1.Report of the Committee of Experts on Tax Benefits
The report of the Commission of Experts on Tax Benefits (CET) was published on March 17th, 2021, as an initiative that was implemented by the Law 2010 of 2019 with the objective of evaluate the convenience of the current tax benefits to, consequently, determine which of them should remain in force and which should be suppressed in order to increase the resources of public funding. Considering that is very likely that a new tax reform could be presented by the Colombian Government this year, the report is a very important source of information bearing in mind that the new tax reform could adopt several recommendations made by the Commission. The topics subject to analysis were:
- Value Added Tax – VAT
It was determined that there is an excessive amount of exclusions and exemptions, which leads to low tax revenues in relation to the VAT of other Latin American countries, members of the OECD. The main recommendations on this regard were:
- Progressively reduction in the number of exclusions and exemptions in force.
- Not increase the general rate of 19% but increase the amount of taxed goods and services. Additionally, it was suggested to reduce the number of goods and services with special rates of 5% and increase the special rate to 10 or 12 %.
- Tax more severely the goods and services that cause damage to the environment and the health of citizens, eliminating the national consumption tax and replacing it with VAT and specific taxes.
- Progressively start taxing with VAT the goods in the family basket.
- Allow the tax discount for investment in productive fixed assets to be directly applicable over VAT and not to income tax.
2.Corporate Income Tax (CIT), Simple Taxation Regime (SIMPLE)
The main suggestions were:
- Design a more uniform tax system that eliminates exclusions and exemptions for specific economic activities, the multiplicity of rates and special regimes.
- Eliminate the dividends tax for national companies by expanding the taxable income base.
- Reduce the CIT rate, seeking to improve competitiveness in relation to other countries of the region.
- The elimination of taxes on gross income such as Turnover Tax and establishment of a proper allocation for discounts related to the investment in real productive fixed assets.
- Facilitate the implementation of the simple tax regime, avoiding the creation of intermediate regimes.
3.Revenues not deemed as income or capital gains, exempt income and tax benefits for the Colombian countryside.
The main suggestions regarding this point were:
- Eliminate the preferential treatment received by official employees.
- Suppress benefits appliable to pension funds contributions made by employers to their employees.
4. Income Tax for Individuals
According to the committee, this is one of the subjects that require more changes due to the benefits regarding the income received by individuals:
- Enlarge the taxable base regarding pensions income.
- Reduce the exempt revenues.
- Reduce the number of marginal rates, avoiding an increase in the maximum rate currently in force (39%).
5.Free Trade Zones and International Distribution Centers
It was suggested to strengthen the ordinary CIT regime through an unification with the free trade zone regime. According to the commission, the regulation regarding free trade zones should not be expanded. The recommendations on this matter were:
- The application of the ordinary VAT regime for Free Trade Zones or, at least, to Permanent Special Free Trade Zones.
- Implement the incentives for Free Trade Zone regime to the ordinary CIT regime improving its competitiveness and reducing the investment costs.
- Analyze the convenience of keeping the tax incentives for logistics distribution centers in force.
2.Resolutions issued by local Tax Authorities
Tax benefits for merchants that enable bicycle parking.
Through Decree 091 of March 24 of 2020 Bogota’s Mayors Office established certain tax benefits for merchants who enable bicycle parking spaces. They will have the possibility of accessing a tax discount of up to 120% in the industry and commerce tax for up to five years counted from the next year in which the corresponding investments were made. This benefit may be obtained after the Parking Cycle Committee has authorized the project and the Mayor’s Office has been informed. The merchant will have the obligation to submit a photographic record of the bicycle parking to the Parking Cycle Committee every six months.
Liquidation of registration tax in case of alienation of usufruct or of the right of ownership
By means of Circular Letter No. 000005 of February 5th, 2021, the local Tax Authority of Bogotá made several clarifications regarding the liquidation of the registration tax in cases where the alienation of the usufruct or of the bare ownership takes place. According to the local Tax Authority, registration tax in the alienation of the usufruct should be determined proportionally, on the 70% of the valuation of the asset given in usufruct. For the bare ownership, the registration tax should be determined over the 30% of the value or appraisal of the asset.
