Colombia Finally Negotiating Double Taxation Conventions

By Jean-Pierre Lenaerts and Publio Perilla Lozano

Although it is recognized that the absence of double-taxation treaties is clearly, by inference, an obstacle to international business, and that the presence or absence of a tax treaty is often a factor in international business and investment location decisions, Colombia is the only major Latin American country without a double-taxation treaty. One could take into account the Decision N° 40 of the Andean Pact but the benefit of this double-taxation agreement between the members of the Andean Pact is clearly limited and cannot be compared to the OECD Model Conventions.

However, among emerging market countries the treaty network is expanding rapidly, and as a result of this tendency, the Colombian authorities have now decided to start negotiating double-taxation conventions with some of Colombia’s major trade partners.

In this respect, on the occasion of the visit last week of President Pastrana to Canada, Colombia and Canada signed a letter of intent ("acta de intención") for the signing of a double taxation treaty by both countries.

Given the fact that the treaty with Canada would be the first OECD Model tax treaty concluded by Colombia, it now has to analyze the tax cost impact of entering into this type of double taxation treaty. Also, the Colombian Council for Social and Economical Policy (Conpes) is now in a process of determining guidelines with respect to the country´s internal policy in matters of double taxation. In this regard, the local tax Administration will have in particular to reconcile the Colombian principles of taxation provided in the tax law such as the principle of territoriality with the general principles provided in the OECD Model Convention in an attempt to calculate the tax cost of entering into a double taxation treaty and to determine parameters for negotiating with the partner country.

Given that major Latin American trading partners and competitors such as Venezuela and Mexico have now an expanded treaty network, it seems that Colombia has finally decided to start actively negotiating double taxation treaties. Talks with countries other than Canada have also been initiated. It is obvious that with the entering into force of the American Free Trade Association ("AFTA") by 2005 Colombia must be competitive at the Regional level which includes the availability of a treaty network for foreign investors keen to invest in Colombia.