Law
20,780 of tax reform (the "tax reform") provides for gradual
implementation, with full effect to January 1, 2017. To simplify the understanding
of the tax reform, the following description omits the reforms proposed for
small and medium enterprises and the transitional rules until January 1, 2017.
Increased Business Tax System and Dual
Regimen
The
tax reform considered a progressive increase in the first category tax, from
20% today to 25% or 27% depending on the tax regime adopted by the company. In
this respect, tax reform contains two new alternative taxation regimes.
On
one hand, a system of allocation will affect a 25% rate of income earned by the
companies each tax year, which will be immediately allocated to the
shareholders ("Schedule A"). On the other hand, a system of partial
integration will affect a rate of 27% income derived by companies ("Regime
B"). Under the Scheme B, it is allowed to defer payment of final taxes
affecting shareholders until the effective withdrawal or distribution of
company profits, but only allows use as a credit to 65% of the taxes paid by
the company, except the shareholder is domiciled in a country with an
agreement.
In
addition, the tax base is expanded businesses by, among others,
(1)
The new rules for controlled foreign companies ("CFC");
(2)
The amendment of the rules of over indebtedness;
(3)
Rejection and limitation of certain deductions;
(4)
The limitation on the use of tax losses resulting from the reforms, and
(5)
Limiting gain preferential use of capital and investment funds that granted tax
benefits schemes.
Additional tax on dividends
According to
the tax reform, the rules on withholding obligations are modified. In this
regard, it should be distinguished according affect the rate at which the
respective company is located.
In the case of
Scheme A, the additional tax withholding shall be made except for withdrawals
or distributions and remittances that are charged to the "bottom D" (i.e.
the case of utilities that have not paid taxes late); in the case of Regime B,
retention or distributions shall be made to correspond to affected remittances
to additional tax revenues.
In the case of
Regime B, available credit against the Additional Tax is 65% tax of First
Category. This rule does not apply to countries with double taxation agreements
with Chile, in which case 100% is granted.
Rules on over indebtedness
They
accordance with the new rules on excessive debt, interest payments, fees,
services and any other conventional charge, under loans, debt instruments and
other transactions and contracts corresponding to over indebtedness determined
at year-end will be taxed with a flat tax of 35%.
There will be
"over-indebtedness" when taxpayer's total annual debt exceeds 3 times
its equity at the end of the respective financial year, taking into
consideration the following rules:
(1) The limit
of 3: 1 for the ratio between debt and equity is determined by considering both
related debt as obtained from third parties. Currently, only it considered the
debt with related parties.
(2) This limit
of 3: 1 is evaluated annually, instead of only in the year of granting credit.
(3) The
penalty tax on interest deemed excessive (i.e. 35%) applies not only on
interest, but on all charges and fees associated with excessive debt.
Source Rules for Debt Instruments
Bonds and
other debt securities issued in Chile by Chilean companies understand located
in Chile and, therefore, the capital gain on disposal made by non-residents
will be subject to taxes in the country. In addition, interest earned on debt
securities issued by permanent establishments of Chilean companies abroad has
their source in Chile.
Capital Gain: Elimination of Single Tax
Currently, the
capital gain made on the sale of shares in Chilean companies can benefit from a
flat tax of 20%.
The tax reform
was to eliminate this reduced tax rate and the capital gains tax from end 2017.
To this end, the option to tax based on perceived or accrued income is granted.
In the case of natural persons resident in Chile who opt to be taxed based on
income received, the rate at which the highest value is taxed, it would be
equivalent to the average marginal rate of Complementary Tax during the period
in which the taxpayer had ownership the actions. In the case of non-residents,
the additional tax of 35% would apply.
CFC rules
Passive income
of foreign entities would be recognized on an accrual basis by entities or
drivers resident in Chile assets. This is because an attempt to adapt to the
OECD taxation standards.
Passive income
includes dividends, interest (except to banks or financial institutions),
royalties, certain capital gains, rental income property (except for entities
to which that is their main business), and income from operations in specific parts
Related Chilean.
