We share our Tax Bulletin No. 27 from September 2020, with the latest decisions and opinions released by the Ministry of Finance and Public Credit, the Council of State, the Constitutional Court, and the Tax Authority, in connection with national and local taxes, and tax procedure.
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 regarding tax issues in September 2020
House of Representatives approved the Double Taxation Agreement entered into by the Government of The Republic of Colombia and the Government of the French Republic
On September 15th, the Congress of the Republic of Colombia approved the agreement between the Government of Colombia and the Government of France to avoid double taxation and prevent tax evasion and avoidance concerning Income and Wealth taxes.
This agreement will bring changes in the interpretation and application of the other agreements to avoid double taxation subscribed by Colombia, since, by excluding technical assistance services, technical services, and consulting from the definition of royalties, it will activate the most-favoured-nation clauses contained in most of the treaties and, in addition, this will mean that the aforementioned services will be excluded from taxation in Colombia.
Tax benefits for those who has tax and non-tax obligations in Bogotá
The Tax Administration reminded to citizens the possibility of accessing to the benefit of reduced taxes, penalties and interests in Bogota, applicable for those who fulfil all of their obligations according to the local tax law.
Considering the above, the Local Tax Administration has settled the following discounts:
- 20% discount, without interest or penalties, if the debts are paid before October 31st, 2020
- 10% discount, without interest or penalties, if the debts are paid before December 31st, 2020
- 0% discount, without interest or penalties, if the debts are paid between January 1st, 2021 and May 31st, 2021.
As of May 31st, 2021, the taxpayers will have to pay the corresponding amount of interest and penalties with no tax benefit applicable. Also, it is important to highlight that the beneficiaries of this relief measures are the taxpayers who hasn´t pay the corresponding taxes in fiscal year 2019 and previous years.
New requirements for import registration and license applications – VUCE
The Instruction No. 018 of September 3rd, 2020, states the requirements, permits, and authorizations required prior to the submission of applications for registration and import licenses by the entities that participate in the Single Window of Foreign Trade (VUCE).
Regarding imports subject to the prior licensing regime, classified following the provisions of article 14 of the Decree 925 of 2013, different Colombian entities like the National Agency of Hydrocarbons (ANH), the National Mining Agency (ANM), the Ministry of Foreign Affairs, the National Institute for Food and Drug Surveillance (INVIMA), amongst other entities, have established several requirements to which certain imports will be subjected.
Amongst the most relevant requirements is the one laid down by the National Mining Agency (ANM) which establishes that authorization is required, for import licenses applications submitted by private parties, in which tariff exemption has been requested for imports of machinery, technical equipment, accessories, materials, and spare parts for the exploitation of mines, following the stipulations of letter h,) of Article 9 of Decree 255 of 1992.
Requirements for the application of tax benefits for Non-Conventional Sources of Energy
Through resolution No. 203 of September 3rd, 2020, the Mining-Energy Planning Unit (UPME) set forth the requirements and procedures by means of which the entity will evaluate the applications and issue certificates to access to the tax benefits for the development or production of energy from Non-Conventional Energy Sources – FNCE. Among the benefits to which taxpayers involved in this type of projects might apply are: (i) deduction from income tax; (ii) VAT exclusion and; (iii) exemption of customs duties for investments made in research, development and production of FNCE.
The goods and services subject to the tax benefits are established in annex No. 1 of resolution No. 203. The most relevant requirements taxpayers must fulfil to request to request the certification are the following:
• The delivery of the required forms.
• Technical sheets.
• Copies of the agreements of the services that are the object of the request.
• Being registered in the registry of electric power generation projects.
2. Tax Rulings
Deduction for the difference between tax depreciation and accounting depreciation is ruled by the Tax Administration
By means of Tax Ruling No. 1103 of September 2020, the Tax Administration pointed out that the useful life of an asset is the period in which the asset will provide future economic benefits to the taxpayer. In that sense, the tax depreciation rate may not be the same as the accounting depreciation rate. The useful life determined by the taxpayers has to be supported by technical studies, reports or documents made by experts.
Furthermore, section 137 of the CTC provides a limitation in the depreciation expense for fiscal purposes. In that sense, taxpayers will have to establish the useful life of the asset and the annual accounting depreciation rate and then compare it to the tax depreciation. If the accounting depreciation rate is higher than the tax depreciation rate, a temporary difference will arise that may be deductible in the following fiscal periods.
Application of the VAT exemption set forth in Decree 551 of 2020.
In regards to the validity of the VAT exemption contained in the Decree 551 of 2020, which comprises a series of provisions whose purpose is to establish tax benefits concerning medical supplies to avoid the causes that prompted the Declaration of the State of Economic, Social and Ecological Emergency, tax ruling No. 1084 of September 4th, 2020, issued by the Colombian Tax Authority clarifies that, tax benefits will be extended during the term of the declared health emergency by the Ministry of Health and Social Protection, which according to Resolution No. 1462 of August 25th, 2020, will be extended until November 30th, 2020. In this sense, the exemption of VAT on the import and sale of the aforementioned products in the national territory (without the right to refund and/or compensation), will be maintained until November 30th, with the possibility of further extension depending of the decisions undertaken by the Ministry of Health and Social Protection.
Payroll payments through the electronic invoicing system
By means of tax ruling number 1004 of 2020, the Colombian Tax Authority pointed out that the electronic invoicing system is applicable to payroll operations. In addition, the aforementioned tax ruling refers to article 90 of resolution 00042 of 2020, which indicates that payments arisen as result of labour income and any other payroll expenses must implement the electronic billing system.
