Tax treaty between France and Colombia: where are we?

France has an extensive network of tax treaties in Latin America. However, Colombia is still a country with which France has no tax treaty.

A tax treaty was negotiated between both countries signed in 2015.

In France, ratification by the French Parliament was voted during the year 2016. Recently, the ratification procedure in Colombia has been relaunched and the tax treaty has completed the required debates before the Senate.

It is important to know that the procedure in Colombia to ratify a tax treaty is quite a long process: This procedure comprises four debates that must be fulfilled before the Senate and the House of Representatives. The first two debates are undertaken by the Senate and, afterwards, two more debates must be carried out before the Constitutional Commission and Plenary of the House of Representatives.

To date, there are still two more debates that must be undertaken by the House of Representatives. Once the law approving the tax treaty is enacted by the Colombian Congress, the President of Colombia will have to sign the law prior to its publication in the Official Gazette. Finally, the Constitutional Court will have to analyse whether the tax treaty complies with the Colombian Constitution followed by the exchange of diplomatic notes between the signatory countries before the DTA will enter into force.

All in all, and considering the recent timing, among others, of the procedure concerning the Colombia/UK tax treaty, and the natural delay in the legislative agenda produced by the sanitary emergency unleashed by COVID, it can reasonably be expected that the France/Colombia tax treaty could be in force in 2022. From a French perspective, this would remain an exceptionally long process between signature and entry into force of this long-awaited tax treaty.

Basically, the tax treaty brings benefits on withholding taxes applicable to dividends (reduced to 5% for a participation of at least 20%[1]), interest and royalties (10% instead of 20% under Colombian internal law). It is worth mentioning also that fees for technical services are not included in the royalty definition, meaning that they would be considered business profits, therefore no withholding tax would apply in Colombia, as a commitment to technical development for the country that has been lately adopted by the Colombian government in order to reduce costs in technology transfer services.

Notwithstanding, the treaty includes a services permanent establishment disposition aiming to tax the provision of services, including consultancy services, within the other State for more than 183 days during a 12 months period, if services are rendered through a Permanent Establishment in the other country.

The protocol sets forth complementing and clarifying dispositions regarding certain scenarios concerning dividends and interest, where it can be easily identified that in connection with the taxation of immovable property held indirectly through vehicles or companies, the source State domestic legislation will apply.

The main beneficiaries of the treaty implementation will undoubtedly be the trade relations and the investing activities that have been historically quite close between France and Colombia. If the regulatory procedures to incorporate the treaty are completed as soon as possible this will probably mean an improvement in the capital movements to Latin America and, in particular to Colombia.

[1] In the case of Colombian dividends, the 5% rate will only apply if in addition to the 20% participation interest, dividends are paid out of profits taxed at the corporate level.