Abstract This article is based on a paper which was prepared for a panel presentation on usufructs at The International Academy of Estate and Trust Law conference, Chicago, May 2017. Under Colombian legislation it is not possible to conceive the Dutch ‘Use up’ within the deed that established the usufruct, applicable to all kinds of assets, regulated as a limitation to the real right of property. Nevertheless, a similar purpose could be obtained with the so called ‘fiduciary property’, another form of property limitation not foreseen in the European Legislations of the ‘civil law countries’. Introduction The usufruct in the Netherlands enacts two interesting possibilities that are not foreseen in Colombia: (i) the automatic substitution of assets when the usufructuary consumes them, in which case the assets acquired as a product of the alienation are subject to the original regime of the substituted initial assets and (ii) one that allows the usufructuary to freely dispose of the assets, in which case, as a result of its use up, there are no assets to return. The Colombian legislation regulates ‘The improper usufruct’. This figure consists in the establishment of a usufruct on a consumable asset. In such a case, the usufructuary may consume it, but must return it with an equivalent asset. However, in our legislation it is not possible to conceive the Dutch ‘Use up’ within the deed that establishes the usufruct, applicable to all kinds of assets, regulated as a limitation to the real right of property. Nevertheless, a similar purpose could be obtained with the so-called civil ‘fiduciary property’, another form of property limitation not foreseen in the European Legislations of the ‘civil law countries’. When an asset is meant to be transferred to a third person, subject to a condition, the fiduciary owner may be entitled to (i) dispose of the fruits, case in which his only obligation is to preserve the property itself and (ii) freely dispose of the asset, event in which the property ceases to exist or is exhausted at the moment established for its restitution. Notion The real rights are powers granted by the legal system to a person over a thing. The property right is the widest power over something, embedding: the use, the enjoyment (economic exploitation or right to obtain the fruits) and the disposition of the thing (Colombian Civil Code, 1887, Article 9). According to Colombian Law the right can be limited in three ways: (i) prevising to transfer the thing when a condition (future event which occurrence is uncertain) occurs (fiduciary property), (ii) establishing an usufruct, use or habitation (right to abode) in favour of a third party, and (iii) imposing easements (Colombian Civil Code, 1887, Article 793). Like the property, the usufruct is a real right. This right only grants the usufructuary the use and enjoyment of the asset. Therefore, at first, the usufructuary is not allowed to dispose ofthe assets. The owner, who constitutes a usufruct on its property, only retains the naked property. His act ‘dismembers’ or decomposes his real right and grants the usufructuary the faculty to use and enjoy the asset of which he is the owner, remaining only with the power of disposition. For this reason, in the case of the establishment of a usufruct, the right to which the owner is entitled mutates, as it ceases to be a full right and becomes a naked ownership, losing the faculty to use and enjoy the asset. From an economic point of view, real rights allow us to have control over the assets in order to exploit them economically.2 The ownership, the usufruct, and the naked ownership in this sense, are rights that can be economically valued and eventually, allow a person to percept the fruits (in the naked property this capacity is deferred to the expiring date of the usufruct). The usufruct is a real right, whose nature is temporary and subject to a limited amount of time. Unlike the fiduciary property, unknown to the French Civil Code and the Dutch Legal System, which grants a conditioned right and is temporary. However, if the condition fails to happen, it becomes permanent. This distinction is key for further reasoning. Conversely to the ownership that is a perpetual right, the usufruct is temporary, thus, it is merely transitory. Even if a certain amount of time is not established, the death of the usufructuary extinguishes the right. In the event, the usufructuary is a legal person, and the term may not exceed 30 years.3 Being this, a fundamental difference with the ‘fiduciary property’ in which the ownership could eventually consolidate and remain with the fiduciary.4 The limited period of time is essential to the usufruct. A usufruct not subject to a condition may exist, but there cannot be a usufruct without a term (Colombian Civil Code, 187, Articles 829 and 830, Chilean Civil Code, 1855, Articles 770 and 771 and French Civil Code, 1804, Article 580). Article 829 Colombian Civil Code/Article 770 Chilean Civil Code: The usufruct can be constituted for a determined time or for the entire life of the usufructuary. When in the constitution of the usufruct, the time is not set for its duration, it will be understood that it was constituted for the entire life of the usufructuary. The usufruct, constituted in favor of a corporation or foundation, may not exceed thirty years. Article 830 Colombian Civil Code/771 Chilean Civil Code. To the usufruct constituted for a determined period of time, or for the entire life of the usufructuary, according to the preceding articles, a condition could be added, which verified, will consolidate usufruct with the property. If the condition is not fulfilled before the set expiration time, or before the death of the usufructuary, according to the cases, it shall be regarded as not written As stated above, we can conclude that amongst other real rights, in Colombia: 1. The full ownership. 