Since there is not much public evidence of the Chilean IRS (“SII” or “Servicio de Impuestos Internos”) applying the special anti-avoidance rule contained in the Inheritance and Donations Tax Law (Ley de Impuesto a la Herencia y Donaciones), of particular interest is a ruling of this month where the Chilean Supreme Court let stand a 2018 tax assessment in which the SII used the aforementioned rule.

SII determines, by application of a special anti-avoidance rule, donation tax derived from a simulated purchase and sale agreement, and the Supreme Court rejects the appeal and leaves firm the tax assessment (Rol N° 11382-21).

By ruling dated May 11, 2020, the Tax and Customs Court (“TTA” or “Tribunal Tributario y Aduanero”) of Ñuble and Biobío confirmed the tax assessment issued by the SII in 2018, against an individual taxpayer. Said assessment stated that the taxpayer owed the tax authorities donation tax, after determining as simulated a purchase and sale agreement held in 2014, in which the individual acquired with a price payable in installments, several assets of a company whose legal representative was the spouse of the purchaser. The taxpayer was also ordered to pay procedural costs.

It is worth noting that the general anti-avoidance rule regulated in the Chilean Tax Code is supplementary to several special anti-avoidance rules, among which is the one contained in Articles 63 and 64 of the Inheritance and Donations Law, that empowers the SII, for tax purposes only, to administratively reclassify an act or contract as a disguised donation, and assess and demand the payment of the taxes derived from such reclassification.

Pursuant to the abovementioned rule, the SII, without the need to require a prior judicial declaration of simulation, assessed the donation tax liability on the basis that the taxpayer, through a purchase and sale contract, acquired from the company represented by his spouse goods that he never paid, a debt that the company never pursued and that subsequently, when the company was sold, it did so for a much lower value than the receivable that the company had against de taxpayer for the sale of the referred goods.

By judgment dated January 11, 2021, the Court of Appeals of the city of Concepción confirmed the first instance ruling, and the Chilean Supreme Court, on March 3, 2021, declared the formal cassation inadmissible and rejected the substantive cassation, leaving the ruling of the TTA and the assessment of the SII firm, not admitting new amendments or further disputes on their content.

Write-off of uncollectible accounts

Official Letter No. 523/2021 SII| READ

In accordance with the amendments incorporated by Law No. 21,210 (Tax Modernization Law) to the Income Tax Law, from the year 2020, the write-off of uncollectible receivables between unrelated parties not only proceeds after having prudently exhausted collection methods, but can also be written-off partially at their expiration date and in full one year after the payment was due.

In this respect, the SII confirmed that it is possible for the taxpayer to use different write-off rules in the same fiscal year for the various uncollectible receivables it has recorded. Consequently, the taxpayer has the option, in the same fiscal year, to partially write-off some receivables at maturity, others to wait for more than 365 days to elapse for their total write-off and for others to prudently exhaust collection methods prior to their deduction as an expense.


Mario Gorziglia

Leonidas Prieto

Cristián Bay-Schmith