In a recent decision made public on November 16, 2023, the Full Chamber of the Colombian Constitutional Court has declared the paragraph 1 of Article 19 of Law 2277 of 2022, unconstitutional. This law, prevalent in the taxation sector, had stated that royalties derived from the exploitation of natural resources were non-deductible from income tax. The full judgement is elaborated in Judgement C-489 of 2023, an essential reference for corporate legal professionals and multinational firms operating in Colombia.
Until recently, companies exploiting natural resources in Colombia have been unable to deduct royalties from their income tax. This stipulation was determined by the paragraph 1 of Article 19 of the aforementioned law. This provision has had significant implications, particularly for the mining and oil sectors, which are major contributors to Colombia’s export earnings.
The Colombian Constitution, ever since its framing, emphasizes on promoting balanced development, environmental sustainability, and responsible exploitation of natural resources. However, this law had counterintuitively disincentivized these important industrial sectors, compelling multinationals to reconsider their ventures in the country. Unsurprisingly, this ruling comes as a significant development for entities involved in the extraction, processing, and selling of natural resources.
To learn more about this landmark decision and its impact on Colombian taxation law, legal professionals and business entities can refer to the full judgement detailed in Sentencia C-489 de 2023, available on the official Colombian judicial portal. Moreover, for an in-depth reading on the topic, please refer to the detailed analysis entitled ‘Inexequibilidad de prohibición de deducción de regalías del impuesto sobre la renta en Colombia’ by Holland & Knight LLP, a global law firm with expertise in tax law and cross-border transactions, which can be found here.