COLOMBIA Law and Practice Contributed by: Jaime Trujillo, Juan David Velasco, Natalia Ponce de León and Angelica Navarro, Baker McKenzie S.A.S.
5.4 Tax Consolidation 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 purpos - es, a taxpayer generally may not deduct inter - est 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 31 in the preceding year; and • loans from third parties – where a related party acts as guarantor or provides a guar - anty, participates in a back-to-back opera - tion, or substantially acts as a creditor in any other transaction, loans from third parties are subject to the thin capitalisation limitation. 5.6 Transfer Pricing Transfer pricing rules are applicable in Colombia. 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 Colombia, through the transfer, by any means, of shares, participations or rights in foreign entities, as if the Colombian underly - ing assets were directly transferred. 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 recharac - terise operations that have no business purpose. This encompasses transactions that are artifi - cial, 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 benefit can be applied to a single economic event. Otherwise, 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) prin - ciple, 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 high - er tariffs to protect specific sectors: • automobiles – tariff set at 35% to support local assembly operations; • agricultural goods (eg beef, rice, diary) – tar - iffs can reach as high as 80–98%, drastically limiting imports outside regulated quotas; and • steel products – a 35% safeguard tariff on imports (specifically from China, Turkey and Russia) was instituted in 2024 to counteract price undercutting and subsidy-driven dump - ing.
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