A business group recently requested an advance ruling from the Internal Revenue Service regarding the merger of a Chilean subsidiary with a company resident in a low-tax jurisdiction. The service stated that pursuant to Article 64 of the Tax Code, it will not exercise its assessment authority where it has been effectively proven that the legal effects of a merger in another country will be carried out in accordance with Chilean legislation and that the operation will be carried out under the terms of tax neutrality.
The Tax Department recently issued Circular 57, which provides a definition of a 'permanent establishment' for domestic law purposes and underlines that such fixed places of business require a tax registration number. Although the circular has been issued with a limited scope, it may have additional benefits, including identifying whether a foreign entity or individual has a permanent establishment operating in Chile.
The Supreme Court recently revoked two appeal court decisions in which the underlying issue was the Tax Department's authority to deny taxpayers the ability to issue invoices in certain circumstances. It is unclear whether the Tax Department will review its criteria in this regard, as court decisions in Chile affect only the parties in the specific case.
A taxpayer resident in Chile with a portfolio investment in the United States recently requested a ruling on whether he was entitled to a refund of certain withholding taxes paid by the portfolio because it included bonds issued in Chile. The taxpayer argued that withholding tax should be refunded to the beneficiary of the interest if the beneficiary is a Chilean resident. However, the Tax Department took a different view.
A taxpayer recently requested a ruling on whether a certain type of tax treatment was available following the merger and consolidation of a group. The tax department ruled that the individuals who owned shares in the resultant entity were entitled to use a variable tax rate rather than the 32% fixed tax rate on corporate income tax already paid on profits, as there is no transfer of property in a merger process, but rather an assignment of property to a person who already has a legal interest therein.
A taxpayer recently requested a ruling from the Chilean tax authorities on whether a branch of an entity resident in a third state should be considered a UK resident for the purpose of claiming the benefits provided under the Chile-UK double tax treaty. The tax department concluded that the person claiming benefits under the treaty was a resident of a third state and that its UK branch or permanent establishment did not meet the requirements to qualify as a UK resident under the treaty.
The recent tax reform introduced by Law 20,780 has provided for two alternative tax regimes: the attributed regime and the partially integrated regime. The attributed regime applies to individual entrepreneurs, limited liability companies, communities and joint stock companies, while the partially integrated regime is obligatory for corporations and companies whose members and shareholders are other companies (resident or non-resident).
The Chilean Tax Authority recently issued Official Letter 869, which reported that Brazil has published an interpretative law establishing an exemption for social contribution tax on net profits in all double tax treaties to which Brazil is party. As a result, Chilean residents conducting business in Brazil can use social contribution tax on net profits paid in Brazil as a credit against the payment of Chilean income tax.
A taxpayer recently sought a ruling on the taxation of payments for the broadcasting rights, distribution and marketing of a television signal transmitted via satellite to Chile. The general withholding tax rate for services provided from abroad is 35%, but preferential tax rates of 15% and 20% are available for certain services. The taxpayer inquired whether the 20% withholding tax rate applied, as the provider was resident abroad.
The Tax Administration recently received a request to rule on whether government incentives in a construction contract were subject to value added tax (VAT). Under the Regulations on Government Contracts, the administration may offer price incentives to contractors that perform public works. Prior to approval, the administration's comptroller consulted the tax authorities regarding the treatment of these incentives for VAT purposes.
The recently published Law 20,899 amends the Income Tax Act, the Value Added Tax (VAT) Act, the Tax Code and other laws in order to simplify the implementation of the tax reforms introduced in September 2014. In particular, Law 20,899 simplifies the interaction between income tax regimes, exempts some new houses from VAT and clarifies the terms of the Tax Code's anti-avoidance rule.
Chile recently signed the Organisation for Economic Cooperation and Development's Competent Authority Agreement on the Automatic Exchange of Country-by-Country Reports, which requires large companies to report information on each jurisdiction in which they operate. The decision to sign the agreement complements a series of structural measures implemented following the 2014 tax reform, to ensure that the tax base is not artificially manipulated by taxpayers.
The redomiciliation of companies is not recognised under Chilean law. This means that in order to move to Chile, a foreign company must establish a branch or create a subsidiary there. It cannot move its entire operations to Chile. The question arises of what happens when a company incorporated in one foreign jurisdiction moves to another foreign jurisdiction and whether this change is recognised under Chilean law.
The Tax Administration recently decided to assess withholding taxes for services that a Peruvian company (Company A) rendered for a Chilean company (Company B). The assessment was challenged by Company B under the tax treaty between Chile and Peru. However, on appeal, the Supreme Court confirmed the lower-court ruling that Company B was a permanent establishment which Company A used to conduct business activities in Chile.
Recent tax reforms introduced new provisions to the Tax Code which empower the Tax Department to challenge transactions that have been carried out with the aim of avoiding taxes. The provisions introduce a general anti-avoidance rule for the first time. Previously, there was a legitimate business purpose requirement for corporate reorganisations.
The recent tax reform introduced rules for controlled foreign corporations (CFCs). The types of CFC covered by the rules include entities of any nature, with or without legal personality, such as corporations, funds, communities, estates or trusts. An entity is considered a CFC if its controller is a Chilean resident, it generates passive income and it is not the permanent establishment of a Chilean entity.
Law 20,780 recently introduced the most complex and comprehensive tax reform in Chile for decades. The changes bring Chilean tax law into line with Organisation for Economic Cooperation and Development standards and include the introduction of new provisions to the Income Tax Act which define low or no-tax jurisdictions and set out different criteria for identifying these jurisdictions.