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Colombia-Canada-Czech Rep-Mexico-Portugal

3 March 2020

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Colombia Clarifies Impact of Tax Treaty with the UK on MFN Clauses in Tax Treaties with Canada, Czech Republic, Mexico, and Portugal

The Colombian tax authority (DIAN) has issued Concepto 3283 of 17 February 2020, which clarifies the impact of the 2016 income and capital tax treaty with the UK in triggering the MFN clauses of certain other Colombian tax treaties. The 2016 Colombia-UK tax treaty entered into force on 13 December 2019 and applies from 1 January 2020 for withholding tax purposes.

The main issue clarified is with respect to the treatment of income from the furnishing of technical assistance, technical services, or consultancy services. Under the tax treaty with the UK, such income is taxed under Article 7 (Business Profits), meaning the income is generally only taxable if attributed to a permanent establishment.  

Under certain other Colombian tax treaties, however, such income is treated as royalty income and subject to withholding tax. Some of these treaties also include an MFN clause, which provides that if Colombia enters into an agreement providing for more favorable treatment of income from the furnishing of technical assistance, technical services, or consultancy services, then such treatment will apply under the respective treaty.

Concepto 3283 provides that the MFN clauses of the treaties triggered by the entry into force and effect of the Colombia-UK tax treaty include the 2008 treaty with Canada, the 2012 treaty with the Czech Republic, and the 2010 treaty with Portugal. As such, income from the furnishing of technical assistance, technical services, or consultancy services no longer falls under the scope of the royalties articles of these treaties but rather the business profits articles. The MFN clause in the 2009 tax treaty with Mexico has also been triggered, but just in respect of technical assistance and technical services (consulting services continue to be treated as royalties). The MFN clauses are triggered with effect from 1 January 2020.

Other Colombian tax treaties contain related MFN clauses but have not been triggered because the clauses only concern a lower withholding tax rate, which is not provided in the Colombia-UK treaty. These include the 2007 treaty with Chile, the 2005 treaty with Spain, and the 2007 treaty with Switzerland.

Click the following link for a copy of Concepto 3283 published by a third party.

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