Global Tax Alert (News from Americas Tax Center) | 18 September 2013

Colombia issues guidance on application of income tax for equality (CREE) under country's tax treaties

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On 24 June 2013, Colombia's Tax Authority (DIAN) issued Ruling 38458, which refers to the application of the income tax for equality (CREE) in the double taxation conventions (treaties) signed by Colombia.

The DIAN indicated that the CREE “is a new tax and its statutory law set forth all its elements” and specifically mentions that, although there are occasional references to the income tax, the CREE tax is not incorporated into the income tax. It also said that, generally, Article 2 of the treaties expressly references the income tax currently enforceable.

Notwithstanding the abovementioned article, the ruling also stated that in certain cases the treaties might declare that it is applicable to “any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes.” Based on that, the DIAN concluded that each treaty must be analyzed on a case-by-case basis in order to determine whether the CREE is applicable.

It is important to note that Colombia's government usually signs treaties, including Paragraph 4 of Article 2 so that the scope of the treaties' taxes include identical or substantially similar taxes created after the agreement of the treaties or those added to the existing taxes. Although taxes are listed in the treaties agreed by Colombia at the time of signature, it is important to note that said taxes are listed with an illustrative and not exhaustive purpose.

Summing up, and in line with this interpretation made by the DIAN, in all treaties signed by Colombia to date, the CREE will be covered inasmuch as it is substantially similar to the income tax and might be deemed as “added to the existing taxes.”

In any case, the treaties also require the States' authorities to report changes in their laws. It is expected that this report will be carried out soon because of the magnitude of the CREE and the proper application of the treaty.

Ruling 38458 applies to other provisions in the treaties, including business profits, the taxation of permanent establishments and in the interpretation of local law when the effects of a provision are solely regarding income tax.

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

Ernst & Young Ltda., Bogotá, Colombia
  • Ximena Zuluaga
    +57 1 484 7170
  • Ricardo Ruiz
    +57 1 484 7537
  • Juan Sebastián Torres
    +57 1 484 7658

EYG no. CM3808