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BOOK-TAX CONFORMITY FOR INCOME TAX PURPOSES USING IFRS AS A STARTING POINT

The recognition of income, costs and expenses as well as the determination of the value of assets and liabilities shall be made under IFRS

  

As of January 1st 2017, assets, liabilities, income, costs and expenses of corporate taxpayers and of individuals that are required to keep accounting records, will be recognized in accordance with IFRS.

The new law includes some exceptions to the general rule of realization under IFRS for the tax recognition of income, costs and expenses.

Such exceptions would generate temporary differences in tax accounting since their tax recognition would be made in accordance with the specific rules indicated by the new regulation, and not according to financial accounting.

In terms of income, the realization principle under IFRS will be subject to exceptions on such topics as: income accrued from dividends, sale of real estate, financial transactions that generate income from implicit interests, application of the equity method accounting technique, measurement at fair value with changes in net income, reversals of provisions associated with non-tax deductible liabilities, reversals of the accumulated impairment of assets, and income that, in accordance with IFRS, shall be recorded in the other comprehensive income (OCI).

Income, costs and expenses included in the OCI account shall be recognized for income tax purposes if an item listed in OCI becomes a realized gain or loss, being shifted out of OCI and into net income or loss, and when they are reclassified in the OCI against an element of equity.

In terms of costs, the realization principle under IFRS will be subject to exceptions on such topics as: costs generated by losses due to impairment of the partial value of the inventory due to adjustments to net realizable value, acquisitions that generate implicit interests, fair value measurements with changes in net income, provisions associated with obligations of uncertain amount or date, labor liabilities where the labor obligation is not yet consolidated, update of estimated liabilities or provisions, impairment of assets, among others.

In terms of deductions, the realization principle under IFRS will be subject to exceptions on such topics as: expenses arising from transactions that generate implicit interests, fair value measurements with changes in net income, provisions associated with uncertain amounts or date obligations, labor liabilities where the labor obligation is not consolidated and liabilities, which, in accordance with the regulatory frameworks, must be recorded in the OCI, among others.

Expenses that do not meet the requirements established in the tax regulations for being tax deductible, would generate permanent differences between financial and tax accounting. These expenses include deductions resulting from the application of the equity method, taxes whose deductibility is not expressly authorized and taxes assumed by third parties.

This new regulation was included in Articles 21-1, 59, 61, and 772-1 of Law 1819 of 2016.