The tax authority’s clarification involves addressing the tax implications of an Australian business group’s indirect disposal of underlying assets in Chile.
Chile’s tax authority (SII) issued Letter Ruling No. 1154 on 19 June 2025, addressing the taxation of an Australian business group’s indirect disposal of underlying assets in Chile.
The transaction involves the transfer of a 100% stake in a holding company incorporated in the British Virgin Islands (BVI) by another BVI company. The seller is owned by a discretionary trust governed by Jersey law, with beneficiaries who are Australian tax residents. Due to Australia’s controlled foreign company rules, the beneficiaries must recognise the seller’s income on an accrual basis.
Under Chile’s Income Tax Law Article 10(3)(c), such indirect disposals may be taxed in Chile if the foreign entity is in a preferential tax regime per Article 41 H.
Article 10(3)(c) exempts indirect disposals from taxation in Chile if:
- No Chilean residents or domiciled persons own 5% or more of the foreign entity that is being disposed of; and
- Those (owners, partners, shareholders, or beneficiaries) controlling 50% or more of the entity’s capital or profits reside in non-preferential tax jurisdictions.
The SII found that while the first condition was met, the second was not. Despite the beneficial owners residing in Australia (not a preferential tax regime), their control status was unclear.
Additionally, the direct owner and controller of the transferred company resides in a preferential tax regime, disqualifying the exception. The SII clarified that the exception applies only if all controllers of the transferred entity (all owners, partners, shareholders, or beneficiaries), whether direct or indirect, are residents or domiciled in non-preferential tax jurisdictions.
