Colombia: Tax implications of indirect transfers of shares, rights or assets
Colombia: Tax implications of indirect transfers
Companies and individuals in Colombia involved in indirect transfers of shares, rights or assets must follow the provisions set out in a decree that implements the provisions of Article 90-3 of the Colombian tax law.
The decree (Decreto 1103 / 2020) regulates several key items of the indirect transfer regime, such as the following:
- Definitions of certain terms—foreign entities, underlying assets, sales price, related parties, beneficial owner, stock exchange recognized by government authority, first point of contact, and subordinated entities—are provided by the decree with regard to indirect sales and transfers.
- The disposal of Colombian assets (or the “underlying assets”) for these purposes generally refers to any transfer of property—and includes contributions to foreign entities, wind-down processes by foreign companies, payments-in-kind and capital decreases by foreign entities with effective reimbursement of contributions. There are also rules applicable to international mergers and spin-offs when they result in an indirect sale.
- Income tax treaty measures (that is, measures under one of the income tax treaties signed by Colombia and that either follow the OECD or Mercosur pact model) will prevail over the Colombian domestic tax rules.
The decree also:
- Establishes situations when indirect disposals will not be subject to income tax in Colombia
- Provides guidance on how to calculate the tax basis (tax cost) of the assets indirectly sold and in particular with regard to a sale executed by an indirect purchaser
- Includes rules for application of the indirect disposal regime for Colombian branches—the profit realized on a transaction will be imputed first as the recapture of depreciation and amortization and only then be taxed as ordinary income
- Includes withholding tax rules when the buyer is a Colombian withholding agent
- Establishes the rules to apply in instances of joint and several liability for subordinates of the indirect transferor and for the purchaser
- Reaffirms that the indirect transferor must file an income tax return within one month of the transaction
- Reconciles the rules applicable to controlled foreign companies (“ECE” as per the abbreviation in Spanish) and the effects of the indirect disposals
- Lists the required documents to support the indirect disposition of assets
- Sets out rules for electronic signature by the indirect seller and allows taxpayers to make tax payments via a government’s bank account
For more information, contact a tax professional with the Tax Group of KPMG’s Latin American Markets or with the KPMG member firm in Colombia:
Alfonso A-Pallete | +1 212 954 3852 | email@example.com
Ricardo Ruiz | +57 16 18 8000 | firstname.lastname@example.org
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