We share our Tax Bulletin No. 29, from November 2020, in which you can find, among others topics, a summary of the most important points of Decree 1435 of 2020, which regulates several issues for the determination of the income tax of individuals, as well as a recent Case Law of the Council of State, which explains the tax treatment of the VAT in joint operation agreements.
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.Regulations issued by the National Government on tax matters during November 2020
Latest news regarding the taxation of individuals
The Ministry of Finance and Public Credit issued Decree 1435 of 2020, which aims to regulate several dispositions of the schedular system set forth in the Colombian Tax Code for the determination of the income tax of individuals.
The Decree makes clarifications concerning the tax treatment of mandatory contributions made by workers, employers and members of the General Social Security System in pensions and voluntary contributions to the Individual Savings System; the procedure for the allocation of presumptive schedular income; classification of schedular income of resident individuals and illiquid successions; exempt income and deductions; treatment of tax losses of individuals and omitted assets, non-existent liabilities and recovery of deductions, among others.
Tax incentives for the economic reactivation of the city of Bogotá
Through Agreement no. 780 of November 6th, 2020, the Council of Bogotá established incentives to economically reactivate the city of Bogotá concerning taxes, Property Tax and municipal taxes (ICA), among other aspects, due to the deterioration of the economy derived from Covid-19.
hat sense, the limits to the growth of the Property Tax will be suspended for the year 2021 and as of the year 2022, the tax will have as growth limits those established in agreements 648 of 2016 and 756 of 2019. Likewise, for the taxable year 2021, the taxpayer who owns the property for residential or non-residential use may choose to pay the property tax by instalments upon request or automatically.
Moreover, the Unified Property Tax rate for urban residential properties will be modified, according to the cadastral assessment ranges. The discount for a differential increase to which properties with physical changes in strata 1, 2 and 3 are entitled will be reinstated.
Among other measures, the Unified Tax under the Simple Taxation System in the Capital District is adopted as a mechanism for the formalization and generation of employment. In addition, the agreement set forth the criterions for the application of a tax discount in the turnover tax, regarding taxable year 2021. Taxpayers that register an increase in their income will have an increase in the tax payable only for taxable year 2021.
The Ministry of Finance and Public Credit regulates the withholding of taxes on dividends
On November 12, 2020, the Government regulated through Decree 1457 of 2020, articles 242, 242-1, 245, 246-1 and 895 of the Colombian Tax Code and thus, modified, added and replaced items of Chapter 10 of Title I of Part II of Book I; Chapter VII of Title IV of Part II of Book I; Chapter XXI of Title I of Part VI of Book I and Title IV of Part II of Book I of Decree 1625 of 2016, the Sole Regulatory Decree on Tax Policy. In this sense, among other issues, it specifies the treatment of dividends that are distributed as of January 1, 2020, with a charge to profits generated as of January 1, 2017, that have not been declared as due until December 31, 2019, to resident individuals, as well as companies, national and foreign entities.
The National Planning Department (DNP) and the Territorial Renewal Agency adopt the operational Manual of Public Work Tax Deduction.
By means of Resolution 2411 of 2020, the National Planning Department (DNP) and the Territorial Renewal Agency adopt the operational Manual of Public Work Tax Deduction, which will be mandatory for all actors involved in the operation and development of the different stages of the mechanism.
The DNP, through the Public Finance Investment Directorate and the ART, may update the Manual at any time, through jointly signed minutes published on the respective websites of each of entities, which will detail the version control of the Manual that is the object of the modification and the transition rules for its application, if applicable. It is worth clarifying that, although it is indicated that the Manual is an integral part of the norm, it is not attached.
Misleading information on behalf of the Colombian Tax Authority
Through press communicate issued by the Colombian Tax Administration on November 27th, 2020, an advertising was pointed out by this entity, regarding the circulation of false emails that are, supposedly, issued by the Colombian Tax Authority. In addition, the official email of the entity is being supplanted.
The emails are being sent from the electronic email: [email protected], which do not correspond to the official email of the Tax Administration. Additionally, the email [email protected] has been supplanted by modifying the reference of the electronic email.
In both scenarios, the email is named as “Tax duties pending of payment” with a link designed supposedly to download invoices issued by the Colombian Tax Authority.
The entity recommends verifying all the received emails by using the “Muisca” platform designed by the Tax Administration.
Electronic invoice must include the digital signature of the biller in order to be considered securities
Through tax ruling no. 1240 of 2020, the Colombian Tax Authority pointed out that, electronic invoices must include the digital signature of the issuer in order to be considered as a security. In addition, the Tax Authority mentioned, that the said document must contemplate the technical and technological conditions determined in Resolution 42 of 2020 in order to guarantee the authenticity, integrity, and validity of the invoice.
Finally, for an electronic invoice to be considered as a security, it must be registered in the Register of electronic sales invoice - RADIAN, which is not operating yet but should be define and regulated by the Tax Authority.