It is
understood that a foreign entity is controlled by a shareholder when the latter
(1) Holds 50%
or more interest on capital, profits or votes of the respective foreign
company, or;
(2) Can choose
either to elect a majority of its directors, or
(3) Have
unilateral authority to amend its statutes. Additionally, it is presumed
controlled entities resident in tax havens, unless proven otherwise.
Definition of Tax Paradise
Instead of an
exhaustive list of tax havens, tax reform would define " tax haven "
as a jurisdiction that meets at least two of the following criteria:
(1) Levied on
foreign income with a rate lower than 17.5 % (in the event that the country
implement a progressive tax rate, you must determine an " average rate
" for these purposes)
(2) Has no
information exchange agreement with Chile,
(3) Has no
relevant transfer pricing rules,
(4) It is
identified as having a preferential tax regime by the OECD, or
(5) Only local
source income taxes.
Yet not
considered tax havens any OECD member country.
Transfer Pricing Rules
International
reorganizations and restructurings involving assets or export activities would
be subject to scrutiny under the rules of transfer pricing.
Tax Amnesty Program
The tax reform
provides for a program to regularize those Chileans income taxpayers who have
not been duly declared and taxed in Chile. This requires the payment of a
single tax of 8% on the value of the assets and income to declare, which aims
to presume the good faith of the taxpayer and extinguish the civil, criminal
and administrative responsibility for breach of tax obligations, Corporations
and applicable securities market.
The tax reform
contains a number of requirements and conditions for the application of this
mechanism. Among others, the assets and income must be
(1) Intangible
nature of nominative furniture
(2) Financial
instruments (bonds, fund shares, deposits and the like) or
(3) Securities
payable in foreign currency or currencies. They should also be located abroad
(excluding those ranked by the Financial Action Task Force (FATF) as high risk
or uncooperative in matters of prevention and combat money laundering and
terrorist financing jurisdictions), unless Chile maintained through third
foreigners. In addition, this mechanism would only apply in respect of property
acquired prior to January 1, 2014.
The tax reform
also establishes certain exclusions. For example, applicants may not have been
brought to trial, executed or convicted of certain offenses or being summoned,
liquidated, reliquidados or rotated relative to the corresponding assets and
income.
The procedure
begins with a statement of interest to the Internal Revenue Service, which must
be detailed in the respective assets and income, your recovery, and credited
his direct ownership or through third parties. Filed such a declaration, the
SII issued a twist of taxes must be paid within 10 business days.
IBS has a term
of one year to oversee this declaration can determine tax differences and
resolve the breach of the requirements of the standard. This resolution is
claimable under the general rules of the Tax Code. Failure confirmed by a court
decision, the only tax already paid will not be returned to the taxpayer and
the person does not enjoy the exemption from liability under this mechanism.
This system
does not relieve taxpayers of their obligations regarding the prevention of
money laundering and terrorist financing.
It should be
noted that, given its highly exceptional, taxpayers might only invoke this
mechanism during the calendar year 2015. The failure to opt for the same
constitutes an aggravating factor for the application of the penalty provided
in Article 97 No. 4 of the Code Tax.
Seal and Stamp Tax
The tax reform
also increases the rates of the Stamp Tax twice the current and maximum rate
being 0.8%. However, the reduced rate currently affecting mortgage loans for
the purchase of properties DFL2 remains.
New tax treatment of goodwill tax
The tax
goodwill occurs in improper merger of companies when the value of the total
investment in the acquisition of the acquired company exceeds its tax equity.
The tax reform
establishes that the goodwill generated in this process should be distributed
among non-monetary assets received by the acquiring company to its market
value. Currently, this excess can be amortized as tax expenditure over a period
of 10 years, but since 2015 this difference should be recorded as an intangible
asset, punishable only to the dissolution or termination of business in
society.
Mergers
carried out since January 1, 2015 has this new treatment. Exceptionally those
initiated in 2014 and completed in 2015 enjoy the current treatment. (See
Resolution No. 111/2014 of the Internal Revenue Service).
References to
shares or social rights include dividends and profit sharing. References
partners include partner’s partnerships and shareholders of corporations.
Translated by:
Mónica Landaluce.
