21 December 2015
Global Tax Alert
News from Americas Tax Center
Chile’s Executive
Branch proposes
bill to simplify new
income tax system
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On 15 December 2015, a proposed bill was sent to Congress, aiming to simplify
the new income tax system included in the Tax Reform published in September
2014 (Law N° 20.780). This bill also would modify other legal provisions.
The following is a summary of the main items addressed in the bill.
Election of new regimes
The bill would establish that the attribution regime may only be chosen by branches
and companies other than Anonymous Companies and Companies Limited by
Shares (in Spanish, Sociedades Anónimas and Sociedades en Comandita por
Acciones), that have exclusively (and at all times) partners/shareholders that are
Chilean individuals or taxpayers without residence/domicile in Chile.1 All other
entities would be taxed under the semi-integrated regime.
The obligation to return 35% of the first category tax (corporate) credit used in
a distribution made abroad under the semi-integrated regime (when the foreign
shareholder is not a resident of a Tax Treaty country) remains unaltered. A
provisional regime would be established, however, by virtue of which residents
of countries that have signed a Tax Treaty before 1 January 2017, which is not
in force, will be exempt from the obligation to return the percentage referred to
above. By 1 January 2020, the general rule will apply once again.
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Global Tax Alert Americas Tax Center
Modification of imputation orders
The bill would modify the imputation order for the
distribution/withdrawal of profits from Chilean entities in
both new regimes (attribution and semi-integrated regime).
First, distributions/withdrawals would be imputed to own
attributed profits (attribution regime) or profits subject to
tax (semi-integrated regime), then to the difference between
normal and accelerated depreciation for book purposes, and
subsequently to exempt income or non-taxable profits.
In relation to the semi-integrated regime, the bill would
determine the “profits subject to tax” by taking into account
only the tax profits that are part of the entity’s tax equity, not
those included in the entity’s book equity (notwithstanding,
the latter should be considered when a distribution/
withdrawal is effectively made).
Taxable base of the tax applicable
under thin capitalization rules
In this way, GAAR would not apply to effects/consequences
arising after 30 September 2015, when those effects/
consequences are derived from acts performed before that
date (regarding acts that were not modified after 30 September
2015).
Notwithstanding the above, the bill would apply GAAR to
acts materialized or concluded before 30 September 2015,
when rights/obligations derived from the acts are produced
or exercised continuously over time (i.e., obligations of
successive tract).
Finally, the bill would deem acts materialized or concluded
before 30 September 2015, as grounds for qualifying
subsequent acts as abusive/simulated (acts materialized or
concluded after 30 September 2015).
Withholding tax exemption for
commissions and other provisions of
Article 59
Under the bill, the taxable base would include interest paid
during the relevant year (plus the rest of the items described
in Article 41F of the Income Tax Law – ITL) that was subject
to a 4% withholding tax or to any rate lower than 35% (or
not subject to withholding tax at all) due to a reduction,
deduction or exemption established by local law or a Tax
Treaty. This involves modifying the current text of the law
that entered into force on 1 January 2015.
For purposes of applying the exemption of Article 59 N°2
of the ITL, the bill would no longer require the filing of the
relevant transaction (the transaction and its characteristics
would still have to be reported although no longer as a
requirement for the exemption to apply).
It is important to note that the bill would exclude from the
calculation of thin capitalization non-related loans maturing in
a period of less than 90 days, and financial type debtors would
not be included in the scope of the thin capitalization rules.
Foreign tax credit (FTC) rules would be modified so that
Chilean companies are able to recognize the indirect tax
credit when the relevant subsidiary is domiciled in a third
country; insofar as such country has a Tax Treaty with Chile
or allows the exchange of tax information.
Applicability of new General AntiAbuse Rules (GAAR)
Substitute tax
The bill would establish that, for purposes of applying the
GAAR, the relevant facts, acts or business (group or series
of them) should be deemed carried out or concluded before
30 September 2015, when their characteristics or elements
(determining their tax consequences) are not subsequently
modified (notwithstanding the fact that they continue
generating effects after 30 September).
Crediting of foreign taxes indirectly paid
The bill would maintain the possibility of paying a substitute
tax (instead of the Global Aggregate Tax or withholding tax
applicable upon distributions/withdrawals of cumulative tax
profits), with certain modifications: a) the entities entitled
to this benefit would: (1) be those composed of Chilean
individuals (only) or foreign shareholders/partners as of
1 January 2015; and (2) maintain FUT (i.e., a retained
Global Tax Alert Americas Tax Center
taxable profit fund) during calendar years 2015/2016; b)
the substitute tax would be allowed until April 2017; c) once
the tax is paid, the relevant amounts could be distributed
or withdrawn at any time without further taxation (even if
residual FUT is kept in the entity); d) the rate would be 32%
for foreign shareholders/partners, or the average proportion
of interests and marginal rates during 2014, 2015 and 2016
for Chilean individuals; e) the substitute tax would apply
partially or totally over FUT and would no longer limited to
the excess of average distributions/withdrawals of the last
three years; f) if shares/rights in the appropriate entity were
transferred after 1 January, 2015, the substitute tax rate
would be 32%.
Controlled foreign corporation (CFC)
rules
The bill would enhance the meaning of the term
“relationship” for purposes of determining control. The bill
would allow an exclusion from passive income when the
income derived is from a Chilean source. The FTC rules in
this regard would be simplified.
Cease activities of transferring assets
at tax basis
Entities that are liquidated during 2016 would be allowed
to return assets to their partners/shareholders at tax basis
value (rather than fair market value), and would not trigger
capital gains.
Endnote
1. For discussion of the attribution regime, see EY Global Tax Alert, Chile enacts tax reform, dated 10 October 2014.
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Global Tax Alert Americas Tax Center
For additional information with respect to this alert, please contact the following:
Ernst & Young Limitada, Santiago
•
•
•
•
Osiel González Azocar
Mauricio Loy
Felipe Espina Valenzula
Fernando Leigh
+56 2 676 1141
+56 2 676 1419
+56 2 676 1328
+56 2 676 1350
[email protected]
[email protected]
[email protected]
[email protected]
Ernst & Young LLP, Latin American Business Center, New York
• Pablo Wejcman
• Ana Mingramm
• Enrique Perez Grovas
+1 212 773 5129
+1 212 773 9190
+1 212 773 1594
Ernst & Young LLP, Latin American Business Center, London
• Jose Padilla
+44 20 7760 9253
[email protected]
[email protected]
[email protected]
[email protected]
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