This content is from: Chile

Chile: New items of deductible expenses

Rodrigo Winter and Raúl Fuentes of PwC Chile review the changes and lay out the new requirements to be met.

Law No. 21, 210, in force as of January 2020, amended the general concept of deductible expenses by providing a more flexible definition. Expenses must have the ability or potential to generate income, and there is no longer a requirement that they must be unavoidable, as had been previously required in Internal Revenue Service (IRS) and tax courts’ interpretations.

Additionally, some extra items of specific expenses were incorporated. The expenses contained in Article 31, No. 14 of the Income Tax Law (ITL) are reviewed below, consisting of i) reimbursements to consumers ordered by a regulator, and ii) payments from a settlement (transacción) and liquidated damages (cláusula penal).

Reimbursements to consumers ordered by a regulator

Such reimbursements are deductible, provided that three joint requirements are met. However, if any of those are not met, it might still be possible to deduct the expense under the general concept of expense.

The reimbursement or rebate is ruled by a regulator

The foregoing means that if the reimbursement is ordered by a court or arbitrator, this requirement, in principle, would not be met (e.g. class actions by consumers). Nonetheless, it is debatable whether a procedure begun by a regulator that ended in court could be eligible. There are arguments to sustain a positive answer.

Examples of Chilean regulators are the securities’ authority (CMF), the electrical regulator (SEC), and the consumers’ authority (SERNAC).

Payment derived from a legal obligation to compensate damage to customers or users


It is important to highlight that a payment must be directed to customers or users, but not to the Chilean Treasury. 

Therefore, this concept does not include governmental fines, which are ruled by paragraph 2, Article 21 of the ITL, as having a special tax treatment. They are not considered deductible expenses nor subject to a penalty tax of 40%.

In most cases, the penalties provided by legislation are payments to the Chilean Treasury (i.e. fines) and not compensation to consumers.

Legal obligation to compensate does not require proving negligence (i.e. strict liability)

The extent and correct interpretation of this requirement might raise difficulties. The phrase “obligation to compensate does not require to prove negligence”, if construed restrictively, could only be applicable to a few cases, since in rare occasions, the legislation sets forth strict liability.

In this sense, as a general rule, negligence is a requirement for the existence of liabilities. Moreover, theoretically, according to some Chilean scholars, administrative procedures should be subject to criminal law principles, including the prohibition to establish strict liability. However, it could be argued that the law establishes strict liability in some administrative procedures, such as in the one before the electrical regulator in case of blackouts. 

On the other hand, such prohibitions derived from the criminal law, in accordance to some jurisprudence, is attenuated in administrative punitive law. Moreover, in practice, it is common of administrative procedures not to assess whether the offender acted with negligence or not, only seeking to establish the performance of a conduct. However, the foregoing is not exactly the same than the “legal obligation to compensate does not require to prove negligence”.

Finally, in regard to the third requirement, it is important to consider that the subsequent paragraph of the provision establishes that “if negligence is determined by the authority”, the expense is not deductible but added to the tax result (i.e. not subject to penalty tax of 40% but to corporate income tax of 25% or 27%). The foregoing, could help to attenuate the third requirement, construing it as follows: “negligence was not determined in the administrative procedure.”

Payments from a settlement and liquidated damages

The only requirement for their deduction is that payments must be made among unrelated parties.

Finally, it is important to bear in mind that by “settlement” the provision is only referring to a transacción. Therefore, other legal forms of settlement, similar to a transacción but not exactly the same, might not be eligible pursuant to this provision.


Rodrigo Winter Salgado
T: +56 229400155

Raúl Fuentes Ugalde
T: +56 229400155


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