Tax Bulletin No. 25

We share our Tax Bulletin No. 25 from July 2020, with the latest decisions and opinions released by the Ministry of Finance and Public Credit, the Council of State and the Tax Authority, in connection with national and local taxes, and tax procedure.

Also, we share some of the latest decisions taken from the National Government, considering the health emergency declared through Decree 637 of 2020.

The complete Bulletin is found only in Spanish in the below PDF, because of many domestic tax terms we are unable to translate for you. However, please find below the main subjects we will be speaking of in the Bulletin. If you are interested to find out more information, do not hesitate to contact us.

1.Normativity issued by the National Government and the Colombian Tax Authority under the economic emergency due to the effects of COVID-19

Local Authorities are allowed to grant deferrals in the payments of taxes

The National Government issued the Decree 678 of 2020, which allows the Local Authorities to defer the payment of taxes. Additionally, some benefits are established for taxpayers who have tax debts with the Local Tax Administration.

In addition, the withholding agents who have an enforceable title or, that are facing a discussion in the administrative or judicial stage, will be able to access to the benefits regarding the reduction of all the penalties and interest as long as they pay the total amount of the debt until May 31, 2020.

2. Normativity issued by the National Government regarding tax issues during the month of July 2020

In addition to the regulations issued as a result of the economic emergency situation in our country, the National Government has also issued other tax regulations during this period, which we allow ourselves to highlight below:

The National Government regulated the Normalization Tax

The Ministry of Finance and Public Credit regulated the Normalization Tax through Decree 1010 of July 14, 2020. By means of the aforementioned decree the National Government established the conditions that the taxpayers must fulfil in order to normalize assets and liabilities in the country. Pursuant to the decree, the taxpayers will have to present the Normalization Tax return before September 25, 2020.

It is also important to note that a reduced taxable base may be applicable to taxpayers who repatriate omitted resources that are invested with a vocation of permanence in the country. In this case, the taxable base will correspond to 50% of the omitted resources that are effectively repatriated and that comply with the guidelines determined in the tax law.

Requirements for the deferral of income in the Private Equity Funds and responsibility of the withholding agents

Pursuant to the guidelines provided in the Decree 1054 of July 19, 2020, the Ministry of Financial and Public Credit regulated the articles 18-1, 23-1 and 368-1 of the Colombian Tax Code related to the Private Equity Funds. In accordance with article 1.2.1.9.1.2 of the Decree 1625 of 2016, the deferral of the income determined in article 23-1 of the Colombian Tax Code, will be applicable since the withholding agent confirms the compliance of all of the requirements for the deferral to operate.

Likewise, to maintain the tax benefit of the income deferral, the withholding agent must issue, within the three (3) months following the end of the taxable year, an annual certification confirming the validity of the benefit. This certification will have to be available for the Colombian Tax Authority if required.

Finally, the decree established that withholding agents must practice withholding tax in accordance with the provisions set forth in article 368-1 of the Colombian Tax Code, that is, at the time of the payment; however, when the requirements for the deferral are not met, the withholding must be carried out in accordance with the rules of the mercantile trust agreement. It should be noted that the withholding agents will be jointly responsible for the payments of the tax, when they guard, administrate or manage assets in funds or vehicles and have knowledge that their participants are using such vehicles for purposes of erosion or tax abuse.

The Colombian Tax Authority ruled the terms and conditions, for year 2020 and following, to exchange information in accordance with the Law 1661 of 2013 and regarding the compliance of the Convention on Mutual Administrative Assistance in Tax Matters

Through Resolution No. 000078 of July 16^th, 2020, the Colombian Tax Administration set forth the content, technical characteristics and deadlines for the information that must be filed by the financial institutions subject to report, in accordance with the Convention on Mutual Administrative Assistance in Tax Matters.

This resolution determines the information that is relevant for purposes of identifying whether a certain entity qualifies as a financial institution obliged to report and, also, it provides information regarding the qualification of a financial entity not subject to report information. Likewise, the Tax Administration provides different meanings of some concepts that are relevant to develop the obligation of due diligence that the financial institutions, that are subject to report information to the Colombian Tax Authority, must accomplish.

The resolution includes two annexes, as follows:

• Annex I: Due diligence procedure and obligations
• Annex II: Technical Annex

Form 420 is issued by the Colombian Tax Authority

Through Resolution No. 000074 of July 2^nd, 2020, the Colombian Tax Authority issued Form 420 for the taxpayers required to file the Equity Tax, corresponding to the years 2020 and 2021. In accordance with the above, the Equity tax taxpayers will have to submit the tax return through the electronic services, using the electronic signature instrument authorized by the Special Administrative Unit of the Colombian Tax Authority.

