Deduction for Asset Obsolescence
Obsolescence is contemplated in Article 129 of the Tax Statute, which defines it as follows:
“Obsolescence is understood as the loss due to deterioration in value, disuse, or the lack of adaptation of an asset to its intended function, or the foreseeable uselessness resulting from changes in physical or economic conditions or circumstances that clearly and evidently determine the need to abandon it as inadequate, before the end of its probable useful life (...). In cases of write-offs due to complete obsolescence of depreciable assets, the deductible amount shall be the tax cost minus the deductions previously applied, to the extent not covered by compensation or insurance. The taxpayer shall retain the respective supporting documents.”
When an item loses its value under any of the indicated circumstances, obsolescence is established. It does not necessarily imply total destruction nor the end of the asset’s useful life; the taxpayer may apply this treatment if the asset is abandoned, inadequate, or useless according to economic reality.
From an accounting perspective, a reduction in economic benefits may arise due to technical or commercial obsolescence, resulting from production improvements or changes in market demand.
Paragraph 12 of IAS 36 outlines indicators for determining impairment of an asset:
- External sources: significant adverse changes in the legal, economic, technological, or market environment.
- Internal sources: significant changes in the use or expected use of the asset that negatively affect it, including inactivity, discontinuation plans, early disposal, or reconsideration of its useful life.
Evidentiary Aspects of Obsolescence
The taxpayer must retain appropriate evidence to support obsolescence, according to Article 743 of the Tax Statute, which establishes that the suitability of evidence depends on legal requirements and its connection to the fact being proven.
The Constitutional Court (Ruling C-622-98) has stated that the free assessment of evidence is an intermediate category between legal evidence and sound judgment, regulating the judge’s activity regarding evidence.
Article 129 requires supporting documents but does not specify their nature; it is advisable to have technical reports, photographs, and other documents that support the asset write-off.
According to Articles 772 and 773 of the Tax Statute, accounting records are admissible evidence if maintained properly, and Article 774 states that they must:
- Be registered with the Chamber of Commerce or DIAN.
- Be supported with internal and external vouchers.
- Accurately reflect the entity’s situation.
- Not be contradicted by other legal means of evidence.
- Not be affected by double accounting.
In conclusion, accounting records must be provided along with supporting documents indicating the written-off assets, their description, tax cost, and the reason for applying the obsolescence treatment according to Article 129.
Written by: Diego Sanabria
