Tax Bulletin No. 38

We share our Tax Bulletin No. 38, from August 2021, in which you can find, among other topics, a brief summary of the most important points of the tax reform bill that were approved by the National Congress in the first debate, as well as the new provisions introduced by the Central Bank to the exchange regime of international investments.

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.

Regulation issued by the National Government regarding tax issues 

National Congress approved in the first debate the tax reform bill or the Social Investment Law. 

On August 24th of 2021, the Ministry of Finance filed the presentation of the tax reform bill called as Social Investment Law. Regarding the text presented on July 20th of this year, the are no resounding changes, however the following are some of the modifications that were introduced to this new text: 

• SIMPLE Tax Regime: it is contemplated to increase the maximum level of income that a company can have to enter to this regime form 80.000 UVT to 100.000 UVY (approximately $3.600 million pesos). Likewise, it is proposed to modify the date to benefit from the unified tax under the SIMPLE Tax Regime, until the last business day of February of the taxable year. 
• VAT free days: in order that a larger population group, especially lower-income households, can access to this tax benefit, it is proposed to add cash as a means of payment. Additionally, it would seek to implement the electronic invoice in all sales associated with this exemption. Finally, it is intended to include within the goods covered by the exemption those that use natural gas, LPG and solar energy. 
• Foreign portfolio capital investments: it is proposed not to reduce the WHT rate applicable to foreign portfolio capital investments in public or private fixed income securities. 

The new tax reform text was approved on August 25 by the economic commissions of the National Congress. Within the approved provisions in the first debate, we highlight the following: the increase in the general rental rate for legal entities from 30% to 35% as of 2022, the surcharge of 3 percentage points in the general rental rate for financial sector, the modifications to the billing system, the official determination of the income tax through billing, the reduction of 50% of the tax benefit that allows deduction the Turnover Tax from income tax for legal entities, the VAT free days, among others. 

With this approval, the next step is the presentation of the tax reform for the second debate in the plenary of the National Congress. If it is approved without any modification, the only missing thing would be the signature of the President in order to introduce this tax reform into the Colombian legal system as law.

Regulation issued by the Central Bank regarding exchange issues 

Colombian Central Bank issues External Circular D-CIP 83 by means of which External Circular D-CIN 83 is replaced as of September 1st, 2021 

On August 27, the Central Bank issues External Circular D-CIP 83 by means of which External Circular D-CIN 83 is replaced in its entirety in relation to Issue 10: “Procedures applicable to foreign exchange operations” of the International Exchange Manual, in order to adjust the Colombian exchange regime to the implementation of the first phase of the new Exchange Information System. The modified procedures correspond to the registration, substitution and cancellation of investments without foreign exchange, and those related to business reorganizations, capital reorganizations and information inquiries.

The modification introduced includes the following aspects: 

1. Creation of the New Exchange Information System- Annex No. 7- for the registration, transmission, consolidation and consultation of information on operations subject to reporting or registration.  
2. Adjustment to Chapter No. 7 “International investments and financial investments and assets abroad”. 
3. New Annex No. 8 on the dates to fill out the registrations, substitutions and cancellations of the foreign investment. 

If you want to know the new provisions of the exchange regime, click here. 

Tax Rulings 

Under the Decision 578 of 2004, should a controlling Colombian entity fiscally recognize a passive income obtained by the controlled entity from abroad? 

Through Tax Ruling No. 931 of June 28th of 2021, the Colombian Tax Authority pointed out that as long as a passive income obtained by an entity subject to the Controlled Foreign Company (the “CFC”) Regime is not taxed in Colombia under Decision 578 of 2004, the controlling Colombian company is not obligated to its tax recognition of article 886 of the Colombian Tax Code. The foregoing taking into account that: (i) Decision 578 of 2004, being an agreement to avoid double taxation, prevails over national legislation in case of conflict and (ii) the Colombian CFC Regime intents to create an international tax transparency regimen that requires the recognition of income under the same conditions in which the CFC obtained it and does not admit the application of the exempt income treatment in the determination of passive income.

