On 28 October 2021, the Colombian Government has issued Decree 1357, through which it partially regulates article 260-7 of the Tax Code. The Decree identifies criteria to consider a jurisdiction as a Preferential Tax Regime.
This decree was published within the framework of action 5 of the BEPS Action Plan (Base Erosion and Profit Shifting Project) in order to combat harmful tax practices, in accordance with criteria such as transparency and substance.
Among those regulated by the decree is the scope of the non-existence of tax rates and non-existence of nominal rates. There will be non-existence of tax rates and non-existence of nominal rates on income when:
- the taxable base of income tax is not subject to a percentage rate or absolute value to calculate income tax, or when, despite the existence of a tax rate, the effective income tax is non-existent; and when
- the nominal rates of income tax, or of taxes of an identical or analogous nature to income tax, are lower at 60% of the net tax that would have been applied in Colombia to said income for the year in which the operation is carried out.
The Decree also states that the obligations are derived from carrying out operations with entities located in preferential tax regimes. In this regard, taxpayers of income and complementary taxes that carry out operations with people, companies, entities, or companies subject to preferential tax regimes, will be obliged to:
- Withholding tax payment will be same as the corporate income tax (CIT) rate (31% for 2021 and 35% for 2022); and
- Apply the transfer pricing regime and comply with the substantial and formal obligations of said regime.
