We share our Tax Bulletin No. 28 from October 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 October 2020
The Colombian Tax Authority issued resolution regarding the taxpayers obliged to report exogenous information for fiscal year 2021
By means of resolution No. 0098 of 2020, the Colombian Tax Authority established the legal entities and individuals obliged to report exogenous information for fiscal year 2021. According to the aforementioned resolution, legal entities and individual with gross income higher than COP $100.000.000 (approx. USD $35.000) are obliged to comply with this formal duty.
The Council of Bogotá approved an agreement that seeks to help the economic recovery of the Capital District
On October 24th, 2020, the Council of Bogotá approved an agreement aimed to promote the economic recovery of the Capital District, which in addition, sets forth several tax reliefs for individual and companies affected by Covid – 19. Among the different measures adopted by the agreement, is worth to mention the followings:
- Tax credits for the taxpayers of the turnover tax up to 25%.
- No modification of the tariffs of the property tax for properties with a commercial value up to COP $131.670.300 (approx. USD $37,620).
- Tax discounts regarding the property tax. In addition, local laws allow taxpayers to fulfil with this duty by making installments payments.
Double Taxation Agreement (DTA) entered into by the Republic of Colombia and the French Republic for the avoidance of double taxation is approved by Colombian Congress
Through Law 2061 of 2020, the Congress of the Republic of Colombia approved and adopted within the national legal system the Double Taxation Agreement entered into by Colombia and France and its Protocol, signed on June 25th, 2015. This Convention seeks to deepen the economic relationship and strengthen the tax cooperation between these countries.
Among the main characteristics of this Double Taxation Agreement, which adopts the OECD model, the most important are:
- Taxes covered: The Convention covers the incomes taxes and capital taxes, payable by the Contracting States and, in the case of France, by its political or local subdivisions authorities.
- Business Profits: Profits of an enterprise of a Contracting State shall be taxable only in that State, unless the enterprise carries on business in the other Contracting State through a permanent establishment situated in the other Contracting State. If the enterprise carries on business as aforesaid, the profits that are attributable to the permanent establishment, exclusively, may be taxed in that other Contracting State.
- Dividends: As a general rule, the dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State, may be taxed in that other State. However, those dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, but taking into account the applicable limitations when the beneficial owner of the dividends is a resident of the other Contracting State.
Therefore, from the Colombian perspective, the dividends would be taxed as follows:
|Dividend type ||Tax tariff|
|Dividends out of profits that have been subject to tax on income at the level of the company according to the laws of Colombia |
5% - when the beneficial owner is an enterprise (excluding partnerships) which holds directly at least 20% of the capital of the company paying the dividends.
10% - in all other cases
Dividends out of profits that have not been taxed at the company´s level
|15% of the gross amount of the dividends (without this DTA, will be apply an effective national tariff of 38.8%, by 2020)|
- Royalties: Generally, royalties arising in a Contracting State and paid to a resident of the other Contracting State, may be taxed in that other Contracting State. However, royalties arising in a Contracting State may also be taxed in that Contracting State according to its laws, always bearing in mind that if the beneficial owner of the royalties is a resident of the other Contracting State, the tax at the Contracting State shall not exceed 10% of the gross amount of those royalties.
Finally, it is important to note that in contrast to other Double Taxation Agreements (also signed by Colombia under the OECD model), this one did not include within the definition of royalties the services provided by technical advisory, technical services and consultancy services. This means that, with the entry into force of this DTA, the most-favored-nation clause contained in those DTA’s signed by Colombia, in which these services are currently included within the concept of royalties, will be activated.
2. Tax rulings
Enterprises that carry out technological or creative activities (orange business) are obliged to pay social security and parafiscal contributions
Through Tax Ruling No. 1135 of 2020, the Colombia Tax Authority pointed out that, enterprises that carry out technological or creative activities, the so called “orange business”, are not exonerated of performing social security and parafiscal contributions. Nevertheless, the beneficiaries of the exempt income arisen in this kind of activities, are not required to practice the special withholding tax set forth in section 22.214.171.124 and followings of Decree 1625 of 2016.
The Colombian Tax Authority determined the qualification of the revenues received as a commission in the context of the Double Taxation Agreement entered into by Colombia and Canada
By means of Tax Ruling No. 00548 of 2020, the Colombian Tax Administration determined that the concept of “commission” is not specified in the Colombian law but it is also not described in the Double Taxation Agreement subscribed between Colombia and Canada.
In order to determine the scope of the concept of “commission”, the Tax Administration relies on the definition of the dictionary of the Royal Spanish Academy as a “percentage received by an agent over the result of a sale or business”. The above in order to determine the applicable tax treatment for commissions in the context of the Tax Agreement entered into by Colombia and Canada.
