Jara Del Favero achieves the first favorable court ruling since the Luxury Tax came into effect

On April 27th, 2024, the Tax and Customs Court of Los Lagos accepted a tax claim filed by partner Rafael Valdivieso and senior associate Martín Hudson of the Tax Practice at Jara Del Favero Abogados. The court declared that an aircraft owned by an individual agricultural entrepreneur, who operates 2,000 hectares of land, is exempt from the Luxury Tax. This ruling came after the Internal Revenue Service mistakenly and obtusely considered it subject to the tax under Article 9 of Law No. 21,240, citing its failure to meet the requirement of being “essential".

The Internal Revenue Service administratively (due to the prior submission of a Voluntary Administrative Appeal (“RAV”) that preceded the judicial claim) and judicially, strongly argued that the "indispensability" of the aircraft for the development of the individual entrepreneur's business was not observed, arguing that the tasks performed by the entrepreneur using the aircraft could also be carried out by the taxpayer through another less expensive means of transportation, and therefore, one of the requirements for the application of the tax exemption was not met.

Thus, our lawyers' work mainly focused on proving the "essentiality" of the aircraft for the development of the individual entrepreneur's business, arguing, among other things, the incorrect and narrow interpretation of said concept by the tax authority and that the use of the aircraft had allowed the individual entrepreneur to effectively exploit his agricultural business and achieve the level of results and productivity that he had consistently achieved in recent years.

The Tax and Customs Court of Los Lagos upheld the claim, having found the "indispensability" of the aircraft in the development of the taxpayer's agricultural activities proven as a result of the arguments made in court by the claimant, the documentary evidence presented, witness testimony, and the personal inspection carried out by the Judge in the farmland of the individual entrepreneur, dismissing the allegations of the Internal Revenue Service, considering that they disregarded the advances in science and technology in productive systems, which allow for simplifying and favoring human work and gaining efficiency and productivity.

The Internal Revenue Service was ordered to pay the costs.