On January 31, 2014 Law No. 20.727, was published in the Official Gazette, which, among other amendments, modifies Articles 41 A and 41 C of the Income Tax Law, that regulate the use of a credit against the income tax originated on taxes paid or withheld abroad.
Thus, in first place, the amount of the taxes paid abroad that can be used as a credit is increased, which limit goes up from 30% of the net foreign source income to a 32%, regarding to income obtained from countries which had not signed a Double Tax Treaty with Chile, and a 35 % in case the income has been obtained from countries which had subscribed a treaty of this nature with Chile.
In addition, the taxes paid or withheld abroad that may originate the credit are expanded. Indeed, before the amendment, the income tax paid by a foreign company could be credited in the part of the distributed profits to the company which remits those profits to Chile, to the extent that both companies are domiciled in the same country and the second one holds directly the 10% or more of the equity of the first one. By virtue of the amendment, it is also possible to use as a credit the tax paid by more than one subsidiary of the foreign company which remits such income to the country, to the extent all that companies are domiciled in the same country and the last one mentioned holds directly or directly the 10% or more of the equity of the subsidiary companies. On the other hand, it is expressly established that, in case a remainder is produced once the credit has been used against the corporate tax, this amount can be used in the following tax exercises.
Finally, by express provision of the Article Second Transitory of Law No. 20,727, the amendments aforementioned will apply from 1 January 2014 in respect of income received from abroad, or in case of agencies or other permanent establishments incorporated abroad, for the income received or accrued by them after that date, as long as the respective tax have been paid abroad from such date. In the event that the amounts used as a credit have been paid abroad prior that date, their use as a credit shall be governed by the rules in force at that time.