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May 31, 2022
Uruguay's Administrative Contentious Court rules acquisition costs for certain construction projects may qualify for partial deduction
Acquisition costs related to certain construction projects are not fully deductible. Taxpayers should be aware of what projects qualify for a full deduction and which qualify for a partial deduction.
Uruguay's Administrative Contentious Court (Tribunal de lo Contencioso Administrativo, TCA) has ruled that the construction of streets, sewers, potable water and sanitation facilities, and electric posts does not qualify as the "building of a new real estate." As such, taxpayers may not fully deduct the acquisition cost for income tax purposes.
Under Uruguayan income tax legislation, corporations generally may fully deduct costs and expenses for income tax purposes if the counterparty to the transaction is taxed at a rate of at least 25%; otherwise, taxpayers may only partially deduct the expense.
An exception, however, applies to real estate acquisitions. Under the exception, taxpayers may fully deduct the acquisition cost regardless of the counterparties' tax situation, provided certain conditions are met. The TCA confirmed that this provision applies to taxpayers that build new immovable property and later sell it.
Acquisition costs related to the construction of streets, sewers, potable water and sanitation facilities, and electric posts, however, are not fully deductible. Taxpayers may only partially deduct the acquisition costs.
Ruling No.285/021 has not yet been published on the TCA's website.
For additional information with respect to this Alert, please contact the following:
EY Uruguay, Montevideo
Ernst & Young LLP (United States), Latin American Business Center, New York
Ernst & Young Abogados, Latin America Business Center, Madrid
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific