Business Expenses and Tax Modernization
Cuevas Abogados attended the conference on the project of the Tax Modernization Law 2018 held at Club 50, an event attended by well-known actors in the field of Tax Law, such as attorney Soledad Recabarren (Director of the Master in Tax Law from the Pontificia Universidad Católica de Chile) and Carolina Fuensalida (Tax Advisor from the Ministry of Finance).
Within the range of topics discussed, one of the most controversial was the part of the Tax Modernization project that modifies the general requirements that must be met by a company to allow its deduction, which may be directly or indirectly related to the business, whether ordinary or extraordinary, voluntary or mandatory. As an example, the fines in which a construction company could incur in the execution of a contract could be accepted in the future if the bill is approved as it is drafted.
With this modification, the concept of expenditure is extended, which would mean in practice for companies a legitimate benefit, since they could deduct those expenses that are specific to the risk of economic activity, and that were mistakenly considered by the Tax Service Internal (SII) as a “voluntary” expense and not necessary to produce the rent.
Currently, for an expense to be accepted tax, must meet the following requirements: a) Must correspond to expenses paid or owed; b) They must be supported or justified with the corresponding legal documentation; c) They must correspond to the period; d) They must be necessary to generate the rent and e) They must be of the company’s business.
In practice, and in the face of SII audits, the concept of rejected expenditure was extended, eventually rejecting those expenses that, being related to the company’s turnaround, the SII considered them avoidable and avoidable to produce the income. In our opinion, the important thing is that, with or without reform, whatever the expense that a company intends to deduct from the rent, it must be duly supported, so that, in the event of being subject to an inspection process by the Internal Tax Service, this process is as expeditious as possible in order to avoid higher costs in human resources.
If your company requires more information and advice on the subject of expenses, in particular to be prepared to comply with the current regulations on expenses and to face possible audits of the Internal Revenue Service, do not hesitate to request a meeting with me in our or in Their offices.
By María Paz CONTRERAS