Tax Newsletter July 2019

Illegality in withholding tax returns

Valdivia Court of Appeals (895-2019)

It is known that Treasury does not refund taxes until the IRS authorize it, for which they normally take their time when they consider that there is something to review.

The July 9 ruling of the Valdivia Court of Appeals undoubtedly sets a precedent, establishing that the IRS and Treasury would have acted illegally by delaying a tax refund for more than the 30 days established by law since the return was made, because there is no rule authorizing these organisms to do so.

Both the IRS and Treasury appealed, so we will have to wait to see what the Supreme Court says.

Theory of own acts applied to the IRS

Santiago Court of Appeals (71-2018)

In this judgment of July 25, the Santiago Court of Appeals revoked the first instance judgment, rendering null and void the liquidation through which the IRS sought to collect a large amount of taxes, determined by assessing the price of an assignment of social rights.

The particularity of this case is that previously, on reviewing the criminal aspect of the same, the SII issued a report establishing that the assignment price of the social rights had been correctly determined, so the Court considered that the SII could not subsequently assess a different price, since it would be acting against its own previous acts.

Surcharge on contributions to non-built sites located in urban areas

Circular Letter No. 31 of 12.07.2019

Law No. 21.078, on land market transparency and tax on the increase in value due to the expansion of the urban limit, which some people refer to as the “Caval Law”, modified the requirements for the application of the 100% Territorial Tax surcharge (Contributions) to land located in the urban area.

Circular 31 of 2019 gives instructions on the modifications introduced by this law, which, among other things, changed the requirement that undeveloped sites have urbanization in order to apply the surcharge, to a requirement that they have to be within the geographical area where public services of drinking water distribution and sewage collection are provided, which makes the surcharge applicable to a much larger range of properties.

VAT on the sale of real estate – Concept of habituality

Rulings No. 1881 of July 10, 2019 and No. 1982 of July 26, 2019

Since the 2014 Tax Reform established that the sale of real estate made by habitual sellers would be taxed with VAT, the concept of habituality became of vital importance for these purposes.

In Ruling 1881, a taxpayer built 6 houses on land he had for more than 10 years, with the original intention of leasing them, but finally decided to sell them. The IRS, considering that what would be taxed would be the sale of the houses and not the land, following the definition of habitual of the regulation of the VAT Law, established that, in this case, the habituality would be determined by the spirit with which this person built the houses, if it was done with the intention of selling them it would be habitual, if it was done with a renting spirit it is not habitual.

In Ruling 1982, a taxpayer whose line of business is the leasing of unfurnished property, intends to sell property acquired in 2008 and 2015. The IRS establishes that to the extent that it can demonstrate that these properties were originally acquired with the intention of leasing them and not selling them, it would not be considered a habitual seller, which could be proven, for example, by leasing contracts or by accounting records showing the propoerties has been treated as fixed assets. In this case, the sale of fixed assets would not be subject to VAT either, as the taxpayer cannot take advantage of the VAT credit when acquiring or building it.

VAT exemption for public bicycle companies

Ruling No. 1991 of July 26, 2019

Article 13 No. 3 of the VAT Law exempts urban mobilization companies from VAT, but only for revenue from passenger transport. Applying a quite friendly criterion, in Ruling 1991, the IRS determined that public bicycle companies would be exempt from VAT because they complied with the requirements of this exemption.

For these purposes, the IRS considered that they are urban mobilization companies since their activity is to make available to the public the means of transportation necessary for their own mobilization. Likewise, with respect to the requirement that it revenue has to come from the transport of passengers, the IRS interpreted that the concept of “transport” should be understood as encompassing the transfer or mobilization of passengers, regardless of whether the passenger is “transferred” or moves by himself.