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RULING OF THE SUPREME COURT ON ADMINISTRATIVE MATTERS

Supreme Court on Administrative Matters suspends DIAN revenue rulings in connection with the tax treatment of compensations paid to sellers of multi-level marketing companies

Remuneration of independent sellers is deductible, and multi-level companies are not obliged to verify the affiliation and payment of social security contributions

 

Through its ruling No. 22518 of December 15th 2016, the Fourth Section of the Supreme Court on Administrative Matters provisionally suspended DIAN Revenue Rulings No. 8166 of March 16th 2015 and No. 31713 of November 4th 2015.

These revenue rulings held that sellers hired by multi-level companies should be considered as independent workers. Under this understanding, multi-level companies were obliged to verify the affiliation and payment of social security, as a pre-requisite to be able to request the payment as deductible expenses in the income tax return of the company.

The Supreme Court considered that this interpretation neglected the nature of the contractual relationship between multi-level companies and their sellers. Such sellers, according to Law 1700 of 2013, are qualified as “independent sellers”. Therefore, the economic consideration that they are paid doesn’t have the nature of a salary, but of an “economic consideration” for tax purposes.

In this line, the Supreme Court on Administrative Matters established that for the deductibility of the expense, it is not required that the multi-level company proves the affiliation and payment of social security contributions by its sellers.