New ruling states that all loan transactions will be treated as taking place between related parties unless proven otherwise.
Recently, the Colombian tax authority (DIAN) ratified the requirement of a certification for loan transactions, to determine whether the transaction involves related parties.
In the absence of the certification, a loan transaction carried out by a company will be treated as with economic related parties, which means the deductibility of the interests will be limited.
Key Points
· When a financing operation is carried out with related parties, there is a rule that limits the deductibility of interest, according to the thin capitalization parameters.
· In the case of loan transactions with independent third parties, Colombian tax code indicates that the taxpayer must be able to demonstrate, through a certification issued by the creditor entity, that there is no relationship or any participation of economic related parties as guarantors or creditors in the operation.
· According to DIAN’s Tax Ruling 050 (909490) of 2021, the certification must contain, in addition to the identification of the parties, date, place, amount, term, and interest rate of the loan, an express statement by the legal representative that neither the guarantor of the transaction nor the creditor are an economically related party.
· This recent Tax Ruling 805 (006895), issued by DIAN on (please add date), states that in the absence of this certification, even if the transaction is effectively carried out with independent third parties, the deductibility treatment will be as if it were with related parties.
Outcome
To ensure that the interest deduction is not limited by the thin capitalization rule, you must obtain a certification from the creditor confirming that the transaction is not between related parties. Such certification must comply with the legal requirements outlined in DIAN concept 050 (909490) of 2021.
Do you need more information? Please do not hesitate to reach out to our team in Colombia:
Carolina Zuluaga carolina.zuluaga@basefirma.com
Diego Ramírez diego.ramirez@basefirma.com
Sources:
Colombian Tax Code, Article 118-1, Paragraph 1
Tax Concept 050 (909490), 2021, DIAN
Tax Concept 805 (006895), 2021, DIAN
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