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Colombia, Italy Sign New Double Tax Pact

by Mike Godfrey, Tax-News.com, Washington

01 February 2018


Colombia and Italy signed a double tax agreement on January 26, 2018, which provides for lower withholding tax rates on cross-border payments of dividends, interest, and royalties income.

Colombia's Finance Minister, Mauricio Cárdenas, said: "This agreement is in line with those we have already signed with France and the United Kingdom and seeks to facilitate operations for investors from both countries."

The Colombian Government reported that the tax agreement caps withholding tax at five percent providing the entity receiving the dividend income is a pension fund or a company and owns more than 20 percent of the capital of the company distributing the dividends. Otherwise withholding tax will be capped at 15 percent. Withholding tax on interest will be capped at five percent for pension funds or state-owned companies or 10 percent.

The Government added that there is a clause regarding capital gains tax in respect of immovable property and 10 percent shareholdings, described in a similar manner by the Government to relevant provisions in the UK DTA. The UK deal in this respect states:

    Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 and situated in the other Contracting State may be taxed in that other State.

    Gains derived by a resident of a Contracting State from the alienation of shares, other than shares in which there is substantial and regular trading on a Recognized Stock Exchange, or comparable interests, deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.

Separately but in the same capital gains tax article, it says:

    In addition, gains derived by a resident of a Contracting State from the alienation of shares or other rights representing the capital of a company that is a resident of the other Contracting State may be taxed in that other Contracting State where the resident of the first mentioned Contracting State owned, at any time within the twelve-month period preceding the alienation, 10 percent or more of the capital of that company, but the tax so charged shall not exceed 10 percent of the net amount of such gains.

Based on the Colombian Government's explanation of the Italian double tax deal's provisions, the Colombia-Italy deal can be expected to feature the same or largely similar wording.

The UK-Colombia deal in respect of the final paragraph includes the following proviso:

    However, this paragraph does not apply to gains derived from the alienation or exchange of shares in the framework of a tax-free reorganization of a company, a merger, a division, or a similar operation.

Concluding, the Colombian Government said the agreement includes a series of provisions aimed at combating tax evasion and avoidance, as well as commitments to exchange information between the competent authorities of the two countries.

TAGS: Finance | tax | interest | royalties | Colombia | tax rates | withholding tax | Italy | dividends | Other

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