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26 March 2018 Colombia signs tax treaty with Italy The Governments of Colombia and Italy signed a Treaty to Avoid Double Taxation (DTT) on 26 January 2018. The DTT includes new regulations that are intended to reduce the tax burden on transactions that take place between these jurisdictions. Specifically, the DTT's preamble provides that the purpose of the DTT is to avoid double taxation without creating opportunities for no taxation or reduced taxation through treaty shopping. When a person, other than an individual, is resident in both Colombia and Italy (i.e., a dual resident entity), both competent authorities will determine by mutual agreement the contracting state in which the person is deemed to be a resident. The DTT expressly includes pension and severance funds as tax esidents. Additionally, the DTT contains Base Erosion and Profit Shifting (BEPS) permanent establishment (PE) recommendations, such as an anti-fragmentation clause and the expanded definition of "agency PE." The DTT also makes all of the specific activities exceptions subject to the preparatory or auxiliary requirement. Under the DTT, payments derived from the provision of technical assistance, consultancy and technical services are not deemed as royalties. According to the DTT's protocol, such services will be covered by the treatment granted to business profits and independent professional services.
The capital gains resulting from the sale of shares, interests in a partnership, or participations in a trust will be taxed in the source country as follows:
In the event that the transferor is a pension fund, the capital gains tax will be limited to 5% of the profit. The DTT establishes that the treatment provided in Article 8 (navigation and international air transport) of the DTT will prevail over the Treaty to Avoid Double Taxation on Income and Assets Derived From the Exercise of Maritime and Air Navigation of International Transport adopted by Colombia through Law 14 of 1981. Before the DTT can enter into force, Colombia's Congress must first approve a law to adopt it. After Congress approves the law, Congress will send the DTT to the Constitutional Court for a constitutional review. Once the DTT is approved, the countries will exchange diplomatic notes, reporting that they have completed their internal approval process.
Document ID: 2018-5469 | ||||||||||||||||||||||
