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Tax Bulletin No. 44

February 2022

We are pleased to present Tax Bulletin No. 44, where you will find the most relevant news on tax matters for the month of February 2022. Among other topics, you will be able to find a summary of Decree 176 of 2022, that establishes the conditions the taxpayer must meet to request its credit balances, a report of the Colombian Tax Authority Ruling that determined that the formal obligations regarding the Transfer Pricing Regime in merger processes must be fulfilled by the acquiring company, and a recapitulation of the Ruling of the Council of State, which established that the incorrect classification of income for VAT purposes does not generate an inaccuracy penalty for the taxpayer.

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.

Regulations issued by the National Government regarding tax issues

The Ministry of Finance and Public Credit has regulated the conditions for requests of credit balances.

On February 3rd of the current year, Decree 176 of 2022 was issued to regulate Articles 855 of the Colombian Tax Code and 18 of Law 2155 of 2021, by amending Articles 1.6.1.29.2. and 1.6.1.29.3. of Decree 1625 of 2016. By doing so, the requirements, temporality and procedures related to the requests for credit balances were established. Below, we list the most important aspects introduced by this Decree:

First, the regulation eliminated the transitory measure that allowed automatic refund requests to be sustained with only 25% of the deductible costs and expenses, and tax credits. This measure applied for applications filed between June 22nd and December 31st, 2021. Currently, the taxpayer must support its request with at least 85% of the deductible costs and tax credits.

Secondly, a new requirement was introduced for producers of VAT exempt goods to support the automatic refund request with 100% of the tax credits through electronic invoicing.

Third and lastly, a provision was added to Decree 1625 of 2016 that establishes that the taxpayer responsible for VAT may file the request for refund of credit balances through the traditional procedure, when it does not comply with all the requirements established to file the request for automatic refund (for example, it does not support 100% of the tax credits through the electronic invoicing system).

Tax Rulings and Resolutions of the Colombian Tax Authority

Compliance with formal obligations relating the Transfer Pricing Regime in merger processes

The Colombian Tax Authority issued Tax Ruling No. 100202208-15 of February 15th, 2022, to clarify that the formal obligations regarding transfer pricing in a merger process must be fulfilled by the acquiring company. The acquiring Company must also comply with the obligation of the acquired company.

The Colombian Tax Authority adjusts the rates of the National Tax on Gasoline and ACPM and the Tax on Carbon.

By means of Resolution 000019 of January 28, 2022, the Colombian Tax Authority adjusted the rates of the National Tax on Gasoline and ACPM and the Carbon Tax, such adjustments became effective as from February 1st, 2022.

The calculations required to adjust the values of these national taxes were made by the Department of Economic Studies of the Strategic and Analytical Management Directorate of the Colombian Tax Authority, according to certification number 100152176- 00011 dated January 6th, 2022.

To consult the new rates, please click on the following link.

The Colombian Tax Authority confirms that the tax credit on the income tax for the VAT paid on real productive fixed assets cannot be fractioned in different tax periods.

In accordance with the provisions of Article 258-1 of the Colombian Tax Code, the VAT generated in the import, incorporation, construction, or acquisition of real productive fixed assets may be taken as a tax credit on the income tax payable by VAT payers.

Through Tax Ruling No. 100202208-12 of February 14th, 2022, the Colombian Tax Authority reiterates its position, stating that it will not be possible to divide the tax credit provided in Article 258-1 into several tax periods, therefore it must be taken in a single taxable year.

The above statement is supported, considering that the Colombian legislator did not foresee these fractioning rules for this specific tax credit, unlike for other tax credits such as the donations to non-profit entities (Article 257, Colombian Tax Code).

Case Law of the Constitutional Court and Council of State

The Council of State unified its precedent on the interpretation of the phrase “specific authorization” contained in the rules about capital gain participation

Unification Ruling No. 2020-CE-SUJ-4-006 dated December 3rd, 2021, unified the Council of State precedent on the interpretation of the expression “specific authorization” contained in Law 388 of 1997, as the taxable event of the capital gains tax.

The Council of State analyzed Article 74 of Law 388 of 1997 and concluded that the taxable event materializes in any of the following three circumstances: (i) the incorporation of rural land into urban expansion land or the consideration of part of the rural land as suburban, (ii) the establishment or modification of the land use regime, and (iii) the authorization of a greater use of land for building purposes, either by raising the occupancy rate or the construction rate, or both. The configuration of the taxable event also requires that, after the materialization of the above circumstances, an Urban Planning Action is adopted.

