Legal News No.

13 June 2012 NEWS OF INTEREST CONSULTING COMMITTEE We are pleased to inform the creation of a Consulting Committee that will support the partners in their Strategic Planning and in the strengthening of the services of the firm to its clients. This committee is made up by Maricielo Glen de Tobon, Juan Manuel Wills and Gabriel Alarcn. In the website you will find their bios showing their strengths as qualified managers, especially in the financial industry, and in the technology and advertising industries. NEW HIRES The Firm is pleased to inform that it has hired Carolina Arenas Uribe, associate who will lead the Litigation practice and will reinforce the Corporate Law practice and Camilo Gantiva, associate who will lead our Capital Markets practice. DEAL OF THE YEAR LATIN LAWYER- As a result of our legal counseling to Grupo de Inversiones Suramericana in the acquisition of the Latin American assets of ING Group, RODRIGUEZ-AZUERO ASOCIADOS was awarded with the DEAL OF THE YEAR granted by Latin Lawyer on its meeting on March 29th in Sao Paulo. Additionally, our firm was nominated in the same category by the International Finance Law Review (IFLR). INTEROCEANIC CORRIDOR OF GUATEMALA With the support of RODRIGUEZ-AZUERO ASOCIADOS, Colombia was the first country to receive information about the project of the Interoceanic Corridor of Guatemala. This project will require connecting two oceans with a rail track of 337 kilometers and the building of two mega ports. The estimated cost of developing this project is 8.9 billion dollars, which is 1.5 times the cost of the Panama Canal expansion project. The development of this project will require engineering, logistics and technology activities that will bring world class providers. In April it was held a public event making official the payment of lands that will be contributed to the project. VISIT TO NICARAGUA Our founding partner was invited as speaker to Managua on April 25 and 26 to discuss about the recent bill on trusts that was enacted in that country. The first conference was addressed to magistrates and registrants the second was addressed to the management of the host entity Banpro

TOPICS OF ANALYSIS

New rules for withholding through the financial system: Decree 1159 of 2012

By: Ana Gabriela Garcia On June 1st the Colombian Government issued Decree 1159 of 2012 to regulate Article 376-1 of the Colombian Tax Code (as amended by Article 27 of Law 1430 of 2010), which makes mandatory the use of the financial system to channel payments subject to withholding tax. The DIAN (the Colombian tax authority) will determine which withholding agents must exclusively use financial institutions in order to make payments to third parties and withhold income tax and VAT. There will be an increase of bank usage to manage withholdings for those responsible to apply it. This will imply a major change not only on withholding taxes, but also on exogenous information reporting and on the process of issuing withholding certificates. Also, this new system of withholdings collection will no longer be applicable at the time of causation (when the obligation is due), but at the time of payment to the beneficiary. To ease this transition, the decree provides that the resolution

appointing the withholding agents shall be issued at least six months prior to the enforceability of this obligation. It is important to note that the banks will not acquire the obligations and duties that are the withholding agent responsibility. However, the banks will be the only ones allowed to receive money for certain withholding agents in order to secure payment and collection. This means that the withholding agent must continue to file statements of withholding; this obligation will not become an obligation of the bank where the withholding agent has its account. Another aspect to consider is that the withholding agents will pay suppliers from a checking or savings account, using a debit card, wire transfers, or checks payable to the first beneficiary. The withholding agent must inform to its bank which checking or savings account will be used for this purposes and in every transaction it will have to report the concept for which payment is made, full details about the beneficiary, type of withholding that will be practiced to the beneficiary and the net value to

be paid after withholdings to the beneficiary. Meanwhile, financial institutions will have the following responsibilities: To ensure the necessary procedures and conditions to allow the withholding agent to make payments subject to withholding and provide the necessary information to withhold. To ensure conditions of reliability, safety and service to withhold and deliver the money to the government. To perform required reviews in order to determine the existence of sufficient funds to pay and practice the withholdings that may apply. To reject a transaction when the withholding agent does not provide sufficient information about that transaction. The bank must inform promptly to the withholding agent about any payment that is being rejected, where a withholding was not performed. To withhold taxes on each payment, as applicable, according to the information provided by the withholding agent. If the

withholding agent informs that a withholding for a particular tax is applicable (e.g. income tax, VAT), but does not informs the rate, the bank will apply a 10% rate. To issue an electronic receipt showing the tax withheld on each payment, which shall be made available to the withholding agent no later than two business days following the date of withholding. To deposit the amounts withheld, on a daily basis, in the government accounts at the Central Bank, no later than seven days after the money is withheld. To reconcile withholding values, when any difference arises for a reason beyond control of the withholding agent. In these events the financial institution will generate, for each withholding, an electronic voucher reflecting any missing or extra money, the date of adjustment, the identification number of the withholding and the value missing or in excess. To report to the DIAN about the withholding certificates issued and the deposits made on government accounts.

