Sandra Benedetto, Santiago López
Since 2014 we have been reporting on the major tax reform that was enacted in Chile through Laws 20,780 and 20,899 (the tax reform). As we have informed readers that one of the main features of the tax reform was that instead of entering its amendments into force at once it considered a progressive entry in force, with 2017 being the year in which the tax reform would be totally implemented.
One of the major amendments that entered into force on January 1 2017 was the replacement of the former general income tax regime with two new alternative regimes: the attributed income regime (regime A) and the partially integrated regime (regime B).
As you may recall, the Chilean general income tax regime, in force until December 31 2016, worked as a totally integrated system. Taxation occurred on two different levels where local companies paid the first category tax (24%) over its net taxable profits, and foreign shareholders paid additional tax at 35% when such profits were distributed to them. Under this regime, the first category tax paid at the level of the Chilean entity was creditable against the additional tax. This implied that in the case of foreign investors, the total tax burden on tax profits amounted to 35%.
As of January 1 2017, taxpayers such as Chilean companies, are being taxed either under regime A (excluding Chilean stock corporations or companies held by Chilean legal entities) or under regime B.
It should be noted, however, that the first category tax rate for the companies with regime A is set at 25%. For regime B, the tax rate is set at 25.5% for the 2017 calendar year, and at a 27% for the 2018 calendar year and onwards.
Although both maintain an integrated system concept (as described above), important changes have been introduced.
Regime A will imply that both the Chilean company and its foreign shareholders are taxed on a yearly basis, regardless the fact that no effective distribution of profits is performed to abroad. Therefore, the first category tax will be applied at the level of the Chilean entity over its net taxable income, and such taxable profits will be then 'attributed' to the foreign shareholders, triggering additional tax at the level of the foreign shareholders. Under this regime, a full credit for the first category tax paid at the level of the Chilean entity will be available. Accordingly, the total tax burden on profits will remain as it is today at 35%.
Regime B in turn works similarly to the general income tax regime, which was in force until December 31 2016, meaning that additional tax will only be triggered upon effective distribution of profits to investors domiciled abroad.
However, under this regime, the first category tax credit will be limited to 65%, implying that in the case of foreign investors, the total tax burden would be increased to 44.45% (based on a 2018 scenario).
Note, however, that the first category tax will remain fully creditable in case the foreign shareholder resides in a country with which Chile has a double tax treaty in force (DTT) and from which it can benefit, therefore leaving the total tax burden at 35%. Similar to the above, the tax reform considers a transitory regime which will also allow a full first category tax credit for regime B, in case the foreign shareholder resides in a country with which Chile has a signed a DTT, but it is not yet in force. For this transitory regime to apply, the relevant treaty must have been signed before January 1 2017. This regime benefits foreign shareholders resident in the US and Uruguay.
The above transitory regime will remain in place until December 31 2019. However, the Chilean Executive Branch has already filed a new amendment bill that proposes to extend the application of this transitory regime, establishing that a full credit will be available for countries that have signed a treaty prior to January 1 2019 and provided that it is ratified by the Chilean Congress before January 1 2021.
The Chilean government issued in 2016 Law No. 20.899 with the idea of simplifying Law No. 20.750 (both tax reform). However, it went beyond such a premise and introduced further amendments that made it difficult to sustain that the aim of simplification was accomplished.
Among all this, some sworn statements and the annual income tax return suffered amendments, which in practice made the tax filing for the 2016 calendar year to be more challenging.
In connection with the above, the Chilean IRS published statistical information about the amount of sworn statements presented by a taxpayer, where a 20% non-compliance increase was reported compared to the previous year. The amount collected due to fines on erroneous or extemporaneous filings increased as well.
Considering that calendar year 2017 is the first year of implementation of the new income tax regimes, it is important that Chilean companies prepare themselves for the filings to be made for the year and obtain proper advice, as it is likely that new challenges and questions will arise when preparing the relevant forms.
Complementing the above, it is important to note that as a result of the implementation of the new income tax regimes, several tax compliance regulations have entered into force, including the obligation of keeping various tax registries in order to control companies' taxable profits, non-taxable and exempted income, and tax credits, among others.
