URUGUAY: URUGUAY – COLOMBIA DOUBLE TAX TREATY AND PROTOCOL PROMULGATION.

Today, the Uruguayan Official Gazette published Today, the Uruguayan Official Gazette published Law No. 20,367 which approves the Argentina – Turkey Double Tax Treaty (“DTT”) signed on November 19th, 2021.

We highlight the following aspects:

a. Scope: (i) In line with Action 2 of the Basis Erosion and Profit Shifting (BEPS) Plan, it sets forth that the DTT shall also apply to look-through entities for tax purposes (i.e., transparent) (ii) The DTT specifies that it applies concerning Income Taxes and to wealth assets (“elementos patrimoniales”).

b. The protocol sets forth that the DTT does not affect the taxing power and rights of the Contracting States with respect to their residents, except for the benefits granted according to section 3 of Article 7 (Economic Activities Profits Provision), section 2 of Article 9 (Associated Enterprises Provision), and Articles 19 (Public Offices), 20 (Students), 23 (Double Taxation Elimination Methods), 24 (Non-Discrimination Clause), 25 (Mutual Agreement Procedure), and 28 (Diplomatic and Consular Members Provision).

c. Permanent Establishment (“PE”): This provision follows the OECD model but adds the changes arising from the BEPS action plan concerning anti-fragmentation rules, preparatory and/or ancillary activities safe harbor rules amendments, Agency PE, and the inclusion of the “closely related entities” concept.

d. Withholding Tax Rates:

1. Dividends: 0% – 5% – 15%

2. Interest: 0% – 15%

3. Royalties: 10%

4. Capital Gains: 12%. The DTT introduces a rule concerning the possibility of applying the regulations concerning indirect transfers when the value of the assets located in the corresponding country exceeds 50% of the value of the total assets of the entity being transferred (both, Uruguay and Colombia, have domestic regulations on indirect transfers)

5. Technical Services Fees – including technical assistance services -: 10%. The Protocol clarifies that this provision (Article 14) shall not prevent the Contracting States from applying their domestic legislation and consider any payment made directly or indirectly to associated enterprises in terms of Article 9 for management or administration services to be subject to Income Tax. However, in this case, this tax shall not exceed 12% of the technical services fee gross amount.

e. Entitlement of Benefits – General anti-abuse provision: benefits under the DTT will not be granted in respect of an item of income if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit unless it is established that granting that benefit would be following the object and purpose of the relevant provisions of the treaty.

f. Exchange of Information Provision.

g. Entry into Force: The effective date is the one of the receipt of the last written notification by which the Contracting States notify each other, through diplomatic channels, of the completion of their internal legal procedures required for the entry into force of this Convention.

The provisions of this Convention shall have effect:

Regarding taxes withheld at source, in respect of amounts paid or credited on or after the first day of January, inclusively, following the date upon which this Convention enters into force,

Regarding other taxes, as of taxable years beginning on or after the first day of January, inclusively, following the date this Convention enters into force.