Tax accounting implications of new Colombian tax legislation

| February 2013


In December 2012, Colombia enacted legislation that reduced, effective January 1, 2013, the regular corporate income tax rate and introduced a new 'equality tax' (CREE is the Spanish acronym), which functions in addition to the regular income tax. The regular corporate income tax rate decreased from 33% in 2012 to 25% in 2013. The rate for the new CREE tax was set at 9% (which is scheduled to reduce to 8% in 2016 and thereafter).

The newly enacted Colombian tax raises tax accounting questions including: where the new CREE tax expense should be reported in income (i.e., above-the-line or below-the-line), impacts of the non-deductible above-the-line component, how to appropriately determine deferred tax assets and liabilities under the CREE regime, and uncertain tax position analysis.

Organizations with operations in Colombia will need to determine the tax accounting implications of the new legislation for their financial statements that include the date of enactment or substantive enactment, which was December 26, 2012. In doing so, it is anticipated that organizations may need to remeasure deferred tax balances, reassess realizability of certain deferred tax assets, and consider the impact on their effective tax rate.

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