Furthermore, specific regulations were introduced to incorporate such registries, taxable and non-taxable profits coming from the previous general income tax regime, as well as the determination of the tax equity. It is important to keep track of such regulations as they impact future profit distributions and capital reductions. It is highly advisable to review this if companies are expecting to repatriate cash during the coming years in order to calculate what will be the tax impact considering the new rules in place.
In recent years, Chile has also been working on the implementation of OECD BEPS Action Plan, especially in what concerns transparency and in preventing treaty abuse.
To implement the country-by-country (CbC) report foreseen in BEPS Action 13, the Chilean IRS has introduced sworn statement no. 1937. Thus, multinational companies whose parent or controlling entities are tax resident in Chile will be required to file in Chile the CbC report.
The sworn statement must be filed on the last business day of June of the relevant year.
Even though the number of Chilean companies that will be obligated by that reporting obligations is small, Chilean companies should be prepared to provide relevant information to their headquarters.
Within the context of BEPS and the aim to implement the common reporting standard (CRS), the Multilateral Convention on Mutual Administrative Assistance in Tax Matter (the convention) was finally enacted in Chile on July 20 2016. The convention, which was signed by Chile on October 24 2013, entered into force on November 7 2016.
Following Chile's signing of the CRS agreement, it is part of the late adopters group and has been committed to exchange information from September 2018.
In addition, on July 5 2017, the CRS domestic regulations issued by the finance ministry on the due diligence procedure were finally published in Chilean Official Gazette. According to such regulations, Chilean financial institutions will be required to conclude their due diligence procedure for individuals on high-value pre-existing accounts by June 30 2018, and on June 30 2019 for low-value pre-existing accounts. As for entity accounts, the due diligence procedure on accounts exceeding $250,000 at June 30 2017 must be concluded on June 30 2019 at the latest. On the other hand, the due diligence procedure on accounts not exceeding $250,000 at June 30 2017, but exceeding such amount on December 31 2017 or at a later year, must be concluded in the following calendar year in which the account exceeds the referred amount.
As for preventing treaty abuse, Chile signed on June 7 2017, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). Now, the MLI must be ratified by the Congress. So far, there is no official information on what the timeframe would be for the final approval of the MLI. However, it is worth mentioning that Chile's latest DTTs are already aligned to new MLI principles.
Finally, 2017 is an election year in Chile. On November 19, the first round of the presidential elections will be held. Given the number of candidates, there is a good chance that a second round will be required to determine the elected president between the two candidates with the most votes in the first round, which is set for December 17.
Taking into account the amount of discussion generated by the tax reform, all candidates consider as part of their agenda the necessity of reviewing the tax reform and incorporating new changes into Chilean tax legislation. However, no official programme has been circulated so far. Therefore, discussions to be held among the candidates should be closely monitored because it is likely that any candidate that takes office in March 2018 will be, in a greater or lesser extent, introducing new tax changes.
There have been significant tax changes in the Chilean market over the past year as a result of Law 20.899, which became fully applicable from January 1 2017. The law aims to simplify the income tax regime and the measures affecting controlled foreign corporations, thin capitalisation and the general anti-avoidance rule, among others. It is believed that the law will raise the national revenue by increasing output and promoting exports.
Specifically, the law simplifies the attributed tax regime by providing further guidance on what entities would be allowed to use this regime. It provides that personal holding companies with limited liability and some limited liability companies that are owned by individuals, domiciled individuals or non-residents would be eligible to use this regime. Further, certain corporations would similarly be eligible. For corporate tax paid on such attributed taxable income, there is an imputation credit of 25%.
The law also simplified Chile's partially integrated regime. Under this regime, Chilean companies will be subject to a 25.5% corporate income tax in 2017, which will increase to 27% rate in 2018. However, the law provides that such rules will be applicable to limited join-stock companies and entities with a minimum of one non-final taxpayer owner.
Furthermore, the law introduced some changes in respect to VAT. Specifically it broadens the meaning of exports to encompass services that are partly rendered in Chile and abroad in order to benefit from a VAT exemption.
In addition, exported services can now obtain tax credit for taxes paid abroad regardless of whether the other jurisdictions they operate in have a double tax treaty in force.
However, with an election scheduled for the end of 2017, practitioners are confident that they will see further tax changes in the following year.
EY Consulting Ltda.
Presidente Riesco 5435, 4th Floor
Tel: +56 2 676 1000
South America Tax Managing Partner
Country Tax Managing Partner
Tel: +56 2 676 1679
Tel: + 56 22676 1832
Business Tax Services
Tel: +56 2 676 1679
Global Reporting and Compliance
Carlos Muñoz Saravia
Tel: +56 2 676 1791
Tel: +56 2 676 1679
International Tax Services
Tel: +56 2 676 1141
María Javiera Contreras
Tel: +56 2 676 1492
Tel: +56 2 26761334
People Advisory Services Leader
Juan Andres Perry
Tel: +56 2 676 1427
Av. Andrés Bello 2711, pisos 1, 2, 3, 4 y 5
Tel: +562 2940 0101
Fax: +562 2940 0503
Contact: Francisco Selamé
Firm Profile as a leading company:
PwC has been present in Chile since 1914. For more than 100 years we have rendered professional services to the most prestigious local and global companies doing business in Chile and abroad.
Our main objective is to help our clients be successful and assist them into making correct and efficient business decisions. For that purpose, we provide them timely consultancy services regarding relevant tax and legal issues for their businesses, considering applicable legislation and business structuring, adding value via proposing innovative solutions in an efficient manner.
Being already a leading tax and legal adviser, PwC Chile has undertaken a comprehensive approach towards its clients, being able to support them over various service areas, including, Legal and Tax Advisory Services; Domestic and International Corporate Tax Planning; M&A; Transfer Pricing; Tax Compliance; Legal and Corporate Counseling; Labor Consultancy Services; Individual Consultancy Services and Expatriate Global Solutions; Tax Risk Minimization; Tax Accounting; Tax Proceeding, Defense and Dispute Resolutions. PwC Chile is prepared to become every client's "one-stop-shop" solution provider.
Our Tax and Legal Services Department counts with a staff of excellence formed by approximately 400 professionals, most of which are lawyers and certified accountants, located in our offices at Santiago, Viña del Mar, Concepción, and Puerto Montt.
Our clients include important businesses, individuals and organizations, both national and international. We are capable of and have the experience to address matters arising from diverse industry sectors and from different economic arenas, such as mining, communication, retail, manufacturing, fishing, public and private concessions, and information technology, among others.
Combining its industry insights with the technical skills of its professionals, PwC Chile has become the main professional service provider for its clients, playing an important role into their success.
|Corporate Income Tax||25%||25.5%|
|Capital Gains Tax||24%||35%|
|Other fees and compensation for services rendered abroad||35%|
|Royalties from, for example, patents, know-how||0%||15%||30%|
|Branch Remittance Tax||35%|
The tax team at Baker McKenzie has a broad range of experience in tax matters. The firm comprises one partner, three associates and one member of counsel.
Baker McKenzie is renowned in the Chilean market. It has assisted in Grupo Security's acquisition of leading insurer Cruz Del Sur and Alliance Boots in the takeover of Farmacias Ahumada.
Alberto Maturana oversees the tax practice at the firm. Maturana is a frequent speaker in many tax conferences and has also published various literature on numerous tax matters. Another key member of the team is Sergio Illanes who has advised multinationals and Chilean companies in matters relating to tax litigation and foreign investment. He is also a professor at Universidad de Chile, Universidad Adolfo Ibañez, Universidad de Los Andes and Universidad Diego Portales.
Baraona Abogados provides services in venture capital, M&A, litigation, financing and capital market and tax advisory, among other services. Carolina Collantes is a partner at the firm whose practice focuses on litigation and general tax advisory.
Clients of the firm come from the financial and banking sectors, fishing and aquaculture, mining, production, food, energy and commerce.
Barros y Errázuriz Abogados, Taxand Chile is known for its expertise in tax and legal matters. The firm's clients come from a broad range of sectors, including financial services, telecommunications, construction, real estate, education, agriculture, among others.
The firm's services include compensation tax, international tax, transfer pricing, business restructuring, energy tax, M&A, indirect tax, real estate, individual tax and tax dispute resolution.
Fernando Barros heads the practice.
Bofill Mir & Álvarez is recognised for its strong tax practice across a range of industries. Its team of professionals is highly experienced in the fiscal aspects of major national and international transactions, M&A, tax treaties, tax planning, corporate financing and structuring. Alejandro Álvarez and Guillermo Fonseca are among the firm's key partners. Álvarez's practice focuses on corporate law, tax law, M&A, corporate finance, regulation and contracts while Fonseca's practice focuses on tax law.
The practitioners at Cabello, Letonja & Cía assist clients in restructuring, reviewing procedures and tax advisory. Juan Pablo Cabello oversees the practice. Cabello's practice centres on consultancy and tax planning for companies in the energy, banking, health, forestry and real estate sectors.
Partner Alexander Letonja's practice specialises in national and international tax consulting. He is also highly experienced in business restructuring processes. Luis Seguel provides local and international tax consultancy and assists clients with tax issues relating to the reorganisation of companies, among other things.
Jaime Carey and Jessica Power co-head the tax practice at Carey. The team comprises two partners, 17 associates, three accountants, two clerks and two members of counsel. New members of the team include Antonio Dourthe, Carlos Peña and Manuel Subiabre, who joined the firm in 2016.
Carey's tax group has a large team and offers a range of tax services, including tax consulting, tax planning, due diligence, audits and administrative procedures before the IRS and tax trials.
In the past year, it assisted Qatar Airways in the tax aspects of the acquisition of a 10% share of LATAM Airlines. It also assisted Sencorp with its corporate tax restructuring.
The firm advises a wide range of local and international companies in almost every sector. Its client list includes companies from the extractive industries, financial services, infrastructure and technology.
"The firm is extremely pleasant to work with, they are knowledgeable and very responsive," said one client. Another stated: "Its solutions and strategies have proven to be very successful."
Cariola Díez Pérez-Cotapos & Cía is a respected firm in the Chilean market. Its tax group provides tax advice in a broad range of areas, including M&A, corporate restructuring, capital markets, compensation plans and investment funds. José Luis Letelier is the principal partner at the firm.
Jorge Carraha is a partner at Claro & Cía. Carraha has represented multinational clients with tax planning, structuring of foreign investment, corporate restructuring and M&A.
The firm offers tax advice services in a wide range of tax matters, including examining the tax implications of different economic activities and in litigation defences at the administrative and judicial level.
Deloitte's tax practice is led by Pablo Albertini who has more than 31 years of industry experience.
The firm assists national and international clients with a broad range of tax matters, including auditing, consultancy, risk and tax. Deloitte is one of the biggest consulting firms in the country with a team of highly equipped practitioners who are able to advise clients in some of the most complex of areas of tax.
Pablo Greiber oversees the tax practice at EY. The firm provides services on a broad range of tax matters, including compliance and consultancy. Its client list includes companies from the government and public sector, private clients, financial services companies and the mining sector, among others.
The tax practice at Grupo Vial Serrano Abogados is led by Lisandro Serrano Romo. The tax group has two partners and one other fee earner, including Karen Milinarsky, who joined the firm in September 2016.
The firm's principal areas of work include the restructuring of personal assets and liabilities, reorganisations of companies, tax litigations and administrative agreements with the IRS. It also advises on customs and duties matters. This year, Grupo Vial Serrano Abogados has assisted Ingevec Group with VAT recovery on fixed assets. It has also advised a client on the tax effects deriving from the company's split off.
KPMG has a strong tax practice that has been steadily growing since 2010. The firm has close to 200 team members who are led by nine partners in six cities.
Francisco Lyon is the head of the firm's tax practice. Partners Rodrigo Stein, Mauricio Lopez, Andres Martinez and Alberto Cuevas have strong expertise in international and corporate tax. Juan Pablo Guerrero leads the transfer pricing group, while Rodrigo Avalos, Francisco Ramirez and Pedro Castro are in charge of the firm's tax compliance and management offerings practices.
KPMG's services include domestic and international tax advisory, tax disputes, corporate tax, labour tax, expatriate tax services, transfer pricing, capital market, tax planning and transactional tax issues, including tax due diligence and acquisition structuring.
"We have been working with them for a number of years and the service is very good," stated one client.
Víctor Manuel Avilés oversees the tax practice at Larrain y Asociados Abogados. The team comprises one partner and three other fee earners, including Manuel Larrain and Victoria Anacona.
The firm provides services in consultancy and litigation with a particular focus in local and duties taxes. The firm also has wide experience in matters relating to income tax, VAT, stamp tax and other national and international taxes. This year, Avilés advised Pucobre on its merger with Explorator. The firm also assisted GNL Chile with its negotiations with the IRS.