3. Tax rulings

Requirements to access to the creative industries (orange business) tax benefits  

Through tax ruling No. 820 of July 8^th, 2020, the Colombian Tax Authority specified that for the exempt income benefit to proceed, provided in numeral 1 of the article 235-2 of the Colombian Tax Code, the requirements set forth in the aforementioned article and in the Decree 286 of 2020 must be accomplished. If some of the requirements previously mentioned are breached, the benefit of the exempt income will be lost from the taxable year of its non-compliance.

On the other hand, the Colombian Tax Authority mentioned that these benefits are not applicable to the Simple Tax Regime taxpayers. In this sense, the taxpayers must determine if the exemption provided in numeral 1 of article 235-2 of the Colombian Tax Code applies, or if it uses the Simple Tax Regime regulation.

Tax credit for taxes paid abroad, is not applicable to taxpayers of the Simple Tax Regime

By means of Tax Ruling No.793 of July 2^nd, 2020, the Tax Administration indicated that the Simple Tax Regime taxpayers are not entitled to apply the tax credit provided for in article 254 of the Colombian Tax Code for taxes paid abroad. The foregoing, because according with the guidelines of the article previously mentioned, this tax discount is applicable to income tax taxpayers, and the Simple Tax Regime taxpayers are not subject to income tax.    

Numbering of supporting documents for taxpayers not obliged to issue invoice

In Press Release No. 55 of July 21^st, 2020, the Colombian Tax Authority pointed out that the electronic numbering computer service will be available for taxpayers to use it since August 15^th, 2020. The above, to make the application for ranges numbering of supporting documents in acquisitions made to taxpayers who are not obliged to issue a sales invoice or equivalent document. Additionally, the Entity informed that the supporting documents in acquisitions made to taxpayers not obliged to issue an invoice or equivalent document must be issued in physical form, complying with the requirements indicated in the Resolution No. 00042 of May 5^th, 2020.

4. Case Law of the Council of State

Tax burden of the non-representative mandate agreements regarding the billboard and advertising tax

In Case Law of June 18^th, 2020, the Council of State pointed out that non-representative mandate agreements, in which the agent show notices and advertisements of the products of the principal, do not trigger the billboard and advertising tax for the agent. The billboard and advertising tax is a municipal tax which taxable event is the placement of advertising boards on public spaces or vehicles. Therefore, the Council of State concluded, that if the information place in public spaces or vehicles does not belong to the agent, the responsible of such tax will be the principal, whose economic activity is being promoted.

The Constitutional Court rejected the lawsuit against the Colombian Tax Code

Pursuant to Official Pronouncement of July 21^st, 2020, the Constitutional Court rejected the lawsuit against the Colombian Tax Code. The Court determined that the lawsuit did not fulfil the requirements provided in the Colombian law, because it did not determine in which way the Colombian Tax Code violates the guidelines provided in the Political Constitution.

5. Projects of Decrees and Resolutions

Income Tax for Individuals  

Considering the guidelines set forth in Law 2010 of 2019, that introduced some changes regarding the Income Tax of individuals, The Ministry of Finance and Public Credit issued a draft of decree aimed to rule those changes and, in addition, adds some articles to the Decree 1625 of 2016. One of the major changes introduced by Law 2010 of 2019, was the simplification of the schedular system implemented by the 2016 tax reform to only 3 schedules: (i) a general schedule, which would include the labour income, capital income and non-labour income; (ii) a schedule for pensions and; (iii) a schedule for dividends.

In this sense, upon fiscal year 2020, for the determination of the net income of the individuals it will be necessary to sum the results obtained in the general and pension schedules, amount to which the income tax rates provided in section 241 of the Colombian Tax Code will be applicable.

Dividends Taxation

The Ministry of Finance and Public Credit published the draft of decree by means of which articles 242, 242-1, 245 and 246-1 of the Colombian Tax Code, related to Dividends Tax, are regulated. According to the draft of decree, dividends distributed to individual or foreign entities will be subject to the following rules:

• Dividends paid to Colombian individuals will be subject to a withholding tax rate of 0% if the amount of the dividends is less than USD $2800 approximately. Otherwise, the tax rate will be 10%. 
• Dividends paid to national companies out of profits that were already taxed at the corporate level will be taxed at a tax rate of 7.5%.
• For foreign companies, the tax rate is 10%.
• Dividends paid to foreign legal entities arising from profits that were not subject to taxes at the level of the company distributing them would be first subject to a 32% withholding tax, and then subject 10% withholding tax on the amount to be distributed, net of the 32% withholding tax. 
• Dividends distributed out of taxable profits arisen in mega investment project, will be subject to withholding tax at rate of 27%.
• Finally, dividends distributed to individuals deemed as not income tax taxpayers, will be subject to a withholding tax rate of 33%.