understanding regulations in the colombian mining industry diego casas- tax partner ricardo ruiz...
TRANSCRIPT
Understanding Regulations in the Colombian Mining Industry
Diego Casas- Tax PartnerRicardo Ruiz (LL.M)- Tax Manager
17 June 2010
Understanding Regulations in the Colombian Mining IndustryPage 2
Objectives
Colombian regulations applicable to mining industry with regard to the following aspects:
1. Taxation at a glance
2. Structuring and financing Colombian operations
3. Legal Stability Agreements
Understanding Regulations in the Colombian Mining IndustryPage 3
1. Taxation at a glance: Income tax
At a glance Detail
Income tax &
Capital gains tax rate
FY 2010: 33%
Free trade zones: 15%
Amortization Technical units of production / straight line
Other investment: Any method
Unsuccessful investment – Accelerated
Depreciation Straight line / declining balance
Additional 25% quota for every extra 8 hours
Obsolete or impaired tangible assets: AcceleratedSpecial deductions (in addition to normal depreciation or amortization)
Capital allowance (productive fixed assets): 30%
Research & Development: 125%
Non mandatory environmental investments: 100%
Tax attributes:
1. NOLs carry-back2. NOLs carry-forward
3. Excess of presumptive income
1. N/A2. No time or amount limitation from 2007*
3. 5 years (No value limitation)*
*Adjustable each year under a tax index
Understanding Regulations in the Colombian Mining IndustryPage 4
1. Taxation at a glance: Other matters
At a glance Detail
Remittance tax Eliminated from 2007
Treaties to avoid double taxation Andean Pact: Ecuador, Peru & BoliviaSpain and Chile: in force
Canada*, Switzerland and Mexico: Signed but not in force
*Expected to be in force in fiscal year 2012.
Transfer pricing (OECD model) Applicable with foreign related parties (including branches with home offices)
Royalties Variable depending of metal/ mineral: 1% to 12%. Deductible.
Lease fee (model concession agreement)
Progressive depending on time holding of the exploration areas: 1 to 1.5 monthly legal wage per hectare (USD $255 to USD $375). Deductible
Understanding Regulations in the Colombian Mining IndustryPage 5
1. Taxation at a glance: Sales tax (VAT)
At a glance Detail
Rate General rate 16%
Taxable events•Sale of movable tangible goods in Colombia
•Import of movable goods.
•Services rendered in Colombia*
(*) Included certain services rendered abroad with benefit in Colombia (i.e. License, consulting, advisory –
including technical assistance- and audit)
VAT Credit If a VAT taxable events is related
VAT refund If an exempted VAT event is related
Not creditable VAT It results on higher value of the cost or expense for income tax purposes
Understanding Regulations in the Colombian Mining IndustryPage 6
2. Structuring and financing Colombian Operations: Subsidiary vs. branch
Foreign Investor
Subsidiary
Foreign Investor
Branch
No tax
1) Premise: Dividends are not taxed to the extent all profits are taxed at corporate level
2) Consequence on subsidiaries: Tax planning, exemptions or special deductions often generates NO real tax savings, just deferral. Exceptions: 30% capital allowance and exemptions under a tax Treaty
3) Consequence on branches: Tax planning always generate tax savings
Deferral
33% 33%
Understanding Regulations in the Colombian Mining IndustryPage 7
Operating Company
ColombianHolding
ColombianHolding
Description:
Sale of shares will not generate capital gain in Colombia at 33%
CanadianInvestor
OperatingCompany
ForeignHolding
CanadianInvestor
2. Structuring and financing Colombian Operations: Direct vs indirect acquisitions
1)
2)
21ForeignHolding 1
CanadianInvestor
ForeignHolding 2
OperatingCompany
Sale of shares will generate capital gain in Colombia at 33%
3)Sale of shares will not generate taxable capital gain in Colombia or Canada
3
Understanding Regulations in the Colombian Mining IndustryPage 8
MiningOperatingCompany
ForeignBank
Description:
Funding allowed by Exchange Law. Applicable to subsidiaries and branches under general Exchange Law Regime
If loan is devoted to mining activities no WHT on interest payments
Deductibility of interest payments
Funding not allowed by Exchange Law, except international Leasing
In this structure local funding should be requested by the MOC to achieve deduction. If made by the Holding would be non deductible
ForeignInvestor
MiningOperatingCompany
ColHolding
Foreign Investor
2. Structuring and financing Colombian Operations: Debt Funding
12
22)
1)
Understanding Regulations in the Colombian Mining IndustryPage 9
Non taxable for share holders provided profits are subject to taxation at corporate level. otherwise 33% WHT.
Taxable
Beneficiario efectivo
Exemption Tax Credit
Non taxable for share holders provided profits are subject to taxation at corporate level. otherwise 33% WHT.
Non taxable for share holders provided profits are subject to taxation at corporate level. otherwise 33% WHT
Exemption
Non taxable for share holders provided profits are subject to taxation at corporate level. otherwise 15% WHT. Note: Once Canada-Colombia treaty in force, dividens paid out of active business income should not be subject to tax in Canada
2. Structuring and financing Colombian Operations: Dividend repatriation under treaties
Understanding Regulations in the Colombian Mining IndustryPage 10
Assured Standard PremiumApplicants
• Local or foreign investors, individuals or legal entities
• Consortiums
• Transcription of standards or their linking interpretations
• Demonstrate its relationship with decision to invest
• 1% of investment value
• 0.5% during unproductive period
Termination
Investment Project
• New investments or increase of existing projects (approx. US$ 1.8MM)
• May cover the investor’s total activity or only the marginal cost
Obligation to sign
• Not mandatory to sign, if agreement terms are not satisfactory
• No fines or other adverse consequences, if not signed
Activities not included
• Nullity or unenforceability of standards or interpretations
Standards not covered
Stability Other
Precedent
• 48 contracts signed• 14 contracts approved• 20 years period has been
granted• Many covers the entire
activities of the companies
Scope
• Law 963 of 2005• Market regulations• Rules issued by the Central
Bank• Environmental standards
• Social security Reg. • Taxes and mandatory
investments in states of emergency
• Indirect taxes• Financial sector regulations• Public service tariffs
3. Legal Stability Agreements
Understanding Regulations in the Colombian Mining IndustryPage 11
E&Y Contacts
In Colombia
Luz Jaramillo; Country Managing Partner, 57 1 4847230
Gustavo Pardo, Tax Managing Partner, 57 1 4847130
Diego Casas; Tax Partner, 57 1 4847050
Ricardo Ruiz; Tax Manager, 57 1 4847537