Taxes - February 2016

1. TAX AUTHORITIES RULINGS

   1. Ruling 0078 of 2016: Application of the 25% labor income exemption on the computation of the minimum withholding tax on wages

   In decision C-492 2015, the Constitutional Court held that the 25% labor income exemption established by Article 206 (10) of the Tax Code also applies to the computation of the income tax under the alternate, so-called IMAN and IMAS methods.

   In this context, DIAN was consulted about the scope of this decision of the Constitutional Court of Colombia, in regard to the following:

   (i) What is the scope of the expression "first phrase" contained in Decision C-492 of 2015?

   (ii) Does the limit of 240 monthly UVTs set by Article 206 (10) of the Tax Code applies to the computation of the 25% exemption under the IMAN and IMAS methods?

   (iii) Does the 25% labor income exemption applies also to the computation of the minimum withholding tax provided in Article 384 of the Tax Code?

   DIAN replied to these questions in the following way:

   (i) Scope of Decision C-492, and application of the 240 UVT cap to IMAN and IMAS

   For DIAN, by using the expression "first phrase", the Constitutional Court sought to indicate that the computation of the 25% exempt income for both IMAN and IMAS purposes is not governed by the procedure established in the second phrase of Article 206 (10) of the Colombian Tax Code. This is so given that said procedure includes the deduction of items that are contrary to the nature and purpose of the mentioned IMAN and IMAS systems.

   On the other hand, DIAN believes that the expression "first phrase" that the Constitutional Court used covers both the exempt income percentage (25%) and the limit of 240 monthly UVT. In this manner, as taxpayers apply the mentioned exemption under IMAN and IMAS, the actual exempt amount may not exceed 240 UVT per month.

   (ii) Application of the 25% exemption to the computation of the minimum withholding tax amount

   In this regard, DIAN believes that Decision C-492 of 2015 must be interpreted restrictively. Therefore, this decision may only be applied with respect to the computation of income tax under both IMAN and IMAS; thus it is not valid to extend its reach to aspects that were not treated expressly in the exemption rule (such as the minimum withholding tax amount issue).

   In this manner, for DIAN the 25% exemption does not apply to the determination of the minimum withholding tax base regulated by Article 384 of the Tax Code. We at the Firm believe that this...