2. The fiduciary property or conditioned property and 3. The usufruct, that is, the use and enjoyment subject to a term, exist. The case of the Netherlands The legal regime of the Netherlands is particular and different, since it allows the naked owner to authorize the usufructuary to dispose the assets given in usufruct, even in the case of a unique individual object. Regarding this peculiar possibility, that we will name the ‘Usufruct-disposition’, we will proceed to determine the legal nature of this particular category of usufruct, therefore, it is fundamental to assess the usufruct regime in the Netherlands to be able to compare the usufruct-disposition with similar institutions. The usufruct regime in the Netherlands Correspondingly to the French tradition, the usufruct consists of the right of use and enjoyment of the asset (Dutch Civil Code, 1992, Article 3: 201). It is a temporary right that must be exercised in a limited period of time, which cannot last more than the life of the usufructuary or 30 years in the case of a legal person.5 (Dutch Civil Code, 1992, Article 3: 203). Usufruct-disposition When an asset, which by definition or nature is tradeable, is given in usufruct, the legislator presumes that the usufructuary is entitled to dispose them according to their function (Dutch Civil Code, Article 3: 212 No 1). In any other case, the usufructuary is only allowed to dispose the assets subject to usufruct with authorization of the main proprietor or the judge (Dutch Civil Code, 1992, Article 3: 212 No 3). The judge may only authorize the disposal of the assets to safeguard the interests of the original owner and the usufructuary. In the event that the usufructuary makes use of the faculty to dispose the assets, the usufruct will subsist and at the end of the usufruct, the main proprietor may demand the usufructuary to return the derived, attributable or substitute assets in place of the original ones. Here, the usufruct remains, its object only mutates in the sense that the original asset has been replaced by the usufructuary’s acquisition (Dutch Civil Code, 1992, Articles 3: 213 and 215). When the usufructuary consumes and replaces the asset, he does not acquire the right of property over the new thing. The main proprietor acquires the ownership of the substituted asset and the usufructuary will receive nothing more than the usufruct of the latter. This substitution will also apply to any debt claim collected, as a result of the asset subject to usufruct, as well as any alternative compensation chargeable to them (Dutch Civil Code, 1992, Article 3: 213 No 1). In the event that the usufruct includes sums of money (or bank accounts) that belong to the asset subject to usufruct, it can only be invested in benefit of the property given in usufruct or with authorization of the main proprietor (Dutch Civil Code, 1992, Article 3: 214). The risk of loss of the thing for a strange or unusual cause is assumed by the owner, thus replicating the principle res perit domino. This law applies even if the power of disposition of the assets is granted to the usufructuary (Dutch Civil Code, 1992, Article 3: 215 Part 1). Fundamental differences with other institutions in our Civil Code Distinction with the usufruct The usufruct per se does not grant the faculty of disposition of the asset. The usufructuary, once the term has expired, must return the possession of the asset to the owner. Under this category the differences are evident, first, although the usufructuary can use and enjoy the asset, it cannot be disposed. In case that the usufruct is alienated, the proprietor does not lose the naked property of the asset and, therefore, when the period of the usufruct finalizes, the owner is entitled to demand the possession of the asset to the new usufructuary (Right of persecution). In the event of the usufruct-disposition is different, if the usufructuary, having the faculty to do so, disposes the asset, the main proprietor cannot pursue the asset since he no longer has the right of property, but he will have the right to pursue the substituted or attributable asset. Regarding the risks, there is equivalency; Res perit domino is the applicable rule in both systems. If the usufruct extinguishes, the owner cannot demand anything from the usufructuary if the loss was a result of a force majeure. Distinction with the improper usufruct The improper usufruct, according to Colombian doctrine, is a real right established on fungible or consumable assets. When the usufruct concludes, the usufructuary has the obligation to return the same quality and quantity of the assets given in