A. Tax-Free Re-organizations

Mergers and spin-offs, whether for acquisition (non-related entities involved) or reorganization (related entities involved) purposes, involving national and foreign entities are tax-free, as long as the acquiring or resulting entity is national. The transfer of assets between the merged or spun-off entities is not treated as a disposal and triggers, therefore, no income recognition for tax purposes.

The acquiring company will keep the fiscal cost of the assets registered by the transferring company, as well as their fixed or movable nature. Further, the useful life of the assets and their depreciation or amortization base may not be modified.

If the acquiring company transfers the assets within the 2 years following that in which the transfer took place, fiscal losses and excess of presumptive income over ordinary income may not be offset against the earnings so derived.

The consequence for the shareholders is also that it is deemed that no alienation of shares has occurred, and therefore no tax will be triggered, as long as all of the following requirements are met:

In the case of acquisition re-organizations, shareholders or partners holding at least 75% ) of the entities involved receive an equivalent participation and rights in the resulting company.
In the case of restructuring reorganizations, shareholders or partners holding at least 85% of the entities involved receive an equivalent participation and rights in the resulting company.
In the case of acquisition re-organizations, the equity participation received by shareholders may not be less than 90% of the consideration received by them for the transaction.
In the case of restructuring re-organizations, the equity participation received by shareholders may not be less than 99% of the consideration received by them for the transaction.
The cost of the shares or securities representing the capital in the former company will be kept as the cost base of the shares received.

If the shares so acquired by the shareholders are sold or assigned in any way within the 2 years following that in which the merger or spin-off took place, such transaction will be treated as a taxable transfer but the tax so determined will be added in a 30%. In addition, the tax may not be lower than 10% of the value attributed to the shares or securities in accordance with the valuation method applied for purposes of the merger or spin-off.

B. Mergers and Spin-offs between Foreign Entities Involving Transfer of Assets Located in Colombia

Such transaction would qualify as a taxable transfer falling under the general income tax rules.

If the total assets owned in Colombia by the group of companies taking part in the transaction do not exceed 20% of the total assets of the group to which the companies belong, per the consolidated balance sheet of the ultimate parent company, the transaction will not be deemed as an alienation and no tax will be triggered. The rules mentioned above with respect to acquisitive and restructuring mergers and spin-offs apply in this case as well.

C. Transfers of Assets

Contributions made to national companies

The contribution made to national companies in money or in kind will not give rise to taxable income for the receiving company and will not qualify as a taxable alienation for the contributor, provided that the following conditions are met:

The receiving company must issue new shares in exchange;
Assets transferred will keep the fiscal cost registered by the contributor at the moment of transfer as well as their nature as fixed or movable in the hands of the receiving company.
Shares or securities received will keep as fiscal cost the same cost of the assets transferred.
For the shareholder the tax will not be triggered until the shares are sold.

If the receiving company sells the fixed assets within the 2 years following that in which the transfer took place, fiscal losses and excess of presumptive income over ordinary income may not be offset against the earnings so derived

Bear in mind that, according with the Colombian tax authority’s opinion, for commercial purposes contributions can be made at a value greater than the fiscal cost of the assets. In this case, the difference between the fiscal cost and the value assigned to the contribution for commercial purposes is not be taxed. However, this difference between commercial accounting and tax accounting could imply that the contributing company would distribute taxed dividends (please see section 8.2.3)

Contributions made to foreign companies

The contribution made by national individuals, companies or entities to foreign companies or other entities in kind or industry will be subject to tax under the general rules.

In addition, those contributions will be subject to the transfer pricing regime and if the transaction involves intangibles, the reporting obligation under said regime must be fulfilled regardless of the amount contributed.

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