Tax Bulletin No. 32

We share our Tax Bulletin No. 32, from February 2021, in which you can find, among others topics, a summary of the most important points of Resolution no. 000013 of February 11^th, 2021, which implements and develops the functionality of the electronic payroll support document, as well as a case law issued by the Council of State, regarding the requirements for the demonstration of the liabilities of a company.

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 February 2021. 

Electronic payroll support as a requirement for the acceptance of cost and deductions in the income tax 

On February 11^th, 2021, the Colombian Tax Authority issued Resolution number 000013, which aims to implement and develop the functionality of the electronic payroll support document as a requirement for the acceptance of costs and deductions in the Income tax and deductible taxes in VAT when applicable.

The first part of the resolution establishes a series of definitions aimed to clarify what should be understood by beneficiary of payment, accrued value from payroll, value deducted from payroll, validation of the electronic payroll payment support documents, among other concepts.  

Regarding the subjects obliged to implement this system, article 4 of the resolution clarifies that this obligation only applies to taxpayers of income tax and complementary taxes, who make payments or installments derived from a labor or legal and regulatory relationship, or payments to the pensioners at the expense of the employer, who require to bear the costs and deductions in the income and complementary taxes, as well as deductible taxes in the Valued Added Tax (VAT), if applicable. The information that the electronic payroll support document must contain is detailed in article 5th of the resolution.

On the other hand, it is worth mentioning that the implementation calendar for the application of this system is detailed in article 6th of the resolution, which will depend on the number of employees the entity has, as stated below:

Finally, those obliged to comply with the implementation of the electronic payroll support document must transmit the document within the first ten (10) days of the month following the one in which the corresponding payment was made.

Income tax return due to a change of ownership of the foreign investment and indirect transfers of Colombian assets

Through Resolution number 000018 of February 17^th, 2021, the Colombian Tax Authority issued Form number 150, which is the one that must be submitted by non-residents entities or individuals who carry out the sale or transaction of their investment in the country. Additionally, article 2^nd of the resolution states that the filing of the tax return for change of ownership will be mandatory, even in the event that no tax is triggered in the respective transaction. The term to present the tax return will be within the month following the date of the transaction or sale and must be submitted through the electronic services provided by DIAN.

Finally, for companies, the declaration corresponds exclusively to the attorney, agent or representative in Colombia of the foreign investor, duly registered in the Tax Registry (RUT).

Exchange Calendar for the submission of exogenous exchange information for year 2021

The Colombian Tax Administration issued the Exchange Calendar applicable for taxable year 2021, in which the deadlines for the submission of exogenous exchange information are established.  

The deadlines for submitting information will depend on the last digit of the tax identification number and the type of the foreign exchange obligor, who must comply with this obligation on a quarterly basis, as set out below:      

 Foreign Exchange Market Intermediaries and Current Clearing Account Holders:

Foreign Exchange Sales and Purchase Professionals:

2.Resolutions issued by local Tax Authorities.

 New suspension of administrative terms between February 8^th and April 8^th, 2021

Through resolution number 83 of February 8^th, 2021, the Tax Authority of Bogotá decided to suspend from February 8^th, 2021, until April 8^th of the same year, the legal terms provided within the management, inspection, determination, discussion and devolution processes of municipal taxes. It should be noted that said suspension has no effect on the declaration and payment of district taxes such as the property tax or the turnover tax (ICA) and it only affects the statute of limitations of the declarations and administrative processes mentioned above.  

3.Tax Rulings

DIAN precise details about the exempt income applicable to orange economy companies

Through official letters No. 044 and No. 45 of January 19^th, 2021, the Colombian Tax Authority (DIAN) made several clarifications regarding the exempt income for orange economy companies. The central points mentioned in the aforementioned tax ruling were:

a. Waiver to the exempt income benefit: If the taxpayer who is benefited by the exempt income considers that he is not in a position to comply with the investment or employment generation requirements, he will have the right to renounce to the exempt income benefit. In this point, the DIAN pointed out that the law does not establish a special procedure for the mentioned waiver. Additionally, the consequence of the renounce will be that the revenues arisen in the investment project will be taxed from that moment on a regular basis.

b. Minimum number of jobs created: Regarding this point, the Colombian Tax Authority reaffirmed the content of paragraph 2^nd contained in article 1.2.1.22.49 of Decree 1625 of 2016, which set forth the rule to determine the number of employees during the respective taxable year which average will be calculated as follows: The number of workers for each month will be sum and divided by the respective number of months. The result will be adjusted to the nearest integer.

Nonresident entities are entitled to adjust the fiscal cost of their shares based on article 70 of the Colombian Tax Code

By means of tax ruling no. 0083 of April 28^th, 2020, the Colombian Tax Authority pointed out that nonresident entities are entitled to adjust the fiscal cost of their shares held in Colombian companies, in the percentage set forth in article 868 of the CTC, which is the variation of the consumer price index (“IPC” per its acronym in Spanish”) certified by the National Department of Statistics. For the Tax Authority, the aforementioned analysis is founded in article 70 of the CTC, which refers to taxpayers in general terms and does not distinguish between resident and nonresident for its application.

