Colombian Government Proposes Tax Reform

8/11/2019 Colombian Government Proposes Tax Reform

1/5

EY Americas Tax Center

The EY Americas Tax

Center brings together

the experience and

perspectives of over

10,000 tax professionals

across the region to

help clients address

administrative,

legislative and regulatory

opportunities and

challenges in the 33countries that comprise

the Americas region of the

global EY organization.

Copy into your web

browser:

http://www.ey.com/US/en/

Services/Tax/Americas-Tax-

Center---borderless-client-

service

Global Tax AlertNews from Americas Tax Center

7 October 2014

Colombian Governmentproposes tax reformOn 3 October 2014, Colombias Ministry of Treasury led bill No. 134/14 before theHouse of Representatives. The bill proposes changes to the Tax Statute (Law 1607

of 2012) and creates new mechanisms to combat tax evasion.

The Government projects that it will collect $12.5 billion Colombian pesos (approx.

US$6,164,0001) during 2015, which will help it meet its goal under the structural

decit provision contained in the Law of Fiscal Rule. If that amount is not collected,

the Government will have to reduce its level of public investment for 2015 through

2018.

Proposed tax changes

New wealth tax

The tax reform would create a new wealth tax that would be charged to income

taxpayers that are individuals and legal entities.

Nonresidents, domestic or foreign individuals, foreign companies and foreign entities

also would be subject to the new wealth tax. The tax would be applied to equity held

directly in Colombia and equity held indirectly through permanent establishments

(PEs) or branches.

The tax reform would exempt from the tax foreign portfolio investors, companies in

liquidation or under a restructuring agreement and individuals under the insolvency

regime provided by Law 1564 of 2012.

The reform would consider certain insolvency strategies as acts to which anti-abuse

measures would apply and those measures would hold partners and shareholders

jointly liable.

Under the reform, the tax base would be the taxpayers wealth, determined as

taxpayers gross assets minus debts as of 1 January 2015, equal to or greater than

COP 1,000,000,000 (approx. US$493,000).
http://www.ey.com/US/en/Services/Tax/Americas-Tax-Center---borderless-client-servicehttp://www.ey.com/US/en/Services/Tax/Americas-Tax-Center---borderless-client-servicehttp://www.ey.com/US/en/Services/Tax/Americas-Tax-Center---borderless-client-servicehttp://www.ey.com/US/en/Services/Tax/Americas-Tax-Center---borderless-client-servicehttp://www.ey.com/US/en/Services/Tax/Americas-Tax-Center---borderless-client-servicehttp://www.ey.com/US/en/Services/Tax/Americas-Tax-Center---borderless-client-servicehttp://www.ey.com/US/en/Services/Tax/Americas-Tax-Center---borderless-client-servicehttp://www.ey.com/US/en/Services/Tax/Americas-Tax-Center---borderless-client-service


2/5

Global Tax Alert Americas Tax Center2

From the tax base, the net value of the following assets could be deducted: The rst $12,200 UVT (Tax Value Unit for its acronym in Spanish) (for 2014, COP 335,000,000, approx.

US$165,000) of the fair market value of a residential home

Shares in domestic companies, even if held through a trust or collective investment fund

Contributions of cooperative entities described in Paragraph 4 of Section 19 of the Tax Statute

Real estate used and benecial to mass transit public companies

Land banks owned by territorial public companies, with land intended for priority housing

Even though the tax base is static, the accrual of this tax would be annually on 1 January 2015, 2016, 2017 and

2018. Note that for PEs and branches, the tax reform has not clearly established how the equity attribution ruleswould operate.

The tax would be progressive depending on the level of equity, as follows:

Ranges (Colombian pesos COP)Applicable

tax(*)

0 to $2,000,000,000 (**) (approx. US$986,000) 0.20%

$2,000,000,000 to $3,000,000,000 million (approx. US$986,000 to 1,479,000) 0.35%

$3,000,000,000 million to $5,000,000,000 million (approx. US$1,479,000 to 2,465,000) 0.75%

$5,000,000,000 million and above (approx. US$2,465,000) 1.50%

(*) The outcome indicates the obligation to add a xed portion in Colombian pesos to the indicated range.

(**) Taxpayers are lers provided wealth is beyond COP 1,000 million.

The wealth tax would not be deductible or discountable from the income tax or CREE tax (income tax for equality).

It also may not be offset with other taxes.

