The Constitutional Court of Colombia has ruled that the thin capitalization has been incorporated into the tax law by Article 109 of Law 1607 of 2012 and the rule is constitutional.
The claimant raised the issue that the deductibility limit is discriminatory and presumes bad faith on the part of taxpayers. It also violates the principles of equity and progressivity of the taxation system. But the court rejected the claimant’s argument on the ground that the limit is general and applies to all taxpayers without considering their economic status.
The court did not analyze the application of the limitation that applies to the transactions of unrelated parties and as such transactions could be treated as illegal as per the practice of the international tax law when thin capitalization rules are only related to the transactions of related parties.
