Tax Bulletin No.22

We share our Tax Bulletin No. 22 from April 2020, with the latest decisions and opinions released by the Ministry of Finance and Public Credit, the Council of State and the Tax Authority, in connection with national and local taxes, and tax procedure.

Also, we share some of the latest decisions taken from the National Government, considering the health emergency declared through Decree 417 of 2020.

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.

1.Normativity issued by the National Government and the Colombian Tax Authority under the health emergency due to the effects of COVID-19

Transitional tax measures for companies that are immersed in insolvency proceedings or have concluded corporate reorganization agreements

By means of Decree 560 of April 15, 2020, the Ministry of Commerce, Industry and Tourism adopted transitional measures in order to benefit companies immersed in insolvency proceedings or that have entered into corporate reorganizations agreements. In this sense, from a tax perspective, these companies will enjoy the following prerogatives: (i) they will not be subject to withholding or self-withholding income tax; (ii) they are exempted of the advance payment of the income tax and; (iii) they will  not be required to declare presumptive income for the taxable year 2020.

Goods exempted from VAT during the Health Emergency will not give the right compensate or refund

On April 15, 2020, the Ministry of Finance and Public Credit issued Decree 551, through which transitional measures within the state of emergency caused by Covid – 19 were adopted. The aforementioned Decree sets forth a list of goods which during the state of emergency declared by the National Government will be exempt from VAT, however, they will not allow taxpayers to request any compensation or refund. The goods covered by this measure are medical equipment and supplies.

Simplified procedure for the compensation or refund of balances in favour of income tax and VAT taxpayers

Trough Decree 535 of April 10, 2020, the Ministry of Finance and Public Credit adopted a simplified procedure for the refund and/or compensation of balances in favour of income tax and VAT taxpayers. According to this new procedure, the Colombian Tax Authority will authorize the compensation or refund of balances in favour within a term of fifteen (15) days upon the request, and not within the term of fifty (50) days sets forth in the Colombian Tax Code.

However, in the event the Tax Authority classifies a request made by a taxpayer as highly risky in tax matters, the following decisions may be adopted: (i) suspension of the procedure or (ii) authorize the refund and/or compensation of the balance in favour, performing once the Health Emergency finishes, a subsequent control over the return and/or compensation.

Transitional exemption of debit tax for Non-Profit Entities (ESAL) and special VAT treatment for donations

By means of Decree 530 of April 8, 2020, the Ministry of Finance and Public Credit  adopted a series of transitional tax measures in relation to the debit tax (GMF) applied to non-profit entities (“ESAL” per its acronym in Spanish), as well as a special treatment for the VAT in the donations of certain goods. In this sense, withdrawals from current or savings accounts made by non-profit entities belonging to the special tax regime will not be taxed with debit tax, as long as such resources are used to benefit the most vulnerable population or with the sole purpose of conjuring the crisis caused by Covid – 19.

On the other hand, during the state of emergency caused by Covid – 19, the donations of certain goods will not be taxed with VAT. For example: goods for human and animal consumption, clothing, toiletries, medicinal products for human or veterinary use, building materials and medical devices. Nevertheless, the above-mentioned treatment shall not apply when the beneficiary of the donation is a related party.

Solidarity tax for public servants

On April 15, 2020, the Ministry of Finance and Public Credit issued Legislative Decree No. 568, which creates a solidarity tax for public servants during the state of emergency caused by Covid – 19. The solidarity tax will only be applied to public servants with monthly wages or fees higher than COP $10.000.000 (approx. USD $2,565).  The tax rate will depend on the amount of the salary or fees, bearing in mind that the first million eight hundred thousand pesos ($1,800,000) will not integrate the taxable basis.

2. Normativity issued by the National Government regarding tax issues in March 2020

In addition to the regulations issued as a result of the health emergency situation in our country, the National Government has also issued other tax regulations during this period, which we allow ourselves to highlight below:

Decree 598 of 2020 which regulates the Colombian holding companies (CHC) regime

Through Decree 598 of 2020, the Colombian Government ruled the articles 894 to 898 of the CTC regarding the CHC regime, which in particularly has to do with the income tax. The decree issued by the Ministry of Finance and Public Credit sets forth the requirements that must be fulfilled for those Colombian companies that wants to adhere to the CHC regime.

In this regard, the taxpayers will have to present a communication before the Colombian Tax Authority, in addition with some documents such as the Certificate of Incorporation and Legal Representation and the Shareholders Ledger, among others.

The Colombian companies that wants to apply to the CHC regime can register or update the National Tax Registry (“RUT” for its acronyms in Spanish) with the status "CHC Not enabled". Afterwards, if the Colombian Tax Authority determines that the documentation was presented in due form and in compliance with the requirements of the law, it will inform the corresponding dependence of the Tax Administration in order to update the RUT of the applicant company with the status of “CHC Enabled”.