VAT tax treatment in EPC Contracts – Engineering, Procurement and Construction
By means of Tax Ruling number 994 of August 14th, 2020, the Colombian Tax Authority states that in the EPC contracts, the VAT treatment must be established according to each one of the goods and services provided (taxed at the general rate, taxed at special rates, excluded or exempt); the above considering that in these type of agreements several goods and services are involved. The VAT responsible will have to fulfil all the duties such as issue invoices, collect the VAT, file the VAT tax returns and pay the corresponding tax.
On the other hand, regarding the income withholding tax, the Tax Authority indicated that the withholding tax rate will depend on the activity or nature of the payment. In this sense, the withholding tax agent will have to identify these concepts and apply the corresponding withholding tax rate following the Colombian tax laws.
Non-paid Withholding tax returns can be corrected and may produce tax effects
According to tax ruling number 914 of 2020, the Colombian Tax Authority determined that paragraph 5 of the article 580-1 of the CTC establish and exception to the inefficiency of the withholding tax returns that are file without the corresponding payment. In this sense, if the withholding tax return is filed before the due date, it may produce tax effect only if the payment is made within the two (2) months following to the filing due date determined for each taxpayer.
3. Case Law of the Council of State and Constitutional Court
Non-VAT taxpayers may also have access to the Income Tax discount on the amount paid for VAT on the acquisition, construction or formation and import of real productive fixed assets.
The Constitutional Court determined in Case Law C - 379 of September 2nd, 2020, that non-VAT payers may also access to the tax benefit of discounting from the income tax return, the VAT paid on the acquisition, construction or formation and importation of real productive fixed assets. The Court affirmed that Congress incurred in a legislative omission by providing that only subjects liable for VAT could benefit from this disposition, excluding without sufficient constitutional justification those who are not responsible of the VAT.
The measures adopted by the Government to facilitate the cancellation of tax obligations within the framework of the Economic, Social, and Ecological Emergency are declared constitutional.
Through case law C-380 of September 2nd, 2020, the Constitutional Court decided to declare constitutional all the articles contained in Decree 688 of 2020, which regulates the transitory default interest rates for tax liabilities, the abbreviated payment facilities for taxpayers who are in arrears and the deadlines for contentious-administrative conciliation, mutual agreement termination and tax favorability. The above, bearing in mind that the Decree complies with the formal requirements established by the Constitution and the Statutory Law of the States of Exception.
Commercial activities for Turnover Tax purposes, are understood to be carried out in the place where the essential elements of the Agreement are agreed
By means of Case Law of August 27, 2020, the Council of State pointed out that the place of causation of the turnover tax, for commercial activities, is the effective place in which the essential elements of the agreement (the price and the goods) are agreed between the parties, regardless of the place in which the orders are effectively made. The above, in line with letter b of the numeral 2 of the article 343 of the Law 1819 of 2016.
Deduction for payments made in transaction agreements
Through Case Law of August 27, 2020, the Council of State determined that for costs to proceed an income must exist and it have to be proved, the above according to the guidelines provided in article 89 of the CTC. Nevertheless, for deductions to proceed, the existence of an income is not required, nevertheless, the requirements determined in article 107 of the CTC must be accomplished. In addition, in order for an expense to be deductible, there must be a linkage between the expenses and its necessity seen with commercial criterion.
According to the above, the expenses made by the taxpayers in transaction agreements are deductible for income tax purposes, since there is a relationship between such expense and its necessity seen with a commercial criterion.
4. Projects of Decrees and Resolutions
Draft of Resolution for the electronic filing of requests, appeals and other writings before the Tax Administration
The Colombian Tax Authority published a draft of resolution through which is seeking to implement the electronic filing of requests, appeals and other writings. The filing should be made via the electronic system enabled by the Tax Administration and, for each request, the administration will accept only one request, appeal, or other writing. The filing will produce legal effects once the documents are effectively received by the entity. Nevertheless, the legal terms will start to count the next business day after the writing is filed. It is also important to highlight, that the electronic signature will replace the digital signature mechanism.
The appeals determined in article 720 of the CTC, may be presented thought the electronic systems with all the corresponding annexes attached.
Draft of Decree seeks to adopt measures for the control of the production, import, mobilization and marketing of potable and non-potable alcohol.
On august 31st, 2020, The Ministry of Commerce, Industry and Tourism published for comments the Draft of Decree, "by which they promote measures for the control of the production, import, mobilization and commercialization of potable and non-potable alcohol. The purpose of this Decree is to regulate the procedure for the single registration of producers, importers, marketers or distributors and transformers of drinking and non-drinking alcohol with the departments, through the SIANCO system.
The FTA between Colombia and the United Kingdom is being debated in the Congress of the Republic.
After the United Kingdom's exit from the European Union (Brexit), Colombia found it necessary to sign an agreement with the latter to sustain the conditions and preferences that Colombian products have in the European Community. This treaty seeks to mainly benefit rural producers, since 65% of exports to the United Kingdom correspond to products related to the agricultural and agro-industrial sector.
Draft of Resolution seeks to extend the OEA Program to the Operator Users of the Free Trade Zones
On September 3rd, 2020, the Colombian Tax Authority published a draft of resolution, which seeks to extend the Authorized Economic Operator Program (OEA for its acronyms in Spanish), to the Operator Users of the Free Trade Zones. The Operator User interested in submitting an authorization request, may access to the OEA category of security and facilitation. In the authorization process the Special Unit of the Colombian Tax Authority, the National Police and the Ministry of Industry, Commerce and Tourism will be involved.
In addition, the Colombian Tax Authority will evaluate the fulfilment of some requirements set forth in the Colombian Law that will determine the access to this qualification.