficial Owner (October 2014 FATF/OECD).

[9] e.g., Law 1819/2016 and Law 2010/2019.

[10] Developed jointly by the OECD and the Council of Europe in 1988 and amended by Protocol in 2010.

[11] For 2020, 3 UIT is equivalent to 12,900 soles and 50 UIT is equivalent to 215,000 soles.

[12] The Danish Judgments settled joint cases C-116/16 and C-117/16 in one judgment, and C-115/16, C-118/16, C-119/16 and C-299/16 in the other.

[13] Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.

[14] Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.

[15] Central Economic-Administrative Court rulings of 8 October 2019.

[16] In the Colombian legal system, legal entities are not subject to criminal liability. Therefore, only a natural person can be accused of committing a criminal offence. If a crime is committed regarding the company’s activity, the natural person carrying out the respective conduct, and who works for a company, would be criminally liable.

[17] Regarding tax-related criminal offences, the Colombian Criminal Code sets forth in article 402 a criminal offence related to filing tax returns and payment of value added tax and withholding taxes that are collected by taxpayers.

[18] This crime is punishable by imprisonment of not less than five years or more than eight years and criminal fines of between 365 and 730 days.

[19] Law No. 30424 describes this responsibility as ‘administrative’, but in fact it is a criminal responsibility. In this context, see Garcia Cavero, Percy, ‘Criminal Compliance Especially Anti-Corruption and Anti-Money Laundering Compliance’, Pacific Institute, Lima, 2017, p. 194. Similarly, see Caro Coria, Dino Carlos, ‘Business Anti Corruption’ in Legal Analysis Supplement, El Peruano, Second Stage, Year 10, No. 592, 4 December 2016, pp. 4 and 5. See also Sota Sánchez, Percy André, ‘Criminal compliance and its role in the attribution of criminal/administrative liability of legal persons’, Criminal and Criminal Procedure Gazette, July 2018, No. 109, p. 212. Against these positions, for all, cf. Gómez-Jara Díez, Carlos, ‘Compliance and criminal liability of legal persons in Peru: Guidelines for interpretation’, Pacific Institute, Lima, 2018, p. 23 et seq.

[20] Legislative Decree No. 813, Article 17.

[21] Extraordinary Appeal No. 864-2017 / National.

[22] See Basic Law 10/1995 of 23 November on the Spanish Criminal Code, Article 305 et seq.

[23] Note that the existence of the criminal offence itself and the penalties finally imposed shall be adjusted to the specific situation of each taxpayer taking into account the different circumstances of the case at hand and the principles and criteria established within the framework of Criminal Law. For instance, a defrauded amount exceeding €600,000, the existence of a criminal organisation through which the crime against the Treasury is committed, or the use of nominees in the commission of the offence shall increase the penalty imposed.

[24] Lacouture, Armando, ‘El compliance criminal como criterio para determinar responsabilidad en el marco del proceso penal colombiano, ley 906 de 2004’ (master’s thesis, 2018), Universidad Externado de Colombia.

[25] Council Directive (EU) 2018/822, of 25 May 2018, amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements, inspired by Action 12 of BEPS Project.

[26] For further detail on this reporting obligations, see LÓPEZ TELLO, J., ‘La obligatoria declaración de mecanismos transfronterizos de planificación fiscal bajo la Directiva de Cooperación Administrativa (DAC 6)’, Ed. Uría Menéndez, Actualidad Jurídica Uría Menéndez (2019), pp. 89 et seq.

Unlock unlimited access to all Latin Lawyer content