Tax Bulletin No. 40

We share our Tax Bulletin No. 40, from October 2021, in which you can find, among other topics, a summary of the most important points of the tax reform bill filed by the Colombian Government before the Congress throughout Law 2155 of 2021, as well the new provisions applicable to the issues related with the expedition of the electronic sales invoice.

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 

The Colombian Government regulates the asset normalization tax on the issuance of the latest tax reform.

On October 25, 2021, the Ministry of Finance issued Decree No. 1340, through which the opportunity is granted to taxpayers who have omitted assets or non-existent liabilities in their tax information as of January 1, 2022, to benefit from and be responsible for the asset normalization tax. In this way, the law allows correcting this situation with 17% of the taxable base.

Said Decree establishes that they are the conditions for the omitted assets abroad to be understood as effectively repatriated, and the benefit of reducing the taxable base tax of fifty percent (50%) can be accessed.
 

The decree declares that taxpayers who decide to take advantage of the tax normalization tax for the year 2022 must pay an advance of fifty percent (50%) between November 16th and 22, 2021, according to the last digit of the NIT. Likewise, the pending balance of the tax will be settled and paid together with the presentation of the return until February 28, 2022, together with the payment of the pending tax balance.

Tax Rulings

Does the exception to the rule of undercapitalization regarding interests generated from debt operations apply to companies, entities, or vehicles with special purposes?

Through Tax Ruling 100208221-1108 of July 22 of 2021, the tax authority states how undercapitalization operates concerning companies, entities, or vehicles with a particular purpose. As a context, Article 118 of the Tax Code develops the undercapitalization mechanism that calculates interests from debts during the respective taxable year. The DIAN established that this type of entity might apply undercapitalization regarding indebtedness that is not directly associated with developing the infrastructure mentioned above projects. This means that this exception only operates in terms of payments of interests related to debts generated to carry out this type of project.

Is a refund of credit balance generated by VAT withholdings in acquiring services from people or entities without residence or domicile in the country appropriate?

Through Tax Ruling No. 100208221-1130 of July 26 of 2021, the Colombian Tax Authority pointed out that VAT paid on the import, formation, construction, or acquisition of real productive fixed assets as an income tax credit could be used by the taxpayer solely in the tax year in which the VAT is paid or in any subsequent tax years, but without splitting it into several years.

Tax Ruling regarding dividends paid by companies under the Simple taxation system

Through Tax Ruling No. 100208221-1264 of August 12 of 2021, the Colombian Tax Authority pointed out that the distribution of dividends from companies under the Simple taxation system will be subject to a marginal rate, provided that such dividends have already been taxed at the corporate level; otherwise, the general rate of 31% (35% as from FY 2022) would be applicable. It is noted that companies under the Simple taxation system do not withhold dividend tax.

Tax ruling concerning tax credit derived from VAT paid on the import, formation, construction, or acquisition of productive fixed assets

By means of Tax Ruling No. 100208221-1130 of July 26th of 2021, the Colombian Tax Authority pointed out that VAT paid on the import, formation, construction, or acquisition of productive fixed assets as an income tax credit could be used by the taxpayer solely in the tax year in which the VAT is paid or in any subsequent tax years, but without splitting it into several years.

¿Is the contribution in kind in a Colombian company made by a related foreign party subject to the transfer pricing regime?

According to Tax Ruling No 100208221-1151 of July 28 of 2021, these contributions are not subject to the transfer pricing regime.

Case Law of the Constitutional Court and Council of State 

How to prove that the expenses are necessary and that they have a casual relationship with the income- producing activity?

According to section 107 of the CTC, costs and expenses are deductible for CIT purposes provided they comply with the following general requirements: cause and effect relationship with the income-producing activity, necessity, and reasonability. Through Case Law No. 24440 of August 26 of 2021, the Council of State established that the taxpayer must prove the actual provision of goods or services to show that an expense meets the necessity and the cause-and-effect relationship.

Projects of Decrees and Resolutions  

Tax Authority issues Resolution by which the special contingency related to the electronic sales invoice is regulated in the "days without VAT" of the year 2021.

The Tax Authority issued Resolution 000117 of 2021, "Whereby the special contingency related to the electronic sales invoice on the "VAT-free days" of 2021 is regulated".

The Administrative Act indicates that in the event of technical, technological, or operational problems on the day without VAT that prevent the issuance of the electronic sales invoice with prior validation, the parties obliged to invoice may adopt the following contingency mechanisms:

1. Issue the sales invoice of the paper checkbook in the terms of numeral 1 of article 31 of Resolution 000042 of 2020 and the other regulations that modify, add, or replace it, including in the electronic transmission document the identification number of the final consumer.
2. Issue in a special way the ticket of the cash register with POS system, including in the document the identification number of the final consumer.