The Constitutional Affairs Court, in a press conference on April 24, 2024    announced its decision to admit the request for Fiscal Impact Motion filed by the Ministry of Finance against the ruling that declared unconstitutional the non-deductibility of royalties paid by companies exploiting non-renewable resources introduced in the latest Colombian tax reform.

The first consequence of this decision is the suspension of the effects of Judgment C-489 of 2023 from the moment of its admission, which would reintroduce the non-deductibility rule into the legal system while The Constitutional Affairs Court reaches a decision on this matter.

The second important aspect is that the Court cannot modify the essence of the adopted ruling, meaning it cannot declare the norm constitutional again, as it applies the principle of res judicata.

Thirdly, a public hearing will be held around mid-May, where the Minister and the plaintiffs will be heard, and a decision can be expected in early June.

Fourthly, the government proposes four alternatives to comply with the effects of the judgment:

• Postpone the ruling until January 1, 2025, making royalties paid in 2023 and 2024 non-deductible.
• Postpone the ruling until January 1, 2025, making royalties paid in 2023 non-deductible.
• Postpone the ruling until January 1, 2025, granting a 25% tax discount for the tax years 2025 to 2028 to compensate the taxpayer for the economic impact endured.
• Postpone the ruling until January 1, 2024, granting a 33% tax discount for the tax years 2024 to 2026 to compensate the taxpayer for the economic impact endured.
• Lastly, the Court may choose not to adopt any of the alternatives proposed by the government, thereby denying what was requested in the incident, in which case royalties for 2023 and 2024 would be deductible.

It is necessary to mention that the effects of the judgment may vary for the treatment of royalties in the years 2023 and 2024 depending on each particular case and the final decision adopted by the Constitutional Court.

*Note: The above information is a quick overview of the Tax Service's ruling. Under no circumstances can this newsflash be considered as private advice.