3. Tax Rulings

The Colombian Tax Authority specifies that goods exempt from VAT during the health emergency will not give the right to compensation and/or refund and, in addition the tax administration provides certain guidelines in relation to the goods covered by the transitional exemption

Pursuant to tax ruling no. 485 of 2020, the Colombian Tax Authority determined that the purpose of the Decree 551 of 2020 was to provide some measures that facilitate the import and sale into the national territory of medical goods and supplies that are necessary in order to face the health emergency situation. 

In addition, the Colombian Tax Authority established that the exempt goods mention in first article of Decree 551 of 2020 are not determined based on the tariff items and are described in a generic way. As a consequence, the goods that are included within the generic descriptions in the first article of the decree will be covered with the VAT exemption. For example, goods that qualify within the category of disinfectants, soaps and antibacterial solutions will be covered by the exemption provided in the decree. 

On the other hand, considering the fact that in tax matters, the exemptions must be interpreted in a restrictive way and also must be determined in the law, the VAT exemption of the goods aforementioned cannot be extended to goods that are not expressly indicated in decree. 

Finally, the Colombian Tax Authority mentioned that the VAT exemption provided in the Decree 551 of 2020 does not grant in any case the right to return and/or compensate the VAT. Notwithstanding the foregoing, the balances in favor originated in the import and sales in the Colombian territory of the goods covered by the aforementioned decree, may be taken or imputed against the VAT generated by the taxable operations from those goods, once the Health Emergency situation is finished.

The foreign companies that are bound to keep their accounting systems in accordance with the legislation of their jurisdiction cannot be required to keep their accounts for the purposes of article 277 of the Colombian Tax Code

By means of tax ruling 312 of 2020, the Colombian Tax Authority sets forth 
that the foreign companies that keep accounts according to the legislation of the jurisdiction of their domicile cannot be bound to keep accounts for the purposes of article 277 of the Colombian Tax Code. The above, considering that article 21-1 of the Colombian Tax Code automatically applies to the entities that must keep their accounts in accordance with the accounting regulatory frameworks in force in Colombia.

Therefore, in these cases and for purposes of determining the equity value of the real estate, the provisions set forth in article 277 of the Colombian Tax Code must be observed. This provision establishes that taxpayers that are not required to keep books of accounting must declare the properties by the highest value between the acquisition cost, the fiscal cost, the self-assessment or the updated cadastral assessment at the end of the year.

4. Case Law of the Council of State 

The Council of State nullified the word “exclusively” and conditioned the phrase “be the sale” on the withdrawal of contributions from AFC and AVC accounts not subject to withholding tax

By means of Case Law from February 12, 2020 the Council of State nullified the word “exclusively” provided in the article 1.2.4.1.36 of the Decree 1625 of 2016, regarding the conditions for withdrawals from savings accounts for the promotion of construction (AFC) or voluntary contractual savings accounts (AVC) not to be subject to withholding tax.

In this sense, number 2.3 of the aforementioned article determines that for withdrawals from AFC or AVC accounts not to be subject to withholding tax, the following condition must be met: 

"2.3 That the object of the public deed is exclusively the sale of new or used housing."

The Council of State considered that the word “exclusively” is restrictive because it implies that only by means of a deed of sale, the proper destination of the resources from the AFC or AVC accounts can be demonstrated; in this regard, the public deeds in which other translative titles of the domain appear, such as the swap, wouldn’t be valid.

In addition, in relation to the expression "be...the sale", the Council of State specifies that the Constitutional Court, by means of judgment C-308 of 2017 ruled that the accreditation of the resources withdrawn from AFC or AVC accounts that were intended for the acquisition of housing "must be made by means of a copy of a public deed in which any translatory title to the property is recorded".

The Council of State provides Case Law criteria to determine if the dividends received by individuals constitute a taxable base of the turnover tax

By means of Case Law from October 2, 2020, the Council of State pointed out the criterions to determine if the purchase and sale of shares, as well receipt of dividends are events taxed with the turnover tax. 

In this opportunity The Council of State mentioned that, the analysis carried out for entities applies to individuals, so if the exercising of the economic activity is carried out in an "habitual and professional" way, that is decisive in defining whether the individual, by such fact, carries out a commercial activity and, therefore, the income received is taxed with turnover tax.

5. Projects of Decrees and Resolutions

Through draft Resolution, The Colombian Tax Authority issued the annual report for the year 2020 in relation to the jurisdictions that have an international treaty signed for the exchange of information or tax relevance with Colombia during the taxable year 2019

During taxable year 2019, the following jurisdictions singed international tax treaties for the exchange of information or tax relevance: 

• Commonwealth of Dominica
• Republic of Cape Verde 

Additionally, as of December 31, 2019, the following jurisdictions has effectively share information with Colombia: