This content is from: Chile

Amortisation of intangibles in Chile: Changes in the landscape

Sandra Benedetto and Jonatan Israel of PwC Chile explore how coronavirus-related economic policies and recent administrative jurisprudence have helped revitalise the Chilean laws on amortisation.

Chilean amortisation rules, at least as they were until September 2020, seemed to leave no doubt that intangibles are not subject to amortisation in Chile. This is clear when the Chilean Income Tax Law provides for the amortisation of physical assets only, and intangible are all but physical. However recent legal changes due to COVID-19 economic related measures, as well as recent administrative jurisprudence from the Chilean Internal Revenue Service (IRS) seem to be producing a change in this stiff amortisation landscape that has held still for so long.

From an economic and financial perspective, tax amortisation of intangible is highly relevant for companies performing research, development and innovation activities in general. For the so-called start-up environment, research and development (R&D) investment is crucial. Therefore, when COVID-19 struck the world’s economy, small businesses and entrepreneurs most severely, in Chile the idea of revisiting the amortisation of intangibles was brought back to the legislative debate.

As such, when the Chilean government submitted the bill to foster economic reactivation and employment in the mid-term through a series of tax related measures, an explicit reference to include the amortisation of some intangibles was sought after. The message through which the Chilean government sent the bill to the Congress stated that this measure to allow the amortisation of certain intangibles was included in the bill, since it was necessary to recognise the different forms of investing in technological development in an economy that is every day more digitalised.

The referred bill was passed and became Law No. 21,256, in which a transitory benefit was granted to all taxpayers that acquire certain kinds of intangibles assets between June 1 2020 and December 31 2022. In this sense, taxpayers will be able to instantly amortise their acquisitions of: (i) industrial property rights; (ii) intellectual property; and, (iii) new kinds of vegetable varieties protected under the scope of Law No. 19,342.

The above transitory benefit, although considers limitation in time, seemingly implies the conclusion that intangible asset amortisation was not included in the Chilean Income Tax Law, since it required a specific legal amendment to allow it.

However, in a recent pronouncement, the Chilean IRS allowed a taxpayer to amortie a software that was contributed to a company as capital. In its analysis, the Chilean IRS stated that the value of the software that was contributed as capital can be amortised in one or up to six consecutive tax years. The reason behind this would be that Chilean IRS would be deeming this software being contributed as organisation and setting up costs, that can be amortised up to six years according to the Chilean Income Tax Law provisions.

Interestingly, the argumentation used by the Chilean IRS is not to address the matter under the provisions set forth by the new transitory regime that allows instant amortisation of intangibles, but to allow the amortisation of the referred software under the current rules of the Chilean Income Tax Law.

As noted, the amortisation of intangibles is a matter of great importance to the vast majority of taxpayers, since almost every company is now pushed to be involved in a highly digitalised environment, and they are in fact investing heavily in different intangibles to both achieve innovation and foster R&D, but also to keep their business running in general. Chile seemed to be outdated in its approach, however the recent legal changes introduced by Law No. 21,256 and the new criteria held by Chilean IRS should be closely monitored, since they may be the inception of a deeper – and much needed – change.

Sandra Benedetto
T: +56 2 29400155

Jonatan Israel
T: +56 2 29400126

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