Income tax advance payment: reduced belatedly with Decree 766

Using the powers of Article 808 of the ET, the Government reduced to 25%, and even 0%, the value of the advance payment of income tax for the taxable year 2020 for several taxpayers of the ordinary regime affected by the current economic crisis generated by the COVID-19 pandemic.

In a rather late manner, and making use of the powers of Article 808 of the Tax Statute -ET-, the Ministry of Finance issued on May 29, 2020 its Decree 766 to amend Articles 1.6.1.1.13.2.11, 1.6.1.13.2.12 and 1.6.1.13.2.2.15 of DUT 1625 of 2016 (which currently contain the due dates for the income or income and wealth tax return for the taxable year 2019 of legal entities and individuals) and establish that a significant number of taxpayers of the ordinary regime (among legal entities and individuals) may calculate in a reduced form (with 0% or 25%) their advance payment of income tax for the taxable year 2020.

This measure, which seeks to alleviate the financial burden of only those who are engaged in the almost 30 economic activities mentioned in Decree 766 of 2020 (supposedly the most affected with the economic crisis generated with the COVID-19 pandemic), in reality, should have been taken before April 2020, since it was in that month when the taxpayers of the ordinary regime that were large taxpayers or legal entities were asked to make the mandatory payment of one installment of the “balance payable” of their income tax return for the taxable year 2019 (it was the second installment for large taxpayers and the first one for legal entities that are not large taxpayers.

In effect, and as we highlighted in a previous editorial, if the Government had taken the decision early to reduce the advance payment towards the taxable year 2020, many taxpayers’ income tax returns for the taxable year 2019 would no longer show “balances payable”, but even “balances in favor”; therefore, they would not have had to pay any amount either in February 2020 or in April 2020.

“many taxpayers who have not yet filed their income tax return for taxable year 2019 are going to have to recalculate the final “balances payable” or “balances in favor” of such return”

Therefore, now that the Government took this late decision, what will happen is that many taxpayers who have not yet filed their income tax return for the taxable year 2019 will have to recalculate the final “balances payable” or “balances in favor” of such return, and those who have a large final “balance in favor”, but who had already paid amounts in February or April 2020, will have to face the wear and tear of requesting the Dian to return the amounts they had already paid without being obliged to do so.

And if they do not want to face that wear and tear, they will prefer to opt for calculating their income tax advance payment with a higher percentage than the one allowed by Decree 766 of May 29, 2020, so that the return finally shows a “balance payable” that coincides with the amounts they had already paid.

Note that taxpayers belonging to economic sectors other than those mentioned in Decree 766 of 2020, and who can demonstrate that their income for the first 6 months of 2020 was also reduced in the terms mentioned in article 809 of the ET, will have to exhaust the procedure established in Dian Circular 0044 of June 2009, requesting directly to the tax administration that they also be granted a reduced calculation of the advance payment for the taxable year 2020.

Other cases in which it should not be required to calculate the advance payment of income for the 2020 taxable year

Although this time the Government only authorized by decree that some taxpayers may calculate in a reduced form their income tax advance for the taxable year 2020 (those who are considered the most affected with the economic crisis generated by the COVID-19 pandemic), it is clear that there are two other special cases in which the mandatory liquidation of such advance should not be required and it should rather be established that this should only be calculated on a voluntary basis. They are:

1. Individuals taxpayers under the ordinary regime.

The first of these cases, which we have already highlighted in previous editorials, is that of individuals (residents or non-residents) who remain in the ordinary income tax regime (because they cannot or do not want to transfer to the simple regime).
In fact, and according to the rules of articles 592 to 594-3 of the ET, such taxpayers, although they have been obliged to file income tax returns for the taxable year 2019, may not be obliged to file returns for the taxable year 2020 (since each year is examined independently and it is possible that just in the following year they do meet all the requirements to be exempted from filing income tax returns again).

In addition, it is possible that they are not interested (or cannot) voluntarily file their ordinary regime income tax return for the taxable year 2020, since the voluntary return of Article 6 of the ET is only allowed to those who in that following year are still alive (i.e., are still “natural persons” and have not become “illiquid successions”), are also still classified as “residents” and, additionally, have been subject to withholdings at the source for income or occasional gain.

In a case such as the above, it is clear that in order not to lose the value of this “advance payment for taxable year 2020”, the only thing the taxpayer can do is to face the wear and tear of requesting a refund, alleging that he/she made a payment of what is not due.

2. Legal entities and individuals who will be taxpayers of SIMPLE for the taxable year 2020

The second case is that of legal entities and individuals that until the end of the taxable year 2019 belonged to the ordinary income tax regime, but just during the year 2020 decide to transfer to the simple regime.

In a case like this, it is very easy to foresee that the high values for the concept of “advance payment of income tax for taxable year 2020” (which can be carried forward to the annual simple tax return for taxable year 2020) will end up causing a significant credit balance in the annual tax return for taxable year 2020 of the simple regime.

“This balance in favor, as long as you decide to continue belonging to the simple regime, cannot be requested as a refund, but can only be used to subtract it within the bimonthly forms of the mandatory advance payment”.

In addition, such balance in favor, while deciding to continue belonging to the simple regime, cannot be requested in refund, but can only be used to subtract it within the bimonthly forms of the mandatory advance payment of the following year or within the annual simple return of the following year (something that even the Dian is not allowing in the form 2593 of the taxable year 2020, thus violating the rule of numeral 2.3 of article 1.5.8.3.7 of DUT 1625 of 2016). The only way to request it in refund is if you decide to return to the ordinary regime (see article 1.6.1.1.21.28 of DUT 1625 of 2016).

Therefore, in the midst of an economic crisis like the current one, it does not make sense to require taxpayers who move to SIMPLE during 2020 to settle “income advances for the taxable year 2020” in their income tax return for the taxable year 2019 of the ordinary regime.

Source: Actualize