COVID-19: Income tax advance payment reduction

If the 2020 income is decreasing, articles 808 to 810 of the ET and Dian Circular 044 of June 2009 contemplate the possibility that taxpayers who, at the close of 2019 were in the ordinary regime, may decrease their advance payment to the taxable year 2020 tax.

These days, the vast majority of taxpayers of the ordinary regime (whether individuals or legal entities) are facing a serious decrease in their operating income due to the mandatory quarantine from March 25 to April 13, 2020, ordered by Decree 457 of March 2020, to address the problems caused by the expansion of COVID-19.

In view of the above, it is important to highlight that, at the time of liquidating the amounts payable for income tax of the ordinary regime for the taxable year 2019 (both in form 110 and 210), taxpayers may apply the provisions of articles 808 to 810 of the ET, with a view to reduce the advance payment to income tax of the ordinary regime for the taxable year 2020. Said rules (which must be studied in conjunction with the provisions of Dian Circular 044 of June 1, 2009) establish the following:

“Article 808. Power to reduce the advance payment in general. The National Government may authorize reductions of the advance payment of the tax, when in a taxable year causes beyond the taxpayers’ control make it reasonable to foresee a general decrease in the income from a certain economic activity.

Article 809. Authorization of the reduction in individual cases. At the request of the taxpayer, the respective National Tax Administrator or his delegates, shall authorize by means of resolutions of a special nature, proportional reductions of the advance payment of the tax in the following cases:

a. When in the first three (3) months of the taxable year or period to which the advance payment corresponds, the income of the taxpayer has been less than fifteen percent (15%) of the income corresponding to the immediately preceding taxable year or period;

b. When in the first six (6) months of the year or taxable period to which the advance payment corresponds, the income of the taxpayer has been less than twenty-five percent (25%) of the income corresponding to the immediately preceding year or taxable period.

In case the request is favorably resolved, the resolution shall fix the amount of the advance payment to be paid by the taxpayer and its method of payment.

The mere presentation of the request for reduction, which shall be accompanied by all the evidence necessary for its resolution, shall not suspend the obligation to pay the totality of the advance payment. Article 810. Time limit for deciding on the request for reduction. The requests submitted in accordance with the requirements of the preceding article must be resolved within two (2) months from the date of submission. No appeal shall be allowed against the ruling that resolves the request.

If the request is not resolved within said term, the taxpayer may apply the proposed reduction, but the advance payment may in no case be less than twenty five percent (25%) of the income tax and the complementary wealth tax of the respective taxable year”.

“The ideal would be that the national government itself applies the provisions of article 808 of the ET and establishes that the great majority of taxpayers may liquidate their advance payment in a reduced form for the taxable year 2020”.

As can be seen, ideally, the national government itself should apply the provisions of Article 808 of the ET and establish that the vast majority of taxpayers can liquidate their advance payment in a reduced form for the taxable year 2020. And if that does not happen, then the taxpayers who have seen their income decreased in the first three months of 2020 would have to file with the Dian the requests for authorization to reduce the aforementioned advance payment (something that is complicated if by these days the Dian resolutions 000022 of March 18, 2020and 000030 of March 29, 2020 have just ordered to send many of the Dian officials to their homes).

Therefore, it is urgent that the national Government (Ministry of Finance), or the Dian itself, issue some instruction on this issue, since the income tax returns of legal entities of the ordinary regime start to expire as of April 21, 2020(see articles 1.6.1.1.13.2.11 and 1.6.1.13.2.12 of DUT 1625 of October 2016, after being amended with Decree 435 of March 19, 2020).

Special cases in which taxpayers under the ordinary regime should not be obliged to liquidate advance payment.

In relation to this issue, there are special cases in which taxpayers of the ordinary regime should not be obliged to liquidate the advance payment to income tax (in this case, for the taxable year 2020). Such cases include:

a. Individuals (resident or not) who are obliged to file a tax return for the taxable year 2019, but who have a high probability of not being obliged to file a tax return for the taxable year 2020 (since what made them obliged to file a tax return for the taxable year 2019 was only an extraordinary income, such as the sale of an asset, or having won a lottery or having received an inheritance). If these persons are obliged to liquidate advance payment for 2020 and then they are not obliged to declare for that year, then they would have to resort to the process of requesting the refund of the payment of what is not due and thus avoid losing that money (see article 1.6.1.1.21.27 of DUT 1625 of 2016).

b. Some taxpayers, at the end of 2019, belong to the ordinary regime and, therefore, they are required to liquidate income advance payment for 2020. However, they are taxpayers that just in 2020 decide to transfer to the simple regime (decision that they have a deadline to make until July 2020; see article 909 of the ET). Therefore, although numeral 5.2 of article 1.5.8.3.11 of DUT 1625 of 2016 does allow them to carry forward that advance payment to the SIMPLE return, it is clear that such carry forward will cause them large credit balances in their annual SIMPLE return for the taxable year 2020, which does not make sense in the midst of a year of economic recession caused by the COVID-19 pandemic.

This, therefore, should also be urgently considered by the national government in a special regulation that it can issue using the legislative powers granted to it by the declaration of national emergency.

Source: Actualícese