In addition, the Tax Administration concludes that if the revenues received as a commission by an enterprise, are a result of the performance of an activity, these revenues will be subject to the guidelines provided in article 7 (Business Profits) of the Double Taxation Agreement. In that sense, revenues will not be subject to the guidelines of article 20 (Other Incomes), considering that this article only applies as a residual rule.
The Tax Administration determined some guidelines regarding the exclusion of VAT regarding some goods of anti-fluid endowment as biosecurity items
Through Tax Ruling 1165 of 2020, the Tax Administration pointed out that is mandatory that the exclusions, exemptions, and special rates in tax matters are expressively determined in the tax law. In accordance with the above, no additional interpretation is allowed. In addition, the Tax Administration determines that the articles that provides special treatments regarding VAT are the articles 424, 468-1 and 477 of the Colombian Tax Code, among others.
Regarding the temporary exemption of VAT for medical goods needed to prevent and treat COVID-19, the Tax Administration indicated that this topic is ruled by the Decree 551 of 2020 and the Tax Ruling 485 of 2020 issued by DIAN, in which it is determined that the goods or items that are not described in the decree are taxed and not subject to the VAT exclusion.
Who is responsible for the declarants' infractions if the import declaration is presented by a customs agency?
In tax ruling No. 1123 of 2020, the Colombian Tax and Customs Authority ruled that the importer cannot acquiesce to the sanction for having paid lower taxes by having declared an incorrect tariff core when the declaration is submitted by a customs agency. The foregoing considering that article 3 of Decree 1165 of 2019 establishes that the declarant is a "person who subscribes and presents a customs declaration in his own name or on behalf of a third party". That is why when a customs agency acting on behalf of the importer declares an incorrect tariff code, they become responsible for the infractions generated at the time of liquidating and paying customs taxes, taking into account article 53 of the mentioned Decree. For this reason, the Colombian Tax and Customs Authority announced the “acquiesce is a figure that only applies to the offender, since this is the only one who can voluntarily acknowledge having committed an offense. Being so, the customs agency will be the only one empowered to acquiesce and recognize the commission of an infringement before the notification of a customs requirement.
3. Case Law of the Council of State and Constitutional Court
Managing partner must declare revenues arisen in silent partnership agreements
By means of Case Law of August 27th, 2020, the Council of State pointed out that revenues arisen in silent partnership agreements must be totally declare by the managing partner and included in its income tax return. In addition, the Council of State indicated, that profits distributed to hidden participants must be treated as cost of the managing partner.
4. The Council of State unified criterions regarding the penalties imposed in official assessments
Through Case Law of September 3rd, 2020, the Council of State unified the court rulings regarding the penalties imposed in official assessments. In particular, the Council of State established, that the Colombian Tax Authority must consider the following rules for the application of penalties.
- The expedition of an official assessment
- The penalty must be in line with the taxes, period and quantification basis used for the determination of the sanction.
The commissions received as a result of the use of credit or debit cards are VAT excluded regardless the who assumes the payment
Through Case Law of September 3rd, 2020, the Council of State void Tax Ruling 76737, issued on December 10th, 2012 by the Tax Administration, according to which the exclusion from VAT of commissions received as a result of the use od credit or debit cards only applies when such commission is collected by the financial entities that issue the credit and debit cards.
The Council of State pointed out that such interpretation is illegal, because it limits and ignores the guidelines determined in numeral 28 of article 476 of the Colombian Tax Code that excludes from VAT all of the commissions received considering the use of credit and debit cards without any kind of restriction determined. In addition, the Council of State concluded that the commissions excluded are any type of revenues that qualify as a commission derived from the use of credit and debit cards.
Articles 1 and 3 of the Decree 530 of 2020 are declared conditionally constitutional by the Constitutional Court
The article 3 of the Decree 530 of 2020, sets forth that the donations or alienations of some goods aimed to reduce the causes of the state of emergency will not be considered as a sale for VAT purposes. By means of the above, the Council of State determined the constitutionality of the articles 1 and 3 of the Decree 530 of 2020, except for the expression “As long as the causes that led to the declaration of the state of economic, social and ecological emergency referred to in Decree 417 of March 17, 2020 continue to exists”.
5. Projects of Decrees and Resolutions
Draft of Resolution modifies the economic activities codes (CIIU for its acronyms in Spanish)
The Colombian Tax Authority published a draft of resolution through which the classification of economic activities is adopted. Considering the modifications made by the National Administrative Department of Statistics (DANE for its acronyms in Spanish) through resolution 0549 of 2020, it was necessary to update the classification adopted for tax purposes.
The taxpayers obliged to fulfill tax, customs, and exchange duties, that are affected by the aforementioned changes will have to update their tax registry until January 31, 2021. In order to fulfill this requirement, the Tax Administration will implement an electronic platform.