VAT exclusion regarding shows and concerts performed through digital platforms.
Through the Tax Ruling No. 149 of February 5th, 2021, the Colombian Tax Authority clarified that the VAT exclusion applicable to artistic services is not appliable to concerts and shows made through streaming and video platforms. According to the Tax Authority, the purpose of the abovementioned exemption is the formalization of the artistic economic sector, which means the benefit only applies for the tickets of shows made on site.
Intermediaries in the sale of movable property are responsible for the VAT triggered in the commission billed.
By means of Tax Ruling No. 0107 of February 3rd, 2021, the Colombian Tax Authority pointed out that tax residents that act as intermediaries in the sale of movable property are responsible for the VAT generated on the respective commission regardless of whether the payment of the commission is made from abroad. The Tax Authority considered that the invoice must be issued in Spanish and in Colombian pesos but that it can be re expressed in a different languages and currencies as long as the original invoice complies these requirements.
Transfer of assets to a trust triggers the obligation for nonresident entities of filing an income tax return due to a change in the ownership of the investment.
Through Tax Ruling No. 1488 of November 17th, 2020, the Colombian Tax Authority indicated that any change in the ownership of an investment, generated as a result of the transfer of assets located in Colombia triggers the obligation of filing an income tax return in the country, even though no tax is generated. The same rule applies for the transfers of assets or shares made to a local trust by a nonresident entity.
Deadlines to request: i) Conciliation in tax, customs and exchange matters, ii) Mutual agreement termination of the tax, customs and exchange administrative processes
The National Tax and Customs Authority indicated the deadline for mutual agreement termination and favorability established in articles 118, 119 and 120 of Law 2010 of 2019. The tax Authority assured that this deadline was not modified nor expanded due to the extension of the Health Emergency declared by the Ministry of Health and Social Protection due to COVID-19. This means that deadline was extended only until November 30 of 2020 according to article 3 of Decree 688 of 2020.
4.Case Law of the Council of State
Companies must have at least a business establishment in a municipality in order for them to be taxpayers of the Public Lighting Tax.
In case law of April 29th of 2020, the Council of State reaffirmed that in disputes regarding public lighting tax, it is necessary to follow the rules established by judgement No. 2019-CE-SUJ-4-009, which states that, in order for a company to be taxpayer of the mentioned levy, it is necessary to prove the existence of a business establishment on the respective town or municipality. In the case analyzed, an enterprise dedicated to the exploration, exploitation, supply and transport of non-renewable natural resources was declared non responsible of the public lighting tax because the municipality couldn’t prove the existence of a commercial establishment open to the public and reaffirmed that, regardless of the economic activity, the business establishment is a mandatory requirement to configure the triggering event of the levy.
VAT on mass transportation system and the application of the territoriality principle
Through case law of February 18th, 2021, the Council State repeated decisions regarding the accrual of VAT on mass transportation system, indicating that in international round trip flights in which one route is not taxed with VAT is not as a consequence of an VAT exclusion set forth in the Colombian Tax Code, but rather from the fact that is a nontaxable event for VAT purposes.
5.Projects of Decrees and Resolutions
The Ministry of Finance and Public Credit will regulate the requirements to access the special income tax rate of 9% for hotels, docks and theme parks.
The abovementioned project defines what establishments can be considered as new hotels, and will demand that, in order to apply the special rate of 9%, the taxpayers will have to prove the payment of the contribution to tourism, identify separately the income associated to the rendering of hotel services and keep the service operating agreement when the new hotel is not operated directly by the owner. Finally, the benefit will be granted for ten years counted since the fiscal year in which the new hotel proves the compliance of the requirements.
The Ministry of Finance and Public Credit will present a draft of decree to boost the development of the capital market.
The project will have 4 main components as follows: (i) Promotion of the payment system and financial inclusion; (ii) Design of a more efficient capital market; (iii) Modernize and improve some sectors of the financial system and; (iv) Strengthen the institutional framework of the financial authorities. According to the Ministry, the project will be based on the weaknesses and opportunities identified by the Capital Market Mission established in 2019. The normative update would guide the country to a flexible legal framework in accordance with international standards.