Colombian Wealth Tax Planning Opportunity Under the CAN Framework

By Catalina Jaramillo, Daniel Duque, and Andrés Hernández, Partners, and José Manuel García, Associate, Tax Practice, Brigard Urrutia

In brief:

In the increasingly complex arena of international taxation, one ruling by the Andean Court of Justice (TJCA) could significantly reshape how Colombia’s wealth tax (WT) applies to assets located in Bolivia, Ecuador, and Peru. For high-net-worth individuals and some investors, this interpretation offers both an opportunity and a cautionary roadmap for cross-border structuring within the Andean Community of Nations (CAN).

In today’s globalized economy, jurisdictions compete aggressively for the right to tax assets—debating not only how to tax, but also who has the primary authority to do so. The Colombian wealth tax—reintroduced by Congress in 2023 after several previous iterations—targets the worldwide net worth of tax resident’s individuals, regardless of asset location. This approach aligns with a regional trend driven by the digitalization and high mobility of financial assets, which now comprise a substantial portion of global wealth.

The taxable event is triggered by the possession of net assets as of January 1 each year, exceeding COP 3,585,528,000 (approximately USD 876,000). Rates range from 0.5% to 1.5%, depending on the net assets.

Historically, both individuals and corporations have responded to the WT by adopting complex corporate structures to re-domicile assets and optimize tax exposure. Nowadays the Colombian WT only applies to individual.

Colombia has addressed some of these scenarios through bilateral double taxation treaties (DTTs) with jurisdictions such as Spain, Mexico, and France. However, the position of CAN member states—Bolivia, Ecuador, and Peru—remained unclear.

This lack of clarity led to numerous disputes, as tax authorities claimed the right to tax and audit assets located in other CAN states that did not impose a wealth tax. A recent TJCA ruling has now brought greater certainty, making Colombia a more attractive environment for regional investment.

Key Takeaways from the TJCA ruling

• CAN Decision 578 applies to WT, regardless of its legal designation.
• Taxpayers are not required to prove payment or filing of the WT in their residence country (CAN) to avoid double taxation.
• There is no tax evasion when the source-country authority opts not to levy, enforce, or collect the tax; such inaction does not grant taxing rights to another CAN state.
• The purpose of Decision 578 is to prevent two CAN states from taxing the same wealth or income.
• Avoidance occurs only when the taxpayer consciously and deliberately fails to pay a tax owed to the CAN member state with exclusive taxing authority.

Example:
If State A has no authority to tax assets located in State B (the source country), that restriction applies even if State B does not levy or collect the tax.

Case Spotlight: TELCO v. DIAN

The Colombian tax authority (DIAN) challenged Telecommunication Company’s (TELCO) WT 2011 filing, alleging it excluded from the taxable base shares held in TELCO Perú. The Colombian Council of State (“CE”) upheld DIAN’s position, disregarding the TJCA’s interpretation. Under the new ruling, TELCO may now have grounds to seek a review.

Practical Recommendations for Affected Taxpayers

1. Engage specialized counsel early. If you reported CAN-based assets in your Colombian WT filing, assess whether an amendment could reduce liability. Under Colombian law, amendments that lower tax must be filed within one year.
2. Act promptly in ongoing disputes. Evaluate whether the TJCA’s interpretation strengthens your defense in cases involving potential CAN double taxation.
3. Shape the legal precedent. The CE has yet to apply this interpretation; early cases could define future jurisprudence.
4. Plan with foresight. If you or your company operates or holds assets in CAN jurisdictions, review whether restructuring can mitigate future WT exposure and avoid potential classification as tax evasion.

Looking Ahead

The TJCA’s decision marks a pivotal moment in the regional tax landscape. It reinforces the principle that taxing rights within CAN must respect jurisdictional boundaries, offering taxpayers both a shield against overreach and a framework for lawful structuring. For businesses and individuals alike, the challenge—and the opportunity—now lies in turning legal clarity into strategic advantage.

Article by:

Catalina Jaramillo ([email protected]), Daniel Duque ([email protected]) and Andrés Hernández ([email protected]), Partners, and José Manuel García ([email protected]), Associate, Tax Practice, Brigard Urrutia