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Tax returns must be filed on a calendar-year basis. Companies and individuals are required to use the calendar year ending 31 December as their financial year.
Returns and Assessments
Returns for Legal Entities
All taxable companies, other than nonresident companies not domiciled in Colombia and whose entire Colombian-source income is subject to withholding taxes, must file corporate income tax returns for the tax year. The filing of a bimonthly value added tax return may also be required (see 13.02), and monthly returns are required for taxpayers responsible for withholding any of a number of taxes at source.
Income tax returns have to be filed between March and July of the year following the tax year. The due dates are determined every year by the tax authorities and differ depending on whether the tax authorities classify the company as a large taxpayer. The precise due date is based on the taxpayer's tax identification number.
Returns for Individuals
Colombian citizens and foreign nationals must file income tax returns for the tax year between March and July of the year following the tax year. However, nonresidents (such as those who stay fewer than six months in Colombia), residents whose income is 80% or more derived from employment, and residents whose annual income does not exceed the minimum taxable income in accordance with the progressive rate table are not responsible for filing income tax returns. Instead, these individuals are subject to a final withholding tax on their income.
A tax audit is an examination of a tax return made by the Tax and Customs Administration. Using the taxpayers' tax identification numbers, the administration's computer system checks all returns filed to verify their mathematical accuracy. In addition, some taxpayers are selected for a more detailed audit.
Every year the tax authorities freely determine different aspects that will be emphasized in their audits for the tax year. The tax authorities give written notification to the taxpayers that are to be visited.
Once a return is selected for examination, an agent will contact the taxpayer to establish a date and time for the examination to begin. The agent has total discretion as to the items to be examined and what may constitute acceptable documentation to prove the return's accuracy. The agent's findings are presumed to be correct. To appeal an agent's findings, the taxpayer must demonstrate that the agent was incorrect in his or her conclusions.
A tax audit may cover returns of all taxes, including income tax, value added tax, and withholding taxes. The results of tax examinations are made known to the taxpayer, and, depending on the findings, the return may be amended.
Taxpayers are required to keep tax records for up to five years from the date on which the return was filed or was due. If the taxpayer is a merchant or carries out commercial activities, accounting records must be kept for ten years. These recordkeeping requirements should be complied with, as they will allow the taxpayer to better assist the tax authorities in the event of an audit.
A two-year statute of limitations that runs from the date a return is filed exists for the Colombian tax authorities to assess additional tax liability or to request an amendment to the return. The taxpayer generally has two years to file a claim for refund if the original return was erroneous and tax was overpaid. This two-year period applies from the return's filing date. Returns will not be subject to audit or amendments after this period of time has elapsed.
Payment of Tax
Tax payments differ depending on the type of tax. In the case of value added tax and withholding tax returns, the tax must be paid in one sum on the due date of the tax return.
Income tax payments differ depending on the taxpayer. Companies and individuals not classified as large taxpayers must pay the total income tax due on the return's filing due date.
Companies classified as large taxpayers must make payments in five installments throughout the year. Three-fourths of the total tax due for the previous tax year must be prepaid in the installments. For example, the first installment for the 1997 tax due should be added to the first prepayment for the 1998 estimated tax due.
Interest, set at rates established by the tax authorities, is assessed on late tax payments (see 11.06).
Disputes and Appeals
If, on the basis of an examination of a return, the Tax and Customs Administration presumes inaccuracy, it can send a notice to the taxpayer assessing additional taxes and requesting that the taxpayer file an amended return. If a taxpayer agrees with the assessment and decides to amend the return, the taxpayer must pay a penalty, as described at 11.06. If the taxpayer disagrees with the tax authorities' assessment, the assessment can be appealed.
The administration must send its amendment request within a two-year period after the original tax return's filing date. If the taxpayer refuses to comply with the amendment request, the administration will liquidate the tax due within six months of the running of the two-year statute of limitations.
If the taxpayer and the Tax and Customs Administration are not able to resolve the dispute, the taxpayer may appeal the case to the administrative tax courts and to the Administrative Supreme Court.
The Colombian tax authorities are empowered to assess penalties against taxpayers.
If a taxpayer does not file an income tax return, a 20% penalty over the gross income of the last tax year will be imposed. A 10% penalty is imposed over gross revenues if the taxpayer fails to file a value added tax or withholding tax return.
For late tax filings, a penalty of 5% per month on the total amount of tax due up to a maximum of 100% will be assessed. If no tax is due, the penalty is 0.5% of gross income, not to exceed the balance in favor of the taxpayer or an established amount determined by the Tax and Customs Administration.
The tax authorities may also impose a penalty on a taxpayer when the taxpayer amends a return. The percentage of the penalty depends on when the amendment is filed. A 10% penalty will be levied over the highest value to be paid or the lowest balance in favor of the taxpayer, provided that the amendment is made before the Tax and Customs Administration issues a notice. A penalty of 20% will be imposed after a notice is issued.
Whenever the Tax and Customs Administration finds inaccuracies in the taxpayer's returns, it will issue an official liquidation of the tax to be paid. The penalty for inaccuracies will be 160% of the difference between the amount declared by the taxpayer and the amount determined by the tax authorities in the official liquidation.
If a penalty is imposed, interest will be imposed on the amounts not paid or not declared. The administration establishes the interest rate to be applied every year. The applicable rate for 1997 was 37.32%.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information contact Mario Andrade, Deloitte & Touche, Santafe de Bogota, Colombia on Tel: +57 1 256 1548, Fax: +57 1 256 1557
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