Recent DIAN ruling characterizes as passive income the profits obtained by Controlled Foreign Corporations (CFC’s) with subsidiaries located in Colombia

DIAN issued a ruling interpreting article 884 of the Colombian Tax Code using the minutes of the discussions held in Congress during the enactment of Law 1819 of 2016


By means of Revenue Ruling 1870 of 2017, DIAN analyzed whether the income obtained through two Controlled Foreign Corporations- CFC’s-, which in turn held participation rights in a subsidiary located in Colombia, was considered passive income attributable to Colombia for CFC purposes.

In accordance with the provisions of article 884 of the Tax Code, the income obtained by subsidiaries or permanent establishments of the CFC located in the same jurisdiction of the CFC is not considered as passive income.

On the contrary, according to DIAN, the income obtained by a Colombian tax resident through a CFC, which in turn has a subsidiary located in Colombia, is passive income since in that case the CFC and the Colombian entity are located in different jurisdictions.