Chilean Tax Office delivers new instructions on Expenses

On August 10th, 2020, the Chilean Tax Office (SII) published the No. 53 ruling (Circular N° 53), which instructs about the reach of the changes introduced by the new tax law (Ley de Modernización Tributaria) on the matters such as definition of necessary expenses, which can be deducted from the companies' tax base.

The ruling explains the meaning and reach of the definition for necessary expense introduced by the Law No. 21.210, taking into account that a specific expenditure will not guarantee a certain income. A definition for "necessary" expenses to yield an income was added, stablishing that must be understood as such "those capable of yielding an income, on the current or future taxable years, and are related to the development or upkeep of the business".

As an important fact exposed on the ruling, it is stated that, for tax purposes, reasonably proportioned compensation assigned to a partner, stakeholder or sole proprietor that effectively works for the company, will be accepted as an expenditure. Likewise, compensation for the spouse, partner or children of the owner will be accepted as an expenditure, as long as it is reasonably proportioned and they effectively work for the company.