DIAN REVENUE RULING
DIAN confirms the tax effects in Colombia of mergers and spin-off’s between foreign entities
The transfer of assets located in Colombia between foreign entities, as a result of spin-off’s or merger processes, could be tax-free provided certain conditions are met.
In its Revenue Ruling No. 2242 of January 30th, 2017, the Colombian Tax Authority –DIAN- confirmed its interpretation regarding the tax effects in Colombia of spin-off’s or merger between foreign entities.
As a general rule, the transfer of assets in Colombia between foreign entities, as a result of spin-off’s or merger processes is treated as a sale of assets for Colombian tax purposes and therefore, is subject to income or capital gains tax.
However, as an exception to this general rule, if the assets held in the country by the entities involved in the spin-off or merger process do not represent more than 20% of the total assets of the business group to which these entities belong, then the corresponding transfer of assets is not considered to be a sale for tax effects and the operation would not be subject to taxation.
DIAN emphasizes that the measure of the 20% of the assets should be calculated based on the total assets held by the business group in Colombia, and not just on the assets that are being transferred by the spin-off or merger process.