See here the complete document of Tax Rulling No. 931 of 2021. 

Tax Rulings regarding the determination of VAT taxable period are revoked by the Colombian Tax Authority.  

By means of Tax Ruling No. 283 of August 3rd of 2021, the Colombian Tax Authority recognized that for purposes of the determination of VAT taxable period and bearing in mind that the logic that inspire article 600 of the Colombian Tax Code is that the VAT period will be shorter the higher the income obtained, the term “gross income” set forth in the aforementioned article must exclusively include those income arise from taxed and/or exempt VAT activities. 

In this sense, the Colombian Tax Authority revokes Tax Rulings No. 018127 of June 19th of 2015 and No. 004655 of March 5th of 2020, since in they stated that for the purposes of the determination of the VAT taxable period, it must consider as “gross income” not only those arising from taxed or exempt operations but also those from excluded and not taxed operations. 

See here the complete document of Tax Ruling No. 283 of 2021. 

Case Law of the Constitutional Court and Council of State 

Deduction of interest originated in a loan to acquire shares. 

The Council of State through Case Law No. 25346 of July 29th of 2021 declared the nullity of Tax Ruling No. 100208221000521 of March 5th of 2019 by means of which the Colombian Tax Authority pointed out that the interest originated in a credit to acquire shares is not a necessary expense and it does not have a casual relationship with the income- producing activity. 

For the Council of State, the interest paid on the occasion of a loan can be deducted from the income tax, provided they comply with the legal requirements, which must be verify in each specific case. In this sense, when the Colombian Tax Authority established a generalized rejection of the expense under the argument that it is not necessary and has no causal relationship with the income-producing activity, it constitutes an infringement of the superior norms and a false motivation for error in the fundamentals of law, since the rules relating to deduction of expenses do not provide for this absolute limitation and, on the contrary, subject the deduction to the analysis of the specific case of each taxpayer according to their own activity.

Term to notify the special summon regarding income tax returns of taxpayers subject to the transfer pricing regime

The Council of State, through case law No. 24226 of August 5 th, 2021, decides to establish jurisprudence in relation to the term of notification of the special summon regarding income tax returns of taxpayers subject to the transfer pricing regime.

For this reason, the Council of State, establishes as a rule that the term to notify the special summon regarding income tax returns of taxpayers subject to the transfer pricing regime will be six years from the expiration of the filing date. If the declaration was submitted in an extemporaneous manner, the previous term will be counted as from the date of the late filing.

However, it is important to bear in mind that the special term of six years was modified by Law 2010, 2019. As of fiscal year 2020, the statute of limitations of income tax returns that must comply with the transfer pricing regime is 5 years.

Colombian Tax Authority Resolutions 

Prescription of form 260 for taxpayers of the unified tax under the SIMPLE Tax Regime.

Through Resolution 000071 of August 11, 2021, the Colombian Tax Authority ordered the Form No. 260 “Consolidated Annual Declaration” by means of which the unified tax return was presented under the SIMPLE Tax Regime for the year 2020 and / or fraction of the taxable year 2021, with its annexes "Annual declaration annex" and "Gross equity owned in the country and abroad."

In this sense, taxpayers obliged to present the consolidated annual declaration of the unified tax under the SIMPLE Tax Regime must do so through computer services, using the Electronic Signature authorized by the Special Administrative Unit, Directorate of National Taxes and Customs.

If you want to see the complete document of Resolution 000071 of 2021, click here. 

Projects of Decrees and Resolutions 

Registration in the National Tax Registry through the Chambers of Commerce.

On August 25th of 2021, the Colombian Tax Authority submitted for comments a draft resolution by means od which it is intended to regulate the registration in the National Tax Registry through the Chambers of Commerce. It is sought that those obliged to register in the National Tax Registry and in the Mercantile Registry, can comply with said obligations jointly through the Single Business Registry administered by the Chambers of Commerce. 

For the full content of the draft resolution, click here.