Colombia Addresses Most Favoured Nation Clauses in Agreements to Avoid Double Taxation

March 19, 2020

The Colombian tax authority (DIAN) issued Concepto 3283, which addresses the most favoured nation clauses of double tax treaties signed by Colombia. It clarifies the impact of the tax treaty between Colombia and the UK on the most favoured nation clauses in the tax treaties between Colombia and other countries.

Colombia and the UK

The agreement to avoid double taxation signed between Colombia and the UK fulfilled the requirements demanded in the internal legal order, by means of a diplomatic note from the Colombian government of December 12, 2019, which is the date from which the agreement entered into force.

The treaty changed the income tax treatment applicable to certain services. Through the agreement is to avoid double taxation, Colombia no longer includes technical assistance, technical services and consultancy services under the definition of royalties, which may be taxed by the source state. Such income is now taxed under Article 7, which means the income is only taxable if attributed to a permanent establishment. However, under certain other Colombian tax treaties such income is treated as royalty income and subject to withholding tax. It is stated that the agreement to avoid double taxation between Colombia and the UK may change the applications of other agreements to avoid double taxation with a most favoured nation clause related to such services.

Colombia and other countries

In the second part of Concepto 3283, the effect of the most favoured nation clause in the agreements to avoid double taxation between Colombia and 7 other countries is explained. The DIAN describes that the most favoured nation clauses of the tax treaties with Canada, Czech Republic, Portugal and Mexico are affected. In addition, it is explained that the most favoured nation clauses of the tax treaties with Chile, Spain and Switzerland have not been affected.

Source: DIAN concept 3283

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