usufruct; it is a genus obligation (Colombian Civil Code, 1887, Article 848). This does not occur in the usufruct-disposition, because when the term expires, the usufructuary cannot demand the same quality and quantity, it can only claim the substituted assets. Regarding the risks, there is a great difference between the usufruct-disposition and our notion of improper usufruct. Under the improper usufruct, the usufructuary bears the risk, while in the case of the usufruct-disposition, the main proprietor does so. According to the Colombian, Chilean, and French Civil Code, when dealing with an improper usufruct, the usufructuary becomes the owner of the assets while the original owner who constituted the usufruct, becomes a creditor by the same amount of genres. The relationship held by the ‘usufructuary’ and the ‘original owner’ can be translated as a merely obligational relationship, whose object is a genus obligation. Having into account the maxima ‘the genres do not perish’, when the term finalizes the usufructuary is obliged to return another asset of the same quality and quantity. Distinction with a credit agreement Taking into consideration that either the credit agreement, or the improper usufruct has personal effects; equivalent considerations can be made regarding both type of contracts. The notion of the fiduciary property in the Civil Code In contrast to the European Civil Legislations, a real novelty is presented in Colombia. Taken from the Chilean Civil Code, our legislation considers the ‘fiduciary property’ as another limitation to property, which is ‘attached to the encumbrance of passing an asset to another person when a condition is verified’ (Colombian Civil Code, 1887, Article 794). This figure is different to the ‘Commercial trust’ or ‘fideicomiso’ established in our Commercial Code (Colombian Commercial Code, 1887, Articles 1226+), functionally equivalent to the Express Trust. Nevertheless, is important to warn that the similarities in the denomination of the figures may lead to confusions. Now, it is important to highlight that this figure is another way of limiting the full ownership. A person may become a fiduciary owner of a certain asset, to detain it under this title and afterwards, to transfer the asset to a third party when the condition is fulfilled. Indeed, it is possible that in the constitution of the fiduciary property the fiduciary owner is compelled to reserve the fruits for the person who will acquire the full ownership when the condition is satisfied, event in which he will be considered only as the ‘fiduciary holder’ (Colombian Civil Code, 1887, Article 808). Two interesting dispositions bring this institution closer to the denominated ‘usufruct-disposition’ of the Dutch law. First, the possibility of mutating the form of the assets received, ‘but preserving its integrity and value’ (Colombian Civil Code, 1887, Article 817). Although this topic is debatable and its discussions exceeds the scope of this document, an interpretation of the law may allow the argument that it is possible to dispose the asset, when guaranteeing that the substitute asset maintains its integral value. But the most attractive disposition, since it permits to use up the asset without any obligation to restore the same individual object, is embedded in the Colombian Civil Code as follows: If the right of constitution of the Fiduciary is expressly granted to the fiduciary owner, the right of enjoyment of the property, he shall not be liable for any deterioration. – If the free disposition of the property, the beneficiary will only have the right to claim what exists at the time of the restitution. (Colombian Civil Code, 1887, Article 819) Therefore, what in Colombia cannot be achieved through the constitution of an usufruct—possibility that could be foreseen in the Netherlands—could be obtained via the ‘fiduciary property’. The tax regime of the usufruct in Colombia An individual’s gross patrimony, according to the Tax Code, is composed of ‘the total amount of assets and rights appraisable in money, possessed by the taxpayer on the last day of the year or taxable period’ (Colombian Tax Code, 1989, Article 261). As previously mentioned, the naked ownership and the usufruct are rights appraisable in money, reason why, they must be taken into account during taxation. In Colombia, two different types of taxes may be related to the usufruct, according to the profit’s origin: i) the capital gains tax, generated when the right to usufruct is received as a gift, or when it is transferred for value once the seller has possessed said right for more than two years, and ii) the income tax, which is generated over the profits produced by virtue of the usufruct (the asset’s yield or fruits of its economic exploitation) and also for the sale of the usufruct, for value, when the seller has possessed the right for less than two years. The income tax Income tax is generated by the net increase of an individual’s patrimony. Depending on the circumstance, this tax can be collected via retention on the source and/or the presentation of a tax statement. Even when in Colombia the patrimony is reflected on the tax statement (when the presentation is required), it must be noted that in accordance with global