Should ICA be withheld from SIMPLE taxpayers during 2020?

SIMPLE is one of the most representative achievements of the latest tax reforms. It has made it possible to attract countless taxpayers, individuals, or legal entities, to a regime that, in exchange for formalization, grants tax conditions that simplify the management of taxes levied on the company, applying relatively low rates on gross income and allowing a couple of tax discounts.

The success of SIMPLE can be measured quantitatively. To date, there are more than 12,000 registered, while only 50 companies have registered for the single-tax system -the regime that SIMPLE was intended to replace-.

One of the most attractive benefits, both in terms of cash flow and reduction of the operating burden, is that the SIMPLE registrant is not subject to withholding and is not a withholding agent, except in the case of labor payments.

In this regard, Article 1.5.8.8.3.1. of Decree 1625 of 2016 provides as follows:

"SIMPLE taxpayers shall not be subject to withholding at source under the substituted income tax, nor on the consolidated industry and commerce tax integrated to SIMPLE, in accordance with the provisions of article 911 of the Tax Statute".

On the other hand, article 907 of the ET provides that the SIMPLE includes and integrates the income tax, the national consumption tax and the consolidated industry and commerce tax (ICA, notices and boards and firemen's surtax), from which it follows that payments or credits on account to the SIMPLE shall not be subject to withholding at the source for the aforementioned taxes (income, consolidated ICA and INC), a situation that undoubtedly entails a comparative advantage over those not enrolled in this regime.

Now, for the integration of the consolidated ICA in the SIMPLE, the law granted until December 31, 2020, for the municipal and district councils to issue the agreements establishing the single rates that will be applicable under the SIMPLE regime. Upon expiration of this term, that is, as from January 1, 2021, all municipalities and districts will collect the consolidated ICA through SIMPLE with respect to taxpayers that have opted for the regime. It should be noted that to date only 5 municipalities have issued the corresponding agreements.

For the taxable year 2020, a transitory rule was established according to which taxpayers that develop activities taxed with the ICA in municipalities or districts that have not integrated this tax in the SIMPLE must declare and pay it as they have been doing traditionally, being allowed to "deduct the tax (...) in the SIMPLE bimonthly electronic receipts".

Notwithstanding this transitory rule, the Dian has stated that taxpayers registered in the SIMPLE in 2019 who have already declared and paid the ICA in their respective jurisdictions may deduct such territorial tax in the annual SIMPLE return, which must be filed between October 22 and 28, 2020, depending on the last digit of the NIT.

Considering the referred transition in 2020, the question arises regarding the withholding at source for the ICA during that taxable period in those jurisdictions that have not yet issued the agreements integrating the ICA in the SIMPLE, since since the tax has not yet been integrated and the taxpayer is forced to declare and pay it as traditionally has been doing, it could be thought that those who hold the status of withholding agents in those jurisdictions retain the obligation to withhold while the municipality does not issue the corresponding agreement.

However, this doubt can be resolved by analyzing the rules to which we have been referring, since the rule of article 911 of the ET is conclusive in stating that "Taxpayers of the unified tax under the simple taxation regime - SIMPLE shall not be subject to withholding at source (...)", in addition to the fact that none of the various transition rules require withholding the ICA to SIMPLE, while the municipal or district agreements are not issued.

Additionally, Decree 1091 of August 3, 2020, regulating SIMPLE and compiled in Decree 1625 of 2016, expressly provides for the treatment of withholdings and self-withholdings for ICA that were practiced or practiced by the taxpayer during the bimonthly periods prior to the registration in SIMPLE, establishing the following:

"They will be taken into account in the payment of this tax before each municipality or district that did not adopt the consolidated industry and commerce tax rate in 2019. These withholdings and self-withholdings do not affect the payment of the bimonthly territorial ICA component".

The same rule is replicated for the determination of the annual ICA payable under SIMPLE, by stating:

"The annual territorial ICA component shall be subtracted the value of withholdings at source and self-withholdings for industry and commerce tax, notices and boards and firefighter surtax that were practiced or practiced by the taxpayer, respectively, before belonging to the SIMPLE".

The rule is consistent in indicating the treatment of ICA withholdings and self-withholdings prior to registration in the regime, since, once in the SIMPLE, such withholdings at source should not be made, even if the municipalities have not issued the corresponding rules.

For these reasons, we understand that payments or credits on account made to SIMPLE taxpayers during the taxable year 2020 should not be subject to withholding at source for ICA, even if the municipality where the activity taxed with this tax is carried out has not issued the agreement that integrates the ICA consolidated in the SIMPLE.