Colombia

Market overview

When practitioners in Colombia talk about the tax and transfer pricing markets over the past year, "increasing transparency" and "a changing environment" are the key themes.

While there were no normative changes to Colombia's TP rules in 2015, the government has been working closely with the OECD on several of the BEPS Actions and wants to become a member of the organisation. As Colombia is not yet an OECD member, none of the guidelines are binding, and there have not been any official statements regarding the implementation of BEPS. However, the government has been eager to implement Action 13, on country-by-country reporting (CbCR), practitioners say.

"We're working hard to become a part of it [the OECD]," said Ciro Meza, head of tax at Baker & McKenzie. "This is a special era, things are changing. We are definitely moving towards more and more transparency," he said.

Practitioners say that internal affairs have taken up many resources, and the government has been slow in implementing BEPS as a consequence. But this move towards the OECD, however slow, is having an impact on the tax and transfer pricing markets.

"The environment has changed 360 degrees compared with how it was five years ago," said Meza. "Tax planning is something that has been taken very seriously and very carefully, and the culture of tax compliance is more and more important in Colombia, and this is a result of what's going on in the world," he added.

The Colombian tax authorities have also been increasing scrutiny regarding transfer pricing requirements, and are auditing almost all taxpayers with documentation requirements. Practitioners expect to see more detailed audits and assessments in the future, especially as the government now has members that deal directly with the OECD in order to ensure compliance with the law.

"Some years ago, the tax authorities did not have enough expertise to analyse highly complex transactions," said Carolina Rozo Gutiérrez, co-head of tax at Philippi Prietocarrizosa Ferrero DU & Uría. "However, the tax authorities have recently improved their team, involving former private sector practitioners, so they are now changing the way they conduct these audits, and are trying to sophisticate the auditing process. One of the examples is the transfer pricing division."


Tax authorities

Dirección de Impuestos y Aduanas Nacionales
Carrera 8 No 6C – 38 Edificio San Agustín, Bogota
Tel: +57 1 607 9999; +57 1 546 2200
Fax: +57 1 333 7841
Website: www.dian.gov.co


Tax rates at a glance

(As of April 2016)

Corporate income tax rate 25% (a)
Corporate income tax for equality rate 9% (b)
Corporate income tax for equality surtax 6% (c)
Capital gains tax rate 10%
Branch tax rate 25%
 
Withholding tax (d)
Dividends 0/20/40% (e)
Interest 0/5/14/33% (f)
Royalties
Software 26.4%
Other 33%
Technical services, technical assistance and consulting services 10% (g)
Branch remittance tax 0/40%
 
Net operating losses (years)
Carryback 0
Carryforward Unlimited

  1. Reduced and gradually increasing income tax rates exist. Also, a wealth tax applies to companies for 2015 through 2017.
  2. This tax applies to local corporate taxpayers required to file an income tax return, which include branch offices and permanent establishments (PEs) of foreign entities.
  3. The surtax applies to income tax for equality taxpayers on their taxable income that exceeds COP800 million. The surtax apples for 2015 through 2018. The rates of the surtax are 5% for 2015, 6% for 2016, 8% for 2017 and 9% for 2018. The surtax is subject to an advance payment that is calculated applying the corresponding tax rate for the relevant year to the taxable income of the prior year. The surtax does not apply to companies that operate or are located in offshore free trade zones.
  4. Corporate income tax rates applicable to non-residents that receive Colombian source income not attributable to a branch or PE and that are required to file an income tax return in Colombia are temporarily increased from 2015 through 2018 (2015: 39%; 2016: 40%; 2017: 42%; and 2018: 43%). The National Tax and Customs Administration issued Official Opinions 11676 and 12343 of 2015, which state that withholding tax rates set at 33% were not modified because the increase of the corporate income tax rates for foreign entities did not change the general withholding tax rates. However, these opinions did not address the withholding tax rate applicable to dividends. Consequently, the increase of rates may affect the applicable withholding tax rate on dividends.
  5. Dividends paid to non-residents are not subject to tax if the dividends are paid out of profits that were taxed at the corporate level. If the profits were not taxed at the corporate level, dividends paid to non-residents that are not attributable to a branch or PE are subject to withholding tax at the corporate income tax rate of 40% for 2016. Dividends paid between domestic corporations are not subject to tax if the company generating the profits out of which the dividends are paid is taxed on these profits in Colombia. Otherwise, the dividends are included in the income tax return of the recipient of the dividends. A 20% withholding tax is imposed on dividends paid to residents if the taxpayer is required to file an income tax return.
  6. Interest paid or accrued by Colombian residents to foreign entities on loans with a term equalling or exceeding one year are subject to 14% withholding tax; otherwise, the applicable rate is 33%. Interest paid on loans that have a term equal or greater than eight years and that are related to certain infrastructure projects are subject to a 5% withholding tax. Interest paid by Colombian financial institutions and interest paid by Colombian residents to foreign entities with respect to international trade operations are deemed to be foreign-source COLOMBIA 307 income and are accordingly exempt from withholding tax. Certain qualified loans executed before 31 December 2010 do not generate Colombian-source income. As a result, interest on such loans is exempt from withholding tax.
  7. This withholding tax applies to consulting services, technical services and technical assistance services rendered in Colombia or from abroad by non-residents that are not domiciled in Colombia.

Source: EY 2016 Worldwide Corporate Tax Guide