tendencies, this tax is generally not charged over the patrimony itself, but over the change in an individual’s patrimony or an individual’s enrichment, but for certain exceptions in which the patrimony is effectively levied (presumptive rent). As indicated in the previous point, the tax related to the usufruct is generated under two circumstances. First, when the usufruct is granted for value, it will be taxed for the generated wealth increase (difference between fiscal cost and price of sale); generating income tax if this right has been under the possession of the seller for at least two years. In this case, the seller will have to pay income tax, with rates varying considerably depending of the nature of the seller, between 0 per cent and even, 40 per cent. Nevertheless, as the right to usufruct is reflected on the tax statement as part of the liquid patrimony, it could exceptionally be taxed under a Sui Generis scheme in Colombian Tax Law, known as presumptive income. This regime is sustained under the juridical and philosophical concept of the social function of property, which supposes that all patrimony must generate profit.6 It is then, a punishment for those who mismanage their assets, breaking the social function of property. Under this system of presumptive income, the law presupposes that all patrimony generates at least a 3.5 per cent of profit, and over this 3.5 per cent, the legislator will levy a tax. The same system may affect the naked owner. This impossibility of subtracting the naked ownership when calculating presumptive rent is a clear legal blunder. If the ordinary system were applied, no tax will be generated as the naked ownership does not necessarily generate income. Clearly, the naked ownership should be considered an excludable asset; however, the law does not contemplate this possibility. In conclusion, the taxpayer will always declare the naked ownership. If the ordinary system were applied, no tax will be paid, as the naked ownership does not generate profit. On the other hand, if the presumptive income regime is applied, as the naked ownership is not considered an asset which can be subtracted from the calculation, the law will presume that it generates a 3.5 per cent profit, and it will be levied over that value, according to the applicable tariff. The same applies to the usufructuary, which logically, must declare the value of the usufruct as profit generated in the taxable period. Capital gains tax In order to calculate the capital gains tax in the alluded cases and the patrimonial value of the usufructs, the law states a formula. For said effects, the usufruct’s value will be equal to five per cent of the asset’s total value, for every year, with a maximum of 70 per cent. If it is a usufruct for life, the value of the usufruct will correspond to 70 per cent of the value of the asset. The exceeding percentage will be considered the value of the naked property. Capital gain for the usufruct will be 10 per cent. The tax regime of the usufruct for life differs enormously from the Dutch and Italian regime, because in Colombia, in the case of an usufruct lasting for the life of the usufructuary as a gift, the value will be 70 per cent, while in those countries, the value is proportional to the age of the usufructuary. More age implies less value for the usufruct and more value for the naked property and vice versa. Sergio Rodríguez-Azuero is Honorary and Emeritus Professor of Commercial Law at the University of El Rosario. Bogotá. Member of the International Academy of Estate and Trust Law and Member of the Group of Experts of the Ibero-American Institute for Law and Finance. Member of the Colombian Jurisprudence Academy. Founding Partner at Rodríguez Azuero Abogados. Author of the books ‘Contratos Bancarios’ and ‘Negocios Fiduciarios. Su significación en América Latina’ and a large list of papers published in different Journals. Frequent speaker national and international. Footnotes 1. During The International Academy of Estate and Trust Law annual meeting held in Chicago from 21 to 25 May 2017, a paper was presented by Pieter van Onzenoort in the Module ‘Usufructs’ which elicited the reflections incorporated in this document. 2. NG Mankiw, Principios de macroeconomía (McGraw-Hill/Interamericana (ed), E Robasco Espáriz Luis Toharia Cortés and L Toharia Cortés (Translated by)) (Madrid 1998). 3. Original version of the code. 4. A Rodríguez, H Vodanovic and S Undurraga, Tratado de los derechos reales bienes (Santiago de Chile 1993). 5. In Quebec, the maximum term is a 100 years (Civil Code Of Québec, 1991, art 1123). 6. M Plazas Vega, Derecho De La Hacienda Pública Y Derecho Tributario (Temis 2016). DIAN, Concepto 55120 del 17 de septiembre de 2014. Bogota. Congreso de la Republica de Colombia. 1887. Codigo Civil. [Ley 57 de 1887].Presidencia de la Republica de Colombia. 1971.Codigo de Comercio [Decreto 410 de 1971]. Congreso de Chile. 1855. Codigo Civil. [Ley 14 de 1885]. Parliament of Netherlands. 1992. Dutch Civil Code.National Assembly of Quebec 1991. Civil Code Of Québec. © The Author (2018). Published by Oxford University Press. All rights reserved.
Trusts & Trustees – Oxford University Press
Published: Feb 1, 2018
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