Chile vs Wallmart Chile S.A, October 2020, Tax Court, Case N° RUC N° 76.042.014K

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In 2009, Walmart acquired a majority in Distribución y Servicio D&S S.A., Chile’s leading food retailer. With headquarters in Santiago, Walmart Chile operates several formats including hypermarkets, supermarkets and discount stores.

Following an audit by the tax authorities related to FY 2015, deduction of interest payments in the amount of CH$8.958,304,857.- on an “intra-group loan” was denied resulting in a tax payable of Ch$1,786,488,290.

According to Wallmart, the interest payments related to debt in the form of future dividend payments/profit distributions.

Decision of the Tax court

…this Court concludes that the claimant has not been able to prove the existence of a current account between Inversiones Walmart and Walmart Chile, nor has it been able to prove the appropriateness of the reduction in expenses in the amount of CH$8.958,304,857.- for interest paid to its related company, because it did not justify the need for such disbursement for the purpose of getting into debt in order to distribute profits among the partners, nor did it prove that such disbursement generates income subject to first category tax, as provided for in article 31 No. 1 of the LIR.
In addition, the claimant also failed to prove that it was in a situation that would make the tax authority’s pronouncement in Official Letter No. 709 of 2008 applicable to it, pursuant to Article 26 of the Tax Code.
That, due to the justifications mentioned above, which meet the criteria of consistency, reasonableness, sufficiency, clarity, and in general with the principles that enshrine healthy criticism, is that this judge has concluded that the complainant did not overturn the objections of the tax authority and, consequently, has not been able to prove the appropriateness of the reduction of the expenditure in question.
It is therefore concluded that the contested assessment was issued in full compliance with the legal provisions governing the matter, which is why the Tax and Customs Court considers it appropriate not to proceed with the claim presented in the proceedings

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