Chile - New tax proposals would affect corporations, foreign investors 

Background

The government of Chile in early May 2012 submitted to the Congress for its approval a tax reform package. See TaxNewsFlash-Americas: Chile - More details on tax reform proposals

Following three months of congressional discussions, the government was unable to secure sufficient support for the tax reform package, and thus withdrew the original proposal.

The government on 2 August 2012 submitted to Congress a new tax reform package. The new version of the tax reform retains the proposed changes to the corporate income tax rates, but eliminates or limits some of the tax benefit reductions and anti-abuse provisions included in the May 2012 version.

Summary of tax reform package

The August 2012 tax reform package includes the following measures:

• Corporate tax rate increase: It is proposed that the corporate income tax rate would increase to 20%.
• Loans from a Chilean corporate taxpayer to an affiliate located outside of Chile: The August 2012 version of the tax reform package significantly revised the proposed treatment of upstream loans to related parties located outside of Chile.
• Expansion of the look-through rule for indirect transfers of Chilean assets: The August 2012 proposal includes measures to impose Chilean income tax on the transfer of shares, ownership interests, bonds, or other instruments that are convertible into shares or ownership interests or any right that represents an interest in the capital of a foreign company.
• Equalization of tax treatment between corporations and limited liability companies: In certain instances, long- term capital tax treatment would be available for limited liability companies (SRL) as currently available for corporations (S.A. and SpA).
• Taxation of foreign taxpayers with a branch or permanent establishment (PE) in Chile: Under the proposed change, the income of a branch or PE of a non-resident taxpayer subject to tax in Chile would be determined based on the income from branch / PE operations conducted either inside or outside Chile, when attributable to the branch or PE.
• Modernization of transfer pricing rules: Transfer pricing rules, under the August 2012 proposal, would be brought into line with OECD standards, including the availability of advanced price agreements (APAs). Also, a specific transfer pricing penalties regime and filing and documentation requirements would be introduced.
• Withholding obligations: The August 2012 package proposes a major overhaul of the tax withholding obligations. The intent is to clarify when there is an obligation to withhold income and capital gains taxes.
• Stamp tax rate reduction: The August 2012 proposal considers a reduction of stamp tax rates applicable to documents concerning loans and other credit transactions.

The government expects that these measures will be approved by Congress before the end of the year.

Read an August 2012 report [PDF 89 KB] prepared by the KPMG member firm in Chile: New tax proposals would affect corporations, foreign investors

For more information, contact a tax professional with KPMG in Chile:

Juan Pablo Guerrero

Francisco Lyon

Rodrigo Stein