Requirements and procedure to be qualified as Major Taxpayer
By means of Resolution no. 105 of 2020, the Colombian Tax Authority indicated the criterions to be qualified as major taxpayers. In this sense, among the criterions to be qualified as major taxpayers are: (i) be within the group of taxpayers that contributed 60% of the total gross collection of the entity, during the last five years before September 30 of the year in which the qualification is made; (ii) have a gross income higher than 5.000.000 Tax Value Units and; (iii) individuals that have declared a gross equity equal to or greater than 3,000,000 UVT.
Withholding tax on Joint account agreements
By means of tax ruling No. 1272 of October 14th, 2020, the Colombian Tax Authority ratified the tax treatment regarding the withholding tax applicable to the Joint account agreements. According to the aforementioned tax ruling, in this type agreements, revenues, cost and expenses must be declared independently, and the managing partner will be obliged to issue a certification in which informs to the hidden participants the different instalments for its registry and filing as an independent party.
It is not enough for the hidden participant to register and file the revenues for the net profit; on the contrary, the hidden participant must register and file the gross value of the income in proportion to its percentage of participation in the joint agreement.
3.Case in Law
Transfer pricing regime imposes adjustments in the valuation of transactions between related parties
Pursuant to Case in Law issued by the Council of State, the entity specified that the transfer pricing regime establishes the obligation to adjust the transactions value amongst related parties. The above, in order to verify that the values regarding those operations between related parties are not being modified considering the linkage and, also, to ensure that the prices of the transactions are kept at fair market values. This will avoid transactions to fall into contractual schemes that may affect the economic competition.
Tax treatment of VAT in joint operation agreements
By means of Case in Law of the Council of State, the entity refers to the effects of VAT in joint operation agreements such as partnerships and temporary unions. In this regard, the article 437 of the CTC provides that both, temporary unions and partnerships, are subject to VAT when they are the vehicles that are directly performing the taxed activities.
The Council of State claims that temporary unions will be subject to the tax and, therefore, responsible of VAT, only if they perform the taxed activities subject to VAT. On the other hand, if the tax is generated regarding an activity performed by a member of the temporary union, the temporary union will not be responsible of VAT, because VAT will be triggered for the member of the temporary union exclusively.
In respect of the tax consequences of VAT concerning partnerships, the tax legislation does not establish a particular treatment, however, the Council of State affirms that in order to determine the applicable tax effects, they must be determined considering the general rules that regulate the specific matter.
Revenues received regarding leasing agreement of own goods is not subject to Turnover Tax
The Council of State determined that the turnover tax in leasing agreements, is only triggered when an agent hired from the owner of the good executes all the work related to the leasing activity. In conclusion, the Council of State determined that if the leasing activity is directly performed by the owner of the goods, no activity of services is performed and, therefore, the activity is not taxed or subject to turnover tax.
4.Projects of Decrees and Resolutions
Draft Resolution that determines the value of the UVT for the year 2021
The Colombian Tax Authority published on November 24th, 2020, the draft resolution that proposes to set the Tax Value Unit (hereinafter “UVT”) for fiscal year 2021 in COP$36,308. The above will be applicable since January 1, 2021.
Draft Decree of the Ministry of Finance and Public Credit intends to regulate the deduction in income of the first job
Pursuant to article 88 of the Economic Growth Law, which adds Article 108-5 to the CTC, the first job deduction was created. In this sense, taxpayers who are required to file an income tax return are entitled to deduct one hundred and twenty per cent (120%) of the payments they make for salary, about employees who are under 28 years of age.
To regulate such deduction, on November 13th, 2020, the Ministry of Finance and Public Credit issued a draft regulation to define the concepts of salary, employee, work agreement and first job. Likewise, the text develops the requirements that taxpayers would have to comply with, in order to obtain the certification issued by the Ministry of Labor to be able to access the deduction and tax benefit. Additionally, the draft decree establishes that the Ministry of Labor must keep an annualized record of all the certifications issued.
Draft decree issued by Ministry of Finance and Public Credit would define the places and deadlines for the submission of tax returns and the payment of national taxes in taxable year 2021
According to the draft resolution, the period for Major Taxpayers to file their Income Tax Returns and pay the value of the first instalment would begin on February 9 and will end on February 22, 2021. Additionally, it defines the dates for the Annual Declaration of Assets Abroad. Likewise, it determines the deadlines for the VAT.
In addition, the Ministry pointed out the deadlines for file and pay the Withholding Tax, National Carbon Tax, among other tax obligations. It also defines the dates to declare and pay the Unified Tax under the Simple Taxation Regime and to present the Annual Consolidated VAT Return.
Fiscal cost adjustment for fixed assets
The Ministry of Finance and Public Credit issued a draft of decree which aims to regulate de fiscal cost of the assets that can be used by taxpayers in the determination of its income or capital gains tax. According to the guidelines set forth in section 70 of the CTC, the percentage determined is 3.90%.