Tax Bulletin No. 50

We are pleased to share the Tax Bulletin with the most relevant regulations and decisions issued in tax matters in the month of August 2022. Among other topics, we briefly summarize what is sought with the newest Tax Reform; we report on the Colombian Tax Authority Resolution that regulates the new Income Tax Invoice, as a mechanism for the official determination of the tax; and we inform on the Unified Concept on Electronic Invoicing from the Colombian Tax Auhtority.

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.

Tax Reform Status

On August 8, 2022, the Minister of Finance together with several congressmen filed the Tax Reform in the House of Representatives, which will seek to raise $25 billion Colombian pesos. This reform was filed with a message of urgency from the presidency, which will reduce the number of debates from 8 to 4 in the third commissions of Congress.

The purpose of this reform is to contribute to the equity, progressiveness, and efficiency of the tax system, based on the implementation of a set of measures aimed at increasing the taxation of those with greater taxpaying capacity, increasing the State's revenues, reinforcing the fight against evasion, abuse and avoidance, and promoting the improvement of public health and the environment.

Likewise, the Reform seeks to collect $8.1 billion Colombian pesos from Income Tax for individuals, $5.1 billion from Income Tax for corporations, $7 billion from subsoil taxes, $2.5 billion from green and healthy taxes and $2.1 billion from other taxes.

Tax Rulings and Resolutions of the Colombian Tax Authority

The Colombian Tax Authority establishes the procedures and specifications for submitting information through their computer services.

Resolution No. 001210 was issued last August 5, 2022, to establish the procedure for the filing of the Transfer Pricing Informative Return, the notification of the Country-by-Country Report, as well as the Local Report and the Master Report of the Supporting Documentation.

In this way, it establishes the technical specifications that must be followed to comply with the obligation to submit such information to the Special Administrative Unit of the Colombian Tax Authority through computer services.

The Income Tax Invoice is regulated.

On August 5, 2022, the Colombian Tax Authority issued Resolution No. 001212 to regulate and develop Article 616-5 of the Colombian Tax Code, which was added by Article 14 of Law 2155 of 2021. This article authorizes the Colombian Tax Authority to establish the invoicing of the Income Tax, which constitutes the official determination of the tax and is enforceable.

In this sense, the Resolution establishes that the taxpayers that will receive the Income Tax invoice will be determined progressively considering the availability and analysis of the sources of information that will feed the invoicing system. Additionally, it is established that the notification of the invoice will be made by means of its publication in the web page of the Special Administrative Unit of the Colombian Tax Authority or by sending it to the e-mail registered in the Single Tax Registry.

Finally, the Resolution establishes the procedures to be followed by taxpayers when they receive an invoice for the Income Tax. It establishes the procedure for payment when you agree with the content of the invoice and the procedure to dispute the invoice when you do not agree with its content.

Concept unifies and clarifies the obligations arising from the application of electronic invoicing.

The Unified Concept of the Colombian Tax Authority on electronic invoicing covers different aspects and clarifies several factors that must be considered when issuing such invoices.  In first place, it is established that the obligation to invoice electronically is applicable to all individuals or companies that have the status of merchants, who exercise liberal professions or provide services inherent to them, or that sell goods derived from agriculture or livestock (provided that the seller is considered a taxpayer). It is also an obligation that must be followed by importers, service providers and those who sell to final consumers.

However, the concept refers to some specific taxpayers that must also comply with the obligation to invoice electronically, such as those who are part of the Simple Taxation Regime, service providers that were initially not obliged to issue an invoice, telephone companies, companies that make e-commerce sales, insurance intermediaries, and condominiums or house property that provide services or sell goods, among others.

It is also clarified that importers must issue a sales invoice either physically or electronically, since this will be the supporting document of the Import Return. In addition, it is highlighted that although the tax law does not express the obligation to invoice electronically, this will be the preferred means to issue invoices or equivalent document, which must be done through the XML format.

The Colombian Tax Authority pronounces on the application of the works for taxes mechanism for companies of the same economic sector.

Concept 905423 (100208192 912) of 2022 clarified that there are two mechanisms in force for the payment of works for taxes (one is provided for in Article 800-1 of the Tax Statute and the other in Article 238 of Law 1819 of 2016), each with special characteristics and requirements, but both allow several taxpayers to jointly carry out the same project.

In that sense, it is concluded that the possibility for several taxpayers to finance the same project is not subject to these being part of the same economic sector or being in the same place. However, each taxpayer must comply with the requirements to apply this mechanism individually.

It is established that it is possible to apply the two tax benefits for the Zones Most Affected by the Armed Conflict (ZOMAC, per its acronym in Spanish) to the same project.

