No deductibility of royalties and tax burden of the extractive sector in Colombia. Effects of Law 2277 of 2022 No deducibilidad de las regalías y carga tributaria del sector extractivo en Colombia. Efectos de la Ley 2277 de 2022

Abstract

Law 2277 of 2022, in its article 19, paragraph 1, establishes that companies in the extractive sector in Colombia may not deduct from the taxable base of income tax those expenses associated with royalties paid to the Colombian State. This research seeks to determine the effects of this measure on the tax burden that companies in the sector would assume, while proposing a comparison between those that pay royalties in cash and in kind. Thus, this study concludes that, not only will the tax burden of extractive firms increase, but that the non-deductibility of royalties means that companies that pay this obligation in cash will bear a higher tax burden in relation to those that do so in kind.