On 5 April 2019, the tax Authority (DIAN) of Colombia published an opinion No. 8159, concerning the scope of the thin capitalization rule, ratification with the Financing Law (Law 1943 of 2018). Accordingly, as from taxable year 2019, the thin capitalization rule will apply only to debts with resident or nonresident related parties that are incurred by Colombian taxpayers either directly or indirectly via an unrelated third party.

Under the new thin cap rule, interest on debt that exceeds twice the net equity (2:1) of the taxpayer as at 31 December of the preceding taxable year will not be deductible for income tax purposes (before, a 3:1 debt-to-equity ratio applied). Moreover, a loan granted by a third party may be considered related-party debt if: a related party guarantees the loan; there is a back-to-back transaction involving a related party or any other transaction takes place in which a related party is substantially deemed to be the creditor.

In relation to credits guaranteed by related parties, DIAN explained that the limitation within the thin cap rule does not apply to the extent that the related party merely guarantees that it is responsible for the payment of the Colombian taxpayer’s debt with a third party. In some cases, it specified that the guarantor is essentially not the real creditor. However, if the creditor of record is classified as a related party to the guarantor or the debtor, the restriction on the upper limit applies.

In addition, the new law obliges the taxpayer to prove, by a certificate issued by the registered creditor, that the loan is not a claim that has essentially been acquired from a related party.