Chilean domestic law provides a withholding mechanism that
requires the Chilean resident who pays a non-domicile or
non-resident to withhold the amount of tax due and revert it to
the tax authorities.
Before the latest tax reform, the law requested that in
order to apply a double tax treaty (DTA) and, therefore,
prevent withholding or perform a limited one, a residence
certificate and a sworn statement of having no permanent
establishment had to be presented. However, due to the tax
reform, since January 1 2017, a provision was added that states
the foreigner should also be a beneficiary of the DTA.
The Chilean Internal Revenue Service (IRS) recently issued a
ruling establishing their view over the concept "beneficiary of
a DTA", explaining that the expression meant a person that in
virtue of their residence can invoke the benefits established
by the corresponding DTA regarding the corresponding
This confirms the criterion of the Chilean IRS that a
resident of a contracting state, in the context of a DTA, is
not always a synonym of beneficiary of a DTA.
The abovementioned criterion is closely related to the
recommendations introduced by the Multilateral Convention to
implement tax treaty related measures to prevent base erosion
and profit shifting related to the prevention of treaty abuse.
These recommendations have been incorporated in the latest DTAs
subscribed by Chile.
In line with the above and acting in accordance with Action
6 of the BEPS action plan, a principal purpose test clause was
introduced in Chile's DTAs with Japan and Italy. Limitation of
benefits clauses were introduced in DTAs held with Uruguay and
The inclusion of these clauses in DTAs improves the control
and assessment of international tax planning, but the practical
effects should also be considered. These clauses establish a
very important burden on the withholding agent, where they will
have to request a no PE declaration, a certificate of residency
of the foreign taxpayer and perform a tax analysis of such
taxpayer to apply principal purpose test or limitation of
benefits clauses. However, technicalities are involved, but not
every withholding agent has familiarised themselves with these
– they should do so now.
Gregorio Martínez (firstname.lastname@example.org)
and Ignacio Núñez (email@example.com)
Tel: +56 2 2940 0000