Boletín

The Fourth Section of the Council of State has clarified that the purchase of tangible assets does not give rise to the deduction of the value-added tax (VAT) incurred in that transaction. This is based on the following two reasons:

1. Firstly, the tangible assets was not part of the ordinary course of business, as it was a necessary and indispensable asset for carrying out its hydrocarbon exploration and exploitation activities.
2. Secondly, the fact that, for accounting purposes, the tangible assets was recorded as a deferred asset did not change its tax nature as a fixed asset, as this condition depended on the destination, nature, characteristics, and relationship of a particular asset to the taxpayer’s income-generating activity.

In summary, the economic destination of an asset is the determining factor for classifying it as a fixed asset. If its use is linked to the company’s operational activity, and not to sale, it falls into this category. Therefore, investments in tangible assets for the exploration and exploitation of hydrocarbons, when used in the production process, constitute fixed assets. This fact prevents the deduction of the VAT paid on their acquisition, as provided for in Article 491 of the Tax Statute.

Consejo de Estado. Sentencia 27712 de 2024.