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Colombias Constitutional

Court overrules possiblerecognition of leasecontracts as operatingleasesBy means of Decision C-015 of 2013, Colombias Constitutional Court

held as unconstitutional a part of Section 15 of Law 1527 of 2012, which

allowed all lease contracts to be possibly recognized as operating leases.

Background

Section 15 was affected by the repeal of paragraph 4 of Section 127-1

of the Tax Statute and paragraph of Article 89 of Law 223 of 1995. The

ruling was communicated through No. 1, published on 25 January 2013.

The repealed language of paragraph 4 of Section 127-1 of the Tax Statute

provided that all financial lease contracts or lease contracts with the

option to buy would be treated as provided in numeral 2 of this article,

regardless of the nature of the tenant. This repealed language also applied

to infrastructure leases.

With the repeal of paragraph 4 of Section 127-1, financial lease contracts

or lease contracts with the option to buy could be treated as operating

leases if all of the requirements of Section 127-1 were met (e.g., time,

type of property and qualification of the tenant as a medium enterprise).

If the lease is recognized as an operating lease, the entire lease payment

is recognized as an expense, not as an asset and a liability.

14 February 2013

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Global Tax Alert2

HoldingThe Constitutional Court held

that a part of Section 15 is

unconstitutional for violating the

unity of matter principle because

the provision was intended to

establish the general framework

for warrants or direct discounts

and, instead, it regulated different

issues. Additionally, the court

observed that it was necessary

to remove the rule of law becausethe reasons and purpose for which

the law was enacted, which is to

regulate warrants, was unrelated to

the purpose of repealing the leasing

rule.

Accordingly, for accounting and

tax purposes, all leasing contracts,

including infrastructure leases,

should be treated as financial

leases, not as operational leases.

ImplicationsTaxpayers may want to review how

this ruling affects their leases for

fiscal year 2012 and subsequent

fiscal years.

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3 Global Tax Alert

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