The last Tax Bill approved by the Colombian Congress (Paragraph 1st. Section 19 Law 2277, 2022) disallowed the income tax deduction of any payments in cash or kind for royalties on the exploitation of non-renewable natural resources by mining and oil companies.

Decision C-489 2023 by the Colombian Constitutional Court concluded that Paragraph 1st. Section 19 Law 2277 of 2022 was unconstitutional, and consequently unenforceable, as the disallowance of the deduction for costs or expenses effectively incurred, derives in the taxation of non-existent profits, and consequently breaches the Equality Principle under the National Constitution.

The Colombian Government filed what is called a “Fiscal Impact Incident” before all the Magistrates in the Constitutional Court, whereby it pleaded that the loss in revenues resulting from the unconstitutionality declaration would generate serious alterations to the fiscal sustainability of the country.

The finance minister proposed four alternatives to reduce the impact of the unconstitutionality declaration: To defer its consequences as of January 1st.2024 or as of January 1st.2025,  to defer its consequences as of January 1st.2024 and recognize a tax credit in equal instalments during years 2024 to 2026, or to defer its consequences as of January 1st.2025 and recognize a tax credit in equal instalments during years 2024 to 2028.

The Constitutional Court ruled that the finance minister did not demonstrate the fiscal sustainability crisis the Government argued and that  the proposed alternatives breached the constitutional rights that the original Decision protected. Consequently, the unconstitutionality of any restriction to the deduction for royalties, remains in force.



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