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Chile vs Coca-Cola Embonor S.A., July 2013, Supreme Court, Rol Nº 5118-12

Posted on July 23, 2013 | By Courts of Chile | No comments

Category: Financial Transactions, General Anti-Avoidance Rules (GAAR), Tax Avoidance Schemes | Tag: Cayman Islands, Coca-Cola, Disallowed deduction, Interest limitation, Intra-group loan, Loan, Loan agreement

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Coca-Cola Embonor S.A. had deducted interest payments on an loan to a related party in the Cayman Islands.

Following an audit, the tax authorities concluded that the interest payments were not necessary expenses to produce income, as required by Article 31 of the Chilean Income Tax Law, and were therefore not deductible for tax purposes.

An appeal was made to the Tax Court, which ruled in favour of the tax authorities.

Coca-Cola Embonor S.A. then appealed to the Court of Appeal which upheld the decision of the Tax Court.

An appeal was then filed with the Supreme Court.

Judgment

The Supreme Court upheld the decision of the Court of Appeal and decided in favour of the tax authorities.

The Court determined that the taxpayer failed to prove a direct relationship between the income and expenses, particularly since the related party in the Cayman Islands only reported losses and did not generate taxable income in Chile.

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Related Guidelines

TPG2022 Chapter X paragraph 10.78Implicit support from the group may affect the credit rating of the borrower or the rating of any debt which it issues. The relative status of an entity within the group may help determine what impact that potential group support has on the credit rating of a debt issuer. Entities...

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