Special regime entities: deduction of expenses for any type of national or territorial taxation

Entities under the special regime may deduct expenses for any type of national or territorial tax, in accordance with article 1.2.1.1.5.1.21 of DUT 1625 of 2016, after being modified with Decree 2150 of 2017 and ratified by the answer to question 4.47 of Unified Concept 481 of 2018.

Non-profit foundations, corporations and associations, as well as the other entities mentioned in Article 19 of the Tax Statute -ET-, when they are duly qualified as belonging to the special tax regime, must calculate their tax surplus or loss by applying the special purification that was established from Articles 1.2.1.1.5.1.1.20 to 1.2.1.1.5.1.1.26 of DUT 1625 of October 2016, after being modified with Article 2 of Decree 2150 of December 20, 2017.

In this regard, and in relation to the expenses or deductions that can be fiscally included in their income tax return, it is important to highlight what was provided in the second subsection of article 1.2.1.1.5.1.21 of DUT 1625 of 2016. Said rule reads as follows:

“Article 1.2.2.1.1.5.1.1.21. Expenses. The concept of expenditure for the taxpayers referred to in Article 1.2.1.1.5.1.1.2. of this decree includes the costs and expenses accrued for accounting purposes in the taxable year or period, applying the limitations, exceptions referred to in Title I of Book One of the Tax Statute and other requirements and conditions provided therein.

Exceptions to the above are the limitations related to taxes paid in the development of the entity’s meritorious activity.

When expenses accrued for the development of the meritorious activity are incurred, these shall be deductible without necessarily being associated to the realization of an income. The above, without prejudice to the aforementioned limitations and exceptions.

The execution of net profits or surpluses from previous years does not constitute an expense of the fiscal year”.

As can be seen, although the first paragraph indicates that accounting expenses must be subject to the limitations and exceptions of Title I of Book I of the ET in order to be treated as deductible (limitations that establish, for example, that interest expenses exceeding the undercapitalization rule of Article 118-1 of the ET cannot be deducted for tax purposes), or that interest expenses exceeding the undercapitalization rule of Article 118-1 of the ET cannot be deducted for tax purposes, or that costs and expenses with persons of the simplified VAT regime who have not been requested proof of their registration in the RUT as indicated in article 177-2 of the ET cannot be deducted), it happens that the second paragraph establishes that the limitations that the ET imposes on the deductibility of expenses for taxes or duties (see article 115 of the ET) are exempted from this rule.

“It must be understood that the entities of the special regime of article 19 of the ET can deduct all the expenses for taxes (national and territorial) in which they have had to incur” (Article 115 of the ET).

According to the above, it must be understood that the entities of the special regime of article 19 of the ET can deduct all the expenses for taxes (national and territorial) that they have had to incur for the development of their meritorious activities and not only the few taxes that are nowadays mentioned in article 115 of the ET (among them the expense for industry and commerce tax and its complementary of notices and boards, or the property tax).

The above was even supported by the Dian itself in the answer to question 4.47 of the Unified Concept 481 of April 27, 2018, which resolved multiple questions related to the changes that Law 1819 of 2016 and its regulatory decree 2150 of December 20, 2017 made to the income tax of the entities of the special tax regime and to the entities not taxpayers of income tax. In such response the Dian indicated the following:

“4.47 What is the tax treatment of the disbursements related to taxes, penalties, fines and default interest paid by the entity of the Special Tax Regime in development of its meritorious activity?

Article 1.2.1.1.5.1.1.21. of Decree 1625 of 2016, specifies that the disbursements related to taxes paid in the development of the meritorious activity of the entity are exempted from the limitations of Title I of Book One of the First Book of the Tax Statute.

At this point, it is important to specify the scope of the term tax, which according to the jurisprudence of the Constitutional Court in judgment C-621 of 2013 ‘[…] is a genus that contains different species, and although the Constitution does not have a univocal terminology, from the terms enshrined in Article 338 of the Constitution, the jurisprudence of this court has concluded that taxes can be of three kinds: taxes, fees and contributions.

Thus, taxes, fees and contributions paid by the entities of the Special Tax Regime are exempted from the limitations of Title I of Book One of the Tax Statute. This situation not only covers the development of meritorious activities, but also the complementary ones, since both generate income that after subtracting the expenses, will be reinvested in the meritorious activity.

In line with the above, it is necessary to distinguish two situations: (i) the payment to which the entity is obliged in the development of its meritorious activity and complementary activities and (ii) those that are assumed on behalf of third parties.

This office interprets that the exception to the referred limitation only covers the first event, that is, the payments to which the entity is obliged in the development of its activities, since the assumption of expenses on behalf of third parties does not conform to the aforementioned assumptions, nor to Article 1.2.1.1.5.1.1.21. of Decree 1625 of 2016.

As can be seen, and according to the answer given by the Dian, all taxes, fees and contributions that the entities of the special regime of article 19 of the ET must pay for the development of their meritorious activities (but not including the values paid for fines, penalties and interests nor taxes paid when executing public works contracts), may be subtracted as tax expenditures in the determination of the tax surplus.

Source: Actualícese