Chile's taxpayers are still waiting for important tax reform to be finalised in the hope of gaining clarification and confidence about what to expect. "We don't have certainty in some issues, and now I think we will be more comfortable knowing what we ...
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Chile's taxpayers are still waiting for important tax reform to be finalised in the hope of gaining clarification and confidence about what to expect. "We don't have certainty in some issues, and now I think we will be more comfortable knowing what we are dealing with," said María Teresa Cremaschi, Barros y Errázuriz's tax leader.
Apart from deciding whether the corporate tax rate will be brought back down to 17% – where it stood before an earthquake in 2010 prompted the government to raise it three percentage points to finance reconstruction – the tax reform is also expected to close certain loopholes. "One issue has to do with the tax treatment of limited liability companies, which have enjoyed preferential tax treatment compared to other corporations," said Jorge Carraha, tax partner at Claro y Compañia.
Another issue the new legislation is expected to address is transfer pricing rules.
"It would be suitable if the upcoming transfer pricing legislation clarifies the Chilean IRS's and customs service's position regarding retroactive transfer pricing adjustments and their effect on customs duties and VAT, to create certainty on this matter," PwC's Gabriel Bernal and Fuadt Abuid wrote in an International Tax Review article in March. The proposed legislation clarifies transfer pricing rules, as Sebastián Valenzuela Guerrero, tax leader at Guerrero, Olivos, Novoa y Errázuriz, explains in the Americas' regional overview on page 6 of this publication. Other changes to transfer pricing rules include expanding the definition of related party and adding new relationship standards, according to Juan Pablo Guerrero, KPMG's transfer pricing leader.
"Taxpayers are required to keep all documentation deemed necessary to show how prices or results agreed upon with related parties are calculated," said Guerrero in TP Week.
"If, in the SII's [Chilean IRS] opinion, the taxpayer is unable to demonstrate that its related-party transactions were agreed at normal market values or returns (arm's-length principle) the SII will reasonably determine values and returns to calculate the tax due or adjustments. Adjustments will be subject to a 35% tax plus a 5% penalty," he said. The proposed legislation also calls for taxpayers to file an annual sworn statement itemising the transactions they have conducted with related parties. Failure to file a fully completed statement on time will result in fines that can range from 10 to 50 annual tax units (UTA), where one UTA is equivalent to $980, Guerrero added.
As of the end of August 2012, there was no announcement about the pending legislation, raising concerns that time is running out to bring much needed certainty to the country's tax framework ahead of the municipal elections in October 2012 and the presidential elections in November 2013.
The additional revenues to be generated through the proposed changes – estimated at $1.2 billion in the first year – are earmarked for the overhaul of the country's educational system. "[President] Piñera originally unveiled the reform in April following massive student-led protests demanding free education and better distribution of the profits from a long copper boom in Chile, the world's No. 1 producer," Reuters reported.
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