In line with the above decision, the Colombian Tax Authority issued Concept 905821 (100208192 957) of August 3, 2022, regarding the mechanisms currently in force to promote the development of projects in municipalities defined as Zones Most Affected by the Armed Conflict. These mechanisms are provided for in Article 800-1 of the Colombian Tax Code and in Articles 237 and 238 of Law 1819 of 2016.

Article 237 of Law 1819 of 2016, establishes that the companies that have as domicile and develop all their activity in the ZOMAC and comply with certain requirements may take a reduced income tax rate.

On the other hand, Articles 238 of Law 1819 of 2016 and 800-1 of the Colombian Tax Code allow taxpayers of the income tax, who obtain more than certain resources in a taxable year, to pay a percentage of the tax payable by allocating such value to direct investment in the execution of projects of social transcendence in the ZOMAC.

It was clarified that Articles 1.6.5.1.1.1. and following of Decree 1625 of 2016 do not provide express prohibition to simultaneously apply the taxation regime for new companies starting activities in the ZOMAC and the works for taxes mechanisms.

Case Law of the Council of State

Ruling of the Council of State analyzes the application of Operating Profit Margins of the Operation in accordance with the current Transfer Pricing regulation.

The Council of State, in a Ruling dated July 14, 2022, analyzes a specific Transfer Pricing case where the Transaction Profit Margins method is applied. In this case law analysis, it is established that, if the taxpayer's transaction has special characteristics that prevent it from being compared with the entities in question, in order to adjust the transaction such characteristics must be eliminated. Therefore, if the comparison has a special economic condition, this may be eliminated to achieve greater comparability.

In the specific case there was no information on sales of these companies to independent third parties in Colombia, there were no internal comparatives to analyze the transaction, which implies having to resort to external databases.

In view of the above, it is concluded that adjustments can be made, as long as they are covered by Article 260-3 of the Colombian Tax Code and under exceptional circumstances. This is due to the fact that, according to the transfer pricing regulations and the OECD indications, when seeking to increase the participation in a specific market, the business strategies must be verified in order to take into account the risk that exists for the taxpayer, because of the fixing of a product price in accordance with the requirements or incurring in higher costs and obtaining lower profits compared to taxpayers that develop the same business.

The Council of State decided on the requirements to apply the deduction for investments in real productive fixed assets

Section Four of the Council of State decided on the applicability of the deduction established in Article 158-3 of the Colombian Tax Code, in Ruling 25743 of 2022. This Article allows taxpayers to deduct from the income tax payable 40% of the value of the effective investments made in real productive fixed assets.

The Corporation recalled that, on other occasions and in accordance with Article 2 of Decree 1766 of 2004, it was decided that this deduction was only applicable if the investment was made of assets that are tangible, acquired to form part of the taxpayer's equity, participate directly and permanently in the income generating activity, and are depreciated for tax purposes. Additionally, the deduction applies both for the acquisition of real productive fixed assets and for investments made in assets already owned by the company.

In the case under study, the Council of State fixed asset generates certain profits or increases them exponentially, since it is only required that the improvement or considered that the improvement works carried out by the plaintiff company constitute an investment in a real productive fixed asset that contributes to the development of the purpose of the company.

Finally, the Chamber concluded that it is not a requirement for the application of this deduction that the improvement of the repair of the asset be necessary for the development of the activity.

Projects of Decrees and Resolutions 

Draft Resolution seeks to develop the invoice system provided for in the Colombian Tax Code.

This August 19, the Colombian Tax Authority published a Draft Resolution to regulate and further develop the invoicing system introduced by Law 2155 of 2021 by amending Article 616-1 of the Colombian Tax Code. The Resolution would regulate all technical and technological elements for the generation, transmission, validation, and delivery of electronic documents that support tax or customs declarations. Additionally, the technical annexes of the electronic sales invoice and supporting documents will be adopted, as well as the implementation schedules of these documents.

The requirements to obtain or withdraw the qualification of “Great Taxpayer” would be established.

With a Draft Resolution, the Colombian Tax Authority sets forth the requirements, causes, and procedure to grant or withdraw the status of “Great Taxpayer”. In accordance with the above, it was proposed that in order to have the status of “Great Taxpayer”, at least one of the following four criteria must be met:

1. To be within the group of subjects that during the last 5 years contributed 60% of the gross collection of the entity.
2. To be a company that has obtained net income for a value greater than or equal to 5,000,000 Tax Value Units (TVU).
3. Be an individual who has declared gross assets equal to or greater than 3,000,000 TVU.
4. To belong to the business group to which the taxpayer that complies with the requirement established in numeral 1° belongs.

On the other hand, it will not be understood as “Great Taxpayers” those persons that, even complying with any of the requirements described above, have as their main economic activity in the Single Tax Registry being (i) an employee, (ii) a capital investor, (iii) dependent of third parties, or (iv) not having any economic activity, among other reasons.