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29 March 2018 Colombia's Tax Authority allows taxpayers to deduct royalties associated with acquisition of finished products On 23 March 2018, the Colombian Tax Authority (DIAN) issued Official Opinion 0318, allowing taxpayers to deduct royalty payments associated with the acquisition of finished products, to the extent the taxpayer can demonstrate that, considering the price structure of the product, a royalty is not also embedded in the amount paid for the product purchased. Article 120 of the Colombian Tax Code, modified by Law 1819 of 2016, does not allow taxpayers to deduct royalty payments associated with the acquisition of finished products for income tax purposes. By means of Official Opinion 1621 of 2017, the DIAN determined that a deduction for royalty payments associated with finished products was not possible under any circumstances because the law did not establish any exceptions. Upon a request for reconsideration of the prior official opinion, the DIAN reviewed the legislative history of the provision. According to the legislative history, non-deductibility was based on the assumption that the payment made for the finished products already included remuneration for the intangible incorporated in the goods. Therefore, the rule was aimed at preventing two payments for the same intangible. In Official Opinion 0318, the DIAN determined that the legislature's objective was to prevent a double payment of royalties and concluded that a business can legally negotiate contractual terms under the principle of the "autonomy of the will." Therefore, the DIAN concluded that the price structure of the goods acquired may not include a value corresponding to the royalty, which means the taxpayer should be able to deduct the royalty payments made in relation to such goods. However, to deduct the amount of the royalties that are separately paid, the DIAN cautioned that taxpayers have the burden of proof to demonstrate that a royalty payment is not incorporated into the value of the finished products. Taxpayers who want to deduct the royalties paid in relation to the acquisition of finished products must prove that no double payment of this item has been made.
Document ID: 2018-5485 |
