COLOMBIA Law and Practice Contributed by: Jaime Trujillo, Juan David Velasco, Natalia Ponce de León and Angelica Navarro, Baker McKenzie S.A.S.
5.7 Anti-Evasion Rules The following are some of the key anti-evasion rules applicable in Colombia. Indirect Sales Colombia has an indirect transfer regime. The regime taxes the indirect disposal of assets located in Colom - bia, through the transfer, by any means, of shares, participations or rights in foreign entities, as if the Colombian underlying assets were directly trans - ferred. Secondary legislation clarifies the tax basis calculation and WHT obligations on indirect transfers. General Anti-Abuse Rule This rule grants the DIAN the power to recharacter - ise operations that have no business purpose. This encompasses transactions that are artificial, have no economic or commercial purpose or are aimed at obtaining a tax advantage. The burden of proof for this purpose is on the DIAN. Limitation-on-Benefits Rule Colombia has an anti-abuse clause that contains a limitation-on-benefits rule, whereby only one tax ben - efit can be applied to a single economic event. Other - wise, a taxpayer will lose the higher benefit applied. 5.8 Tariffs Colombia operates a multi-tiered tariff system based on the Most Favoured Nation (MFN) principle, with the following general structure: • 0–5% – applied to capital goods, industry inputs and raw materials not (or scarcely) produced domestically; • 10% – applicable to most manufactured products; and • 15–20% – imposed on consumer goods and others categorised as “sensitive” products. In addition, Colombia implements targeted higher tar - iffs to protect specific sectors: • automobiles – tariff set at 35% to support local assembly operations; • agricultural goods (eg beef, rice, dairy) – tariffs can reach as high as 80–98%, drastically limiting imports outside regulated quotas; and
income obtained by such entities may be attributed and taxed in Colombia. However, the regime offers an incentive by excluding active income from taxation. In addition, income effectively distributed is not sub - ject to additional taxation if already reported, allowing for deferral and avoidance of double taxation. These features position the CFC regime as a compliant yet flexible structure for managing offshore investments. The CHC regime The CHC regime offers a full income tax exemption on dividends and capital gains derived by a CHC from qualifying foreign subsidiaries, as long as the CHC holds at least 10% participation and meets certain substance requirements. Dividends paid by the CHC to non-residents are considered foreign-sourced and may benefit from WHT relief. This regime is a power - ful incentive to set up regional holding platforms in Colombia, aiming to boost inbound and outbound Tax consolidation is not allowed in Colombia. 5.5 Thin Capitalisation Rules and Other Limitations Thin capitalisation rules (when the level of debt of a company is much greater than its equity capital) are applicable in Colombia based on the following: • debt-to-equity ratio – for income tax purposes, a taxpayer generally may not deduct interest paid on loans that are acquired, directly or indirectly, from related parties and that exceed a 2:1 debt-to- equity ratio, considering the taxpayer’s net equity on December 31st in the preceding year; and • loans from third parties – where a related party acts as guarantor or provides a guaranty, participates in a back-to-back operation, or substantially acts as a creditor in any other transaction, loans from third parties are subject to the thin capitalisation limita - tion. 5.6 Transfer Pricing Transfer pricing rules are applicable in Colombia. foreign direct investment. 5.4 Tax Consolidation
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