Withholding tax applicable to nonresidents in the alienation of their fixed assets

Through tax ruling no. 1472 of November 11th, 2020, the Colombian Tax Authority indicated, that in the alienation of fixed assets owned by nonresident in the Colombian territory is applicable the outbound payments regime set forth in section 406 and followings of the Colombian Tax Code (CTC). The above, bearing in mind that pursuant to section 406 of the CTC, Colombian residents who make payment to nonresident entities subject to income tax in our country, are obliged to apply a withholding tax rate which may vary depending on the nature of the payment. In this sense, the Tax Authority concluded that in the alienation of fixed assets by nonresident entities is applicable the withholding tax rate pointed out in section 415 of the CTC.

Responsibility to export merchandise within six (6) months following the issuance of the vendor certificate gets suspended.

Article 1 of Decree 881 of 2020 suspended for a term of 6 months the fulfillment of the responsibility established in article 69 of Decree 1165 of 2019, being this the obligation to export the merchandise within 6 months following the date of issuance of the vendor certificate.  If the certificate was issued during the entry in force of the Decree, the term for the fulfillment of the obligation gets suspended until December 26^th, 2020, having until June 26 of 2021 to comply. In the other hand, when is issued before the entry to force of the Decree, the term gets suspended and begins to run again December 26^th, 2020.  

Submitting a Correction Statement for a tariff code does not amend the fact of not presenting Advance Import Declaration when required.

Among Concept 900518 of 2021 the Colombian Tax Authority states that Correction Statements for a tariff code only modify the elements contained in it (tariffs, exchange rates, arithmetic operations), but does not amend the failure to submit the Advance Import Declaration, which must be complied in accordance with Article 124 of Resolution number 046 of 2019.

Therefore, the penalty established by the Article 615 of Decree 1165 of 2019 must be paid in order to comply the advance declaration duty and give legal effect to the import declaration.

4.Case Law of the Council of State

Internal supports are not enough evidence to prove liabilities of a company with third parties.

In case law of November 19^th, 2020, the Council of State indicated that internal supports were not enough to prove the liabilities of a company with third parties. In this sense, and according to previous judgments issued by the entity, The Council of State pointed out that besides internal supports, for the demonstration of liabilities was also necessary to provide external supports, which can help to ratify the economic operation registered in the accounting books.

Furthermore, it is important to highlight that, according to the aforementioned case law, the lack of external supports do not restrain the demonstration of liabilities but, if that if the case, the taxpayer must apply the dispositions set forth in article 771 of the Colombian Tax Code, which provides that it should be demonstrated that the amounts and benefits were include in the creditor income tax return.

Annulation of a tax ruling issued by the Colombian Tax Authority that delimited and restricted the taxable base of the Wealth Tax.

In case law of June 25^th, 2020, the Council of State annulled the legal thesis contained in numeral 4 of tax ruling no. 081582 of 2011 issued by the Colombian Tax Authority, which concluded that the property and turnover tax generated in the fiscal year 2011 could not be taken as a liability to reduce the net equity of that year, which is the taxable base of the wealth tax.

Arguing that the property tax and the turnover tax are period levies, and by making use of the definition of liabilities contained in the Decree 2649 of 1993, the Council of State determined that the mentioned taxes are caused on January 1^st of each taxable year and given its nature of liabilities, they could be included for the reduction of the net equity of the taxpayers.

Independence of official determination and penalty processes in improper devolution of balances in favour 

In case law of August 6th, 2021, the Council of State reaffirmed that in cases in which there are improper devolutions of balances in favor, the processes for discussing the tax return filed by the taxpayer and the penalty process for improper devolution constitute independent procedures.  Therefore, the penalty procedure must be started between 2 years counted since the notification of the Official Assessment. After that period, the Tax Authority will lose all competence to reclaim the sanction over the improper devolution.

Additionally, the Council of State established that the refund of the improper devolution will only be enforceable to the taxpayer after the whole judicial procedure is over or in case the citizen has not appealed the resolution that contains the sanction. Finally, the High Court established that the quantity of the sanction changed with the issuance of Law 1819 of 2016, from 50% of the default interest to 10 or 20% of the total amount returned, depending on if the taxpayer corrected the balance in favor in the tax return or not. 

5.Projects of Decrees and Resolutions 

 The Ministry of Commerce, Industry and Tourism will regulate the procedure for the collection, declaration, payment and inspection of the Parafiscal Contribution for Tourism.

Among the most relevant aspects of the abovementioned project are the definition of the taxable base and the tax rate. The first will be taken from the amount of operating income related to the activity subject to tax and the rate will be 2.5 per thousand (2.5 x 1000) over the taxable base. The project establishes that the tax accrual period will be quarterly as follows:

• From January 1^st to March 31^st
• From April 1^st to June 30^th
• From July 1^st to September 30^th  
• From October 1^st to December 31^st.

Finally, the contributors must make the payment over expired periods, within the first 20 business days of the month following the declared period. The amount paid must match the value of the contribution return, plus default interest when applicable.