The First Tax and Customs Court of the Metropolitan Region ruled in favor of health insurer Nueva Masvida on October 15. According to Diario Financiero, the ruling allows it to deduct from its taxable income the legal costs it paid after losing lawsuits against its members. Tax and customs courts are specialized courts of first instance that resolve disputes between taxpayers and the tax authorities.
The insurer challenged a tax demand, meaning a formal request for tax payment, for more than $600 million. The Large Taxpayers Directorate of the Internal Revenue Service (SII) issued it based on a 2024 tax assessment. The agency maintained that those legal cost payments could not be treated as expenses necessary to generate income.
To understand the implications, think of a company that subtracts its operating expenses from its revenue before calculating how much tax it pays. The more allowable expenses it has, the smaller its taxable base. The question is whether the amount a health insurer pays when it loses a lawsuit can be included in that deduction.
Until now, according to the newspaper, the general position in case law was that it could not. When a health insurer was ordered to pay legal costs in lawsuits with its members, that expenditure could not be deducted. This ruling and other recent decisions point to a change in approach, at least at first instance.
The court's presiding judge, Luis Alfonso Pérez, established that legal costs imposed in constitutional protection proceedings challenging increases in health plan prices and GES (Explicit Health Guarantees) premiums are deductible. His argument is that they are linked to the insurer's business and constitute unavoidable, mandatory expenditures.
The judge reasoned through the issue step by step. Health insurers have a single line of business defined by law, adjusting plan prices is a way of generating income within that business, and the lawsuits arise from those adjustments. He therefore concluded that the legal costs relate to an activity inherent to the institution.
Pérez added that without the increase there would be no constitutional protection actions or orders to pay legal costs, but neither would there be income associated with that adjustment. He also considered that not all members sue and not all succeed in blocking the increase and obtaining an award of legal costs.
The judge also rejected the idea that an order to pay legal costs, on its own, supports a presumption of bad faith or unlawful conduct by the insurer. To support this, he cited the SII's own official letter No. 137, dated August 22, 2016. That document distinguishes between legal costs imposed at the court's discretion and those imposed because there were no reasonable grounds to litigate. According to the ruling, only the latter are treated as disallowed expenses.
The backdrop is the thousands of lawsuits filed by members over the past decade, especially after the pandemic, over unilateral plan price increases. That phenomenon put pressure on health insurers' margins and was among the reasons for a reform of the sector during Gabriel Boric's government.
The SII, headed by Jorge Trujillo, told Diario Financiero that it will appeal to the relevant Court of Appeals. The agency maintains that legal costs are a penalty or compensation imposed on a litigant without reasonable grounds and that a penalty cannot qualify as an expense. It also cites the illegality or arbitrariness of the increases and repeated Supreme Court rulings that have deemed those increases arbitrary.
For now, the balance at the appellate level favors the tax authorities. According to the SII, this year the Court has issued eight rulings on the issue: six in favor of the agency and only two against it. Nueva Masvida's case will be the next addition to that tally.