Colombia seeks to adjust its regulation on investment funds to international standards

By: Camilo Gantiva The Colombian Government is considering potential reforms to the regulatory framework for collective investment vehicles in the country. This document reflects the latest developments and most important issues on these potential reforms, with the purpose of informing and maintaining an open debate. The first draft of the reform was made public and available for comments in May. We are still waiting for the Ministry of Finance to publish the sections of the project related to money market funds and REITs. We see this as a valuable work that tries to update the Colombian regulation applicable to collective investment vehicles to international regulation applicable to similar investment vehicles. For this project the government has sought participation by the industry and support by international experts. These conditions should allow to have a positive result, notwithstanding of some particular comments or specific questions that might arise from the review of the final document to be approved by the government. 1. Innovations.

Some of the main changes that are being proposed and that we want to highlight are the following: The name of carteras colectivas (collective investment vehicles) changes to fondos de inversion colectiva (collective investment funds), which is more familiar to the name used internationally for these vehicles. The classification of fondos escalonados (stepped-up funds) is eliminated and the regulation clarifies that funds can be open-end or closed-end, depending on whether or not the fund manager has to redeem participations on demand or at the final term of duration of the fund. In any case, the project allows having special funds with particular redemption rules. The project differentiates between the diverse activities involved in the fund administration process, trying to specialize the industry and disperse risks. This project differentiates between the activities of managing the fund, managing the portfolio of the fund, custody the assets and distributing the fund. Each activity has special obligations and it is clear that they can be provided either by the fund manager or by third parties. In any

case, the fund manager will be liable for the adequate rendering of services provided by those hired by the fund manager. One relevant issue is that the project creates the concept of families of funds, which is a group of funds that require a similar management and thus, can operate under the same rules approved by the SFC (the Colombian Financial Superintendence). This change is expected to speed up the approval process of new funds, because in order to obtain authorization for a new fund belonging to an existing family, it is only required to file with the SFC an annex with the particularities of the rules applicable to that specific fund. Should the SFC does not reject approval request within a short period of time, the authorization is considered to be granted and the SFC will have to provide the respective authorization code to the fund manager, so the fund can start its operations. In addition to the above, the project creates simplified procedures to authorize funds, depending on the type of investor that the fund or the family of funds is directed to, the experience of the fund administrator in managing funds and its good record in disciplinary matters. The participation in close-end funds will not be always considered securities, this will be determined in the rules of each fund. This

change allows that some funds do not have to register its participation in the RNVE (the National Registry of Securities and Issuers) and comply with the disclosure obligations that this registry requires, which increases the operation costs. The project creates omnibus accounts that allow a client to request to the fund manager to act in its own name but on behalf of the client, becoming a separate investor in the fund. The selling force of the fund manager has to comply with an obligation of providing advice. The current obligations of the selling force are very similar to this obligation but the project clarifies this obligation. 2. Some issues that special attention require

The new regulation might bring potential benefits, but it is important to note that some provisions of this draft can be debatable. The activities of the portfolio manager have a dual regulation. Some are the rules applicable to the private equity funds and ETFs but different rules apply to other type of funds. In Colombia the private equity funds are close-end funds that invest at least 2/3 of their resources in the acquisition of assets that are not securities registered in the RNVE. On the

other hand, the ETFs replicate a national or international index by having a portfolio with many or all of the assets that integrate such index. The project maintains the possibility for EFTs and private equity funds to have an external gestor profesional (portfolio manager) who can be an individual or legal entity, Colombian or foreigner, with expertise in the management of portfolios and particularly in the type of assets that the fund is allowed to invest in. Furthermore, the portfolio managers have to meet the requirements of expertise, experience and moral qualifications provided in the rules of the fund. On the other hand, investment funds, which are allowed to have a portfolio not only with securities registered in the RNVE, but also with any other asset or economic right, only can hire a portfolio manager that is an entity under surveillance of the SFC. Any of the funds mentioned above is allowed to invest part of its portfolio in securities registered in the RNVE or in other assets, such a commodity. Nonetheless, in some events it is possible to hire a portfolio manager who is not a legal entity under surveillance of the SFC and in other events this is not allowed. It is clear that a portfolio manager must be an expert in managing the type of assets that the fund is investing in. However, the fact that an entity is under surveillance of the SFC does not imply that it has the knowledge or

expertise to manage of all types of assets and therefore the participation of a third party expert could be valuable. While the ETFs and the private equity funds might hire external portfolio managers with special expertise, other investment funds with similar portfolios could be limited to hire as portfolio managers only legal entities under surveillance by the SFC. If according to the project the fund manager is under surveillance of the SFC and is liable for the activity of the portfolio manager, then why not allow to hire portfolio managers even if they are not legal entities under surveillance of the SFC?. If the decision is to have more control over the portfolio managers, why the portfolio manager does not assume certain responsibilities with the investors?. It is important to maintain an open debate with the purpose of reaching an adequate equilibrium between the required degree of expertise, degree of surveillance by the SFC and degree of responsibilities by those who manage public investments. Another interesting provision is that the duty of special advice, that in some events has to be provided by the sales force, must be provided by people hired by the fund manager under a labor contract. It is important to analyze how this will affect the sales force organization that is currently employed, depending on the structures of the different fund managers.

The decree empowers the SFC to determine many relevant issues, among others, the terms and conditions under which a number of funds constitute a family of funds. Also, the events when the sales force has to provide special advice.

This project will impact one of the most important products in the financial market. For this reason we consider relevant to follow the development of this project with the purpose of participating during its drafting and to be able to answer those doubts that might arise with its implementation.