Interesting ruling regarding tax treatment on the payment of litigation costs in applications for protection against health insurance companies
On Ruling issued on August 23rd of 2019, in a trial held by members of our tax department, Santiago’s Second Tax and Customs Court found in favor of a health insurance company (“Isapre”), determining that litigation costs to which the company was condemned to during tax years 2013 to 2015, are expenses that meet the requirements of article 31 of the Income Tax Law, and, therefore, may be deducted from the company’s taxable base.
The Isapre filed a tax claim against liquidations issued by the IRS on August 30th of 2016, in which it had established that said litigation costs would be rejected expenses levied with the penalty tax of article 21 of the Income Tax Law. The second Tax and Customs Court determined that the sole object of Isapres in relation with the legal recognition of their power to raise the prices of health care plans, allows to conclude that such expenses is indeed related to the company’s line of business and their subsequent character of necessary and mandatory, being therefore irrelevant if the Isapre wins or not in the aforementioned constitutional action, dismissing the liquidations issued by the IRS.
Credit for Investment in fixed asset
During August, the IRS published two rulings interpreting aspects of article 33 bis of the Income Tax Law, rule that grants a credit for investments in fixed assets.
In ruling 2093, the IRS clarifies that such credit is not applicable in respect to real estate over which the taxpayer has executed a lease-to-purchase contract, since they wouldn’t be considered fixed asset until the purchase option is exercised, unlike what happens with movable assets, regarding which there is a special rule that allows the use of the credit in the case of leasing.
Through Ruling 2182, the IRS establishes that such credit would be applicable regarding investments in single cab trucks with 4×4 traction, given that they would be assets that may be used for transportation purposes and that article 33 bis that not require that they do not have such type of traction.
Application of the non-discrimination rule in the DTC entered into with Switzerland
Article 23(4) of the DTC establishes a nondiscrimination rule, forcing Chile to allow the deduction of royalties paid to a Swiss resident, as if they had been paid to a Chilean resident, in a way that, in this case, Chile may not apply article 31 N° 12 of the Income Tax Law, which limits the deduction as an expense of royalty payments abroad. However, the DTC establishes, and the IRS confirms this criterion, that this nondiscrimination rule is only application over the part of the royalties that dos not exceed the payment that would have been made between non-related parties, in the terms set forth in article 12 (6) of the DTC.
Payment within 30 days Law (“Ley de Pago a 30 días”)
The “Ley de Pago a 30 días” has generated quite the controversy in tax matters, mainly because of the treatment that taxpayers must give to default interests and commissions that arise in the case of delay in the payment of invoices, which must be recorded as soon as they are owed, even if they have not yet been paid.
Ruling 2245 confirms the aforementioned, and Ruling 2270, additionally establishes that such interests and commissions must be considered in the month in with they are accrued or perceived, whichever happens first, in order to determine the base over which monthly provisional payments and the First Category Tax are determined.
Nevertheless, Ruling 2245 indicated that, in order for the creditors to be allowed to deduct as an expense the unpaid credit, the mere elapse of a three-month period is sufficient to consider that the means of collection have been prudentially exhausted, provided that the rest of the requirements determined by the IRS have been complied with.
Effects of an arbitral ruling declaring a payment exempt of VAT
The interesting point about this Ruling, is that the IRS interprets that, the fact that the Arbitration Commission, when resolving a conflict about additional works establishes, against the IRS’s own criteria, that the payments that shall be made would not be taxed with VAT because they are considered compensations, cannot affect the IRS’s interpretative or overseeing work. Therefore, despite the fact that the Arbitration Commission determines that the payments would not be subject to VAT, in the IRS’ estimates they would be taxed anyways.
DFL 2, limit of properties per person
For quite a while now, the tax benefits of the DFL 2, have been limited to individuals and up to a maximum of two real estate. However, on 2018, through Ruling N° 2542, the IRS interpreted that the two properties limit does no apply to those acquired by inheritance. The IRS confirms the aforementioned through Ruling N°2009 of 2019, but specifying that the heir only keeps the benefits that the deceased had and, in addition, if they were temporary benefits, they will only be kept for the time remaining to the latter.