Double Taxation Treaties; After Spain And Chile, New Treaty With Switzerland

Originally Published January 2008

Colombia had two double taxation treaties, the first one with

Spain, already approved by Congress through Act 1082 dated July 31,

2006, but pending favorable decision by the Constitutional Court

about its constitutionality, and a second one with Chile, signed on

April 19, 2007 and already presented to the Congress for its

approval. Following the trend of constructing a treaty network,

Colombia and Switzerland signed a double taxation treaty ("the

Treaty") on October 26, 2007.

Although there are already three double taxation treaties

signed, none of them is already applicable, considering that in

order to be applicable in Colombia, any treaty (i) has to be

approved by the Congress; (ii) the Act issued by the Congress

containing the Treaty has to be sent to the Constitutional Court in

order to decide about its constitutionality; (iii) both governments

have to notify the other about the internal approval of the

treaty.

It is expected that the proceedings with regard to the treaty

with Spain will end in 2008, and thus the treaty would apply as

from taxable year 2009. In the case of the other two treaties it is

expected that Congress approve both during 2008, the Constitutional

Court will probably decide about their constitutionality during

2009 for the treaties to be applicable in 2010. In any case, the

applicability also depends on the proceedings in the other

contracting countries.

With respect to its content, the following aspects of the treaty

with Switzerland may be highlighted:

Treaty model. As in the case of the treaties

with Spain and Chile, the treaty with Switzerland is based on the

OCDE model. Nevertheless such treaties apply UNO model variations

(i.e. taxation on royalties), being the treaty with Chile the one

with more elements from the UNO model (i.e. permanent establishment

rules, transfer of stock, maintenance of article 14, etc.) while

the other two follow OCDE guidelines more strictly.

Taxes covered (Art. 2). The Treaty applies to

residents in both signing states and covers income tax and net

worth tax. From the Colombian perspective, income tax includes

complementary taxes (i.e., capital gain tax). From the Swiss

perspective, the Treaty covers all federal, communal and cantonal

taxes on income and net worth.

Permanent establishment (Art. 5). The Treaty

includes the concept of permanent establishment (PE), which is

alien to the Colombian tax regulations, except for the double

taxation treaties with Spain and Chile and some similar regulations

included in Andean Community Commission Decision 578 which contains

rules to avoid double taxation among member countries (Bolivia,

Colombia, Ecuador and Peru). For purposes of the Treaty, PE is

understood as "a fixed business place through which a company

carries out all or part of its activities". PE's

definition will be applicable only for purposes of the Treaty and

may not be applied to...