Chile has signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”). More than 68 countries, including Chile, signed the Convention on 7 June 2017 at Paris.
The Convention is a key outcome of the OECD/G20 Base Erosion and Profit Shifting (BEPS) project, aiming to put forward concrete solutions for governments to close the gaps in existing international tax rules by transposing results from the OECD/G20 BEPS Project into bilateral tax treaties worldwide.
The Convention enables all signatories, inter alia, to meet treaty-related minimum standards that were agreed as part of the Final BEPS package, including the minimum standard for the prevention of treaty abuse under Action 6.
The Convention will enter into force after signatories have completed their domestic requirements and deposited their instruments of ratification with the OECD.
The Tax Administration has released Administrative Jurisprudence No. 261/2017 on 3rd February 2017 on its website. This addresses for the first time a query regarding the application or non-application of the general anti-avoidance rule (GAAR) contained in articles 4 bis and following of the Tax Code. The question referred to whether article 4 bis was applicable to a situation in which a company is split up and the new company formed as a result is dissolved in order to allocate and attribute the assets in the hands of the shareholders. Under this query, the tax administration stated that the application or non-application of the GAAR to this situation should be addressed considering the specific circumstances of the case.
The Exchange of Information Agreement of 2014 between Chile and Uruguay entered into force on 4th August 2016 regarding tax matters and generally applies from 4 August 2016. The announcement of the entry into force of the agreement was published in the Chilean official gazette on 11th February 2017.
The Finance Ministry has announced the adjustments declared by Law 20,956 on 30th January 2017 to the tax treatment of bonds that was issued by both the Central Bank and Treasury. Note that, the Central Bank and Treasury are obliged to withhold 4% income tax from 1st February 2017 on the interest accrued at the moment of coupon payment.
The Income and Capital Tax Treaty between Italy and Chile of 2015 entered into force on 20 December 2016. The provisions of the treaty are applicable from 1 January 2017.
The Tax Administration of Chile announced on 5th January 2017 that a new tax regime enters into force from 1st January 2017 as introduced by the 2014 Tax Reform. Companies under the attributed income regime have to pay first category tax at a 25% rate.
On the other hand, those under the semi-integrated regime must pay first category tax at a 25.5% rate during commercial year 2017 and 27% from 2018. In the case of the attributed income regime, the company owners are taxed in the same fiscal year for all income generated by them, regardless of the amount of profits they withdraw. The shareholders or community members are allowed to use the whole first category tax paid for such income as a credit to be offset against other taxes. In the case of the semi-integrated system, the company owners must pay taxes based on the effective withdrawals of profits that they make from the company. In this case shareholders or community members have the right to credit 65% of the first category tax paid.