Therefore, the taxable event for the capital gains tax is configured at the time in which the land uses, and buildability indexes change to potentially more favorable ones, regardless of whether the owner of the real estate takes advantage of the improvements or not.

The Council of State decided to unify its precedent regarding the general rule of causation of the capital gains tax and regarding the consequence of such understanding with respect to the application of law in time. For purposes of Article 74 of Law 388 of 1997, the “specific authorization” that configures the taxable event of the capital gains tax refers to the Urban Planning Action that allows the allocation of property to a more profitable use.

The Council of State pronounces on the application of the VAT on international air transport of passengers to and from the country of destination.

Section four of the Council of State, in Ruling No. 23507, dated February 18th, 2022, declared the nullity of Tax Ruling No. 7442 of April 3rd, 2017, issued by the Colombian Tax Authority. This Ruling resolved a consultation on the interpretation of Articles 420, 424. 431 and 461 of the Colombian Tax Code, specifically regarding the causation of VAT for international air transportation. The Colombian Tax Authority concluded that when the flight ticket in purchased for a roundtrip, VAT is paid on 50% of the value of the ticket, since the return trip is excluded from VAT.

The Council of State recalled that the Sales Tax is levied on the totality of services provided in the national territory, in relation to air transport this means that all tickets sold in Colombia are taxed. However, it is clarified that Law 1819 of 2016 also taxes tickets purchased abroad to be used on trips originating in the national territory. The Corporation understands as trips originating in Colombia those that start in the country and end abroad (one way) and those that start and end in Colombia (roundtrip).

It was concluded that, contrary to what was stated by the Colombian Tax Authority in this Tax Ruling, the Colombian Tax Code does not establish that the international passenger transport service of roundtrips is excluded from VAT on one of the trips, but that this is not a taxable event. Thus, it declared null and void the contested act, considering that the Colombian Tax Authority disregarded the principle of legal reserve, as the exclusions in tax matters are restrictive and the Tax Code does not establish the exclusion of VAT for the return trip.

The improper classification of income for sales tax purposes does not generate an inaccuracy penalty for the taxpayer

In Ruling No. 24964, dated February 10th, 2022, the Council State resolved the appeal filed by a taxpayer, annulling the Official Revision Settlement proposed by the Colombian Tax Authority and declaring the finality of the VAT Tax Return filed by the taxpayer. The High Court argued the following

  • The economic and business reality proven in the process, evidence that the taxpayer performed activities typical of a construction contract, and therefore the special taxable base for VAT is applicable, by virtue of Article 3 of Decree 1372 of 1992. The fact that the taxpayer included the word “supply” in the description of the invoices, does not distort the purpose for which the consortium was contracted: to execute the required road works in the sections in charge of the consortium. To this type of activities, the special taxable base for VAT is applicable.
  • A punishable event for inaccuracy did not materialize, in accordance with the provisions of Article 647 of the Colombian Tax Code, since the improper classification of an income into taxable, non-taxable, excluded or exempt does not constitute a punishable event. The foregoing, especially considering that this improper classification did not result in lower value of the tax.

The Council of State concluded that incorrect classification of income by the taxpayer, does not imply by itself a punishable event for inaccuracy if it does not cause a lower value of the tax payable or a greater balance in favor of the taxpayer.

Projects of Decrees and Resolutions 

Colombian Tax Authority presents a draft resolution to modify the conditions to comply with the obligation to report information on Ultimate Beneficial Owners

On February 21st, 2022, the Colombian Tax Authority issued a Draft Resolution to amend Articles 10 and 13 of Resolution 164 of December 27th, 2021, which regulates the Single Registry of Beneficial Owners (“RUB” per its acronym in spanish) and the Unincorporated Structures Identification System (“SIESPJ”, per its acronym in spanish).

This draft resolution modifies the conditions and deadlines to provide information on the Ultimate Beneficial Owners in the RUB, since, to date, only legal entities and unincorporated structures established prior to January 15th, 2022, are obliged to comply with this obligation. However, this date will be extended to June 30th, 2022.

Publication
Boletín Tributario No. 44 - Febrero 2022
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Authors

Portrait ofSantiago Arbouin
Santiago Arbouin
Partner
Bogotá
Portrait ofNicole Rios
Nicole Rios
Associate Director
Bogotá
Portrait ofNatalia Recio
Natalia Recio
Coordinator
Bogotá
Laura Rodríguez
Santiago Rodríguez
Francia Madero
Laura Escandón
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