CREE surtax

For tax years 2015 through 2018, a CREE surtax of 3% would be imposed on taxpayers subject to that tax if their

taxable base is equal to or greater than COP1,000,000,000 (approx. US$ 493,000). Additionally, the reform

would require taxpayers to calculate the surtax on the tax base for the previous year (as an advance) and pay it

in two annual installments.

Increase in CREE tax rate

The tax reform would permanently increase the CREE tax rate to 9% beginning in 2016 and, thus, the lower tax

rate would no longer apply, which was expected to be 8% as of 2016.

Additional anti-evasion rules

In addition to the current anti-evasion rules and transfer pricing regulations, the reform would create a new

normalization tax, which would be imposed from 2015 through 2017 as surtax to the wealth tax. This tax would

be imposed on taxpayers subject to the wealth tax and those taxpayers that want to voluntarily le to report

omitted assets when they were legally required to report those assets. Conversely, taxpayers subject to thewealth tax that do not have omitted assets would not be subject to the new surtax.

The tax base for the new surtax would be the asset value as determined under the income tax rules.


3/5

3Global Tax Alert Americas Tax Center

The tax reform also would createmeasures regarding equity held

through private foundations and

trusts under which the rights in

those structures and contracts

would be presumed to be held

in Colombia and the asset rules

applicable to duciary rights

would be applicable.

The inclusion of the omitted

assets would not result in taxable

income due to assessment made

when comparing equities of the

taxpayer under special provisions

provided by law or special taxable

income due to asset omission.

The normalization surtax rate

would increase incrementally

(10% for 2015, 15% for 2016,

20% for 2017), which is intended

to make taxpayers comply with the

normalization as soon as possible.

Additionally, the tax reform

would establish a new statement

for information on assets that

Colombian residents own abroad.

On the statement, the type andnature of the assets would have to

be reported if the assets are greater

than a certain amount (3,580 UVT,

Tax Value Unit for its acronym in

Spanish, which for FY2014 ascends

to COP $98 million approx.

US$48,000). The jurisdiction where

the assets are located also must be

disclosed.

Another anti-evasion measure

would be the creation of a criminal

offense for the omission of assets or

the inclusion of nonexistent assets

with a value equal to or greater than

12,966 Current Monthly Minimum

Legally Wages (for FY2014, approx.

US$3,938,000), which would

affect the income tax, CREE tax

and corresponding balance in favor.

The penalty will stop accruing once

an amended return is led and thetax, penalties and interest are paid.

Taxpayers that are subject to the

normalization tax will not be subject

to the penalty for tax years 2015

through 2017.

The tax reform also would requirea committee of experts to be

formed to propose reforms aimed

at preventing tax evasion by entities

in the special tax regime, which

includes nonprot entities.

Levy to financial transactions

(GMF for acronym in Spanish)

The tax reform also would modify

the gradual elimination of the GMF

and maintain the 0.4% tax rate from2015 to 2018. It would be reduced

to 0.3% in 2019, 0.2% in 2020 and

0.1% in 2021. The tax would be

repealed in 2022.

VAT changes

The tax reform would eliminate the

two point VAT reduction for the

purchase of goods and services

made by credit or debit cards or

through a mobile banking service,

which are generally taxed at a 16%

general rate or a 5% rate depending

on the type of transaction.

Endnote

1. Exchange rate: US$1: Colombian Pesos (COP) 2,208.


4/5

4 Global Tax Alert Americas Tax Center

For additional information with respect to this Alert, please contact the following:

Ernst & Young Ltda., Bogot, Colombia

Diego Casas +57 1 484 7050 [email protected]

Ricardo Ruiz +57 1 484 7537 [email protected]

Carlos Parra +57 1 484 7931 [email protected]


5/5

EY| Assurance | Tax | Transactions | Advisory

About EY

EY is a global leader in assurance, tax, transaction and advisory

services. The insights and quality services we deliver help build trust and

confidence in the capital markets and in economies the world over. We

develop outstanding leaders who team to deliver on our promises to all

of our stakeholders. In so doing, we play a critical role in building a better

working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of

the member firms of Ernst & Young Global Limited, each of which is aseparate legal entity. Ernst & Young Global Limited, a UK company limited

by guarantee, does not provide services to clients. For more information

about our organization, please visit ey.com.

Americas Tax Center

2014 EYGM Limited.

All Rights Reserved.

EYG No. CM4777

This material has been prepared for general informational purposes only and is not intended to

be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for

specific advice.

ey.com

Colombian Government Proposes Tax Reform

Documents

Transcript of Colombian Government Proposes Tax Reform