Colombia’s Tax Authority, DIAN has clarified the withholding tax rate applicable to payments made abroad based on the provisions of Law 1739 of 2014. Article 28 of Law 1739 of 2014 set forth that revenue obtained by companies and foreign entities, that is not attributable to a branch or permanent establishment of such companies or foreign entities for the fiscal years from 2015 to 2018, shall be subject to the following tax rates:
That caused uncertainty regarding the withholding tax rate applicable to payments made abroad to companies and foreign entities, since articles 408, 410 and 411 set forth a lower rate of 33% regarding these same payments.
Under these circumstances, the Tax Authority, DIAN issued Tax Ruling No. 11676/2015 in which it clarified that the withholding tax rate applicable in these cases is of 33%. In the aforementioned Tax Ruling, the Tax Administration stated the following:
“…Consequently, the transitional paragraph introduced by article 28 of the Law 1739 of 2014 to article 240 of the Tax Code refers exclusively to the income tax rate for companies and foreign entities that obtained revenues in the country not attributable to its permanent establishment, and therefore, this temporary modification, does not affect the withholding tax rates set out in different provisions, because for that effect it would require that the legislature had also modified them.
Thus, in accordance with the provision of Article 592 of the same code, when a company or foreign entity is obliged to file the income tax return, it must apply the tax rate corresponding to the taxable year concerned, in accordance with the transitional paragraph of article 240 aforementioned”
Based on the above, DIAN supports the interpretation that article 28 of Law 1739 of 2014 does not mention expressly a modification to the withholding tax rates provided in articles 408, 410 and 411 of the Tax Code regarding payments made abroad, considering that for that to happen, it is required for the legislature to specifically establish a modification to the withholding tax rates, as it has done in the past by virtue of article 127 of the Law 223 of 1995 or in the paragraph of article 12 of the Law 1111 of 2006. In this sense, per the official interpretation of the Tax Authority, taxpayers can continue applying the 33% withholding tax to payment made abroad when corresponding.
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