Further, the firm has also been involved in trial against the IRS in connection with the reimbursement of taxes paid in excess of the law.
One client praised Aviles, saying the service is "always prompt, practical, sophisticated and clear".
Guillermo Infante oversees the tax practice at Philippi Prietocarrizosa Ferrero DU & Uría. The team comprises two partners and 15 other professionals, including Mónica Francisca Aguilar Valderrama who joined the firm in July 2016.
In the past year, the firm has provided Red Eléctrica Internacional with tax advice relating to the joint venture with E.CL in Transmisora Eléctrica Del Norte. This regarded the interconnection of Chile's two main electrical systems, the SIC and the SING. It also advised Centinela on the implementation of a spin-off of a hydroelectric company which involved a preliminary capital increase.
In addition, Infante, Patricio Silva-Riesco and Arturo Selman assisted an international broadcasting company with legal defence in a trial relating to royalty payments for a television production.
Porte & Canales Abogados y Consultores provides services in tax consultancy financial and tax accounting and audit. It also assists clients in defences before the administrative and judicial courts. Rodolfo Porte and Octavio Canales are among the firm's key members.
PwC is a leading firm in the Chilean market. Its practitioners are experienced in international transactions and have assisted national and international clients with various cross-border matters. This year, the firm advised a client with the acquisition of a 75% equity interest in a fast-food company.
The tax team comprises 14 partners and 296 fee earners, including practice lead Francisco Selamé. Its practitioners have vast industry experience. Many are renowned tax experts and professors in the most prestigious universities in Chile. The firm offers services in international tax, transfer pricing, tax compliance and consultancy.
One client has praised the firm for its "customer service" and "technical knowledge".
The professionals at Salcedo & Cía offer services in tax analysis, advisory, transfer pricing and defence work. The firm has a multidisciplinary team that comprises lawyers, tax auditors, engineers and economists. Marcos Bravo, Claudio Salcedo and Marcelo Muñoz oversee the practice.
Sergio Sapag Pérez and Pablo Rodrigo González Suau are the founding members of Sapag & González Abogados. The firm provides tax advisory services to clients from a wide range of industries.
Tax Advisors offers services in tax planning, legal reports, judicial and administrative defences as well as tax advisory. Christian Blanche and Benjamin Bernstein are co-heads of the practice. Blanche is a specialist in corporate and family tax planning. He is also a founding partner of the firm and the director of corporate planning. Bernstein's practice focuses on tax planning with a focus on patrimonial safeguards, work schedules, transfer of assets in inheritance taxes and donations.
Ulloa & Compañía was founded in June 2016 and is led by Nicolás Ulloa. The firm provides services in domestic and international reorganisations, tax consultancy, tax controversies, accounting and reporting services. Its practitioners have specific knowledge on the tax and legal systems in US, UK, Peru and Colombia and are able to assist clients with a broad range of matters.
This year, the firm has assisted a client in the structuring of international investments which involved the tax structuring of assets subjected to a tax amnesty. It also assisted a client with a reorganisation and an international merger.
Ulloa & Compañía's main clients are Chilean high-net-worth families and Chilean corporations.
One client said: "We recommend Ulloa 100% as tax advisers. They are very reliable."
|Tier 1 - Chile|
|Tier 2 - Chile|
|Barros y Errázuriz Abogados, Taxand Chile|
|Philippi, Prietocarrizosa Ferrero DU & Uría|
|Tier 3 - Chile|
|Cabello, Letonja & Cía|
|Cariola Díez Pérez-Cotapos & Cía|
|Claro & Cia|
|Tier 4 - Chile|
|Bofill Mir & Álvarez Jana Abogados|
|Grupo Vial Serrano Abogados|
|Larrain y Asociados Abogados|
|Porte & Canales Abogados y Consultores|
|Salcedo & Cía|
|Sapag & González Abogados|
|Ulloa & Compañía|
|Fuensalida & Del Valle|
|Grupo Vial Serrano Abogados|
|Recabarren & Asociados|
|Philippi, Prietocarrizosa Ferrero DU & Uría|
|Claro & Cia|
|Grupo Vial Serrano Abogados|
|Salcedo & Cía|