The Colombian tax authority (DIAN) issued Ruling 803 of 23 September 2024, released on 1 November 2024, which provides guidance on the necessary certification of third-party debts for interest deduction purposes under the thin capitalization rules.
According to paragraph 1 of Article 118-1 of the Tax Statute, when a creditor is an unrelated resident or non-resident, it must be certified that the credit does not involve debt operations with related entities through guarantees, back-to-back arrangements, or other transactions where related parties effectively act as creditors.
As clarified in Ruling 803, without this certification, third-party debt will be treated as related-party debt, and the associated interest will fall under thin capitalization rules.
Consequently, interest deductions will only be allowed if the total debt remains within a 2:1 debt-to-equity ratio, based on the equity (assets) as of 31 December of the prior tax year.
To comply, the creditor must provide the necessary certification upon request for each taxable period, and the debtor must obtain this certification before the deadline for filing the income tax return for the applicable tax year.
