Indeed, the Chilean tax authority, in Rulings No. 606 of
2015 and No. 2494 of 2016, referred to the application of
Article 7 and Article 12 of the Chile–Spain DTA as a
distribution agreement. Following the commentaries on Article
12 of the OECD Model Tax Convention, the taxpayer interpreted
that payments for distribution rights should not fall within
the scope of Article 12, but instead should fall under Article
7, since they would not be made for the use of, or the right to
use, an element that was included in the definition of
'royalty' in Article 12.
However, the tax authority did not agree with this
interpretation. Instead it declared that payments would
consitute a royalty under Article 12 of the DTA, based on the
fact that Spain made a special reservation, under which it
stated that it did not concur with the interpretation that
distribution rights for software should be deemed business
Furthermore, the Chilean IRS ruled that, even if such a
reservation did not exist, payments for the distribution of
software should be deemed royalties, as Chilean DTAs do not
follow the OECD Model Tax Convention, given that they include
under the royalty definition the expression: "or other
intangible property". The tax authority's understanding is that
this phrase was expressly included in order to broaden the
application of Article 12 to any kind of intangible asset.
Based on this difference, the Chilean IRS, in this case, seems
not to follow the commentaries issued by the OECD to the
These criteria were further confirmed through Rulings No.
124 and No. 125 of 2018, where the Chilean IRS insisted that
payments for distribution rights on software and on a
television channel, should fall within the scope of Article 12,
because they would constitute "other intangible property".
Even though these criteria are highly debatable, it cannot
be ignored that the Chilean IRS seems to have a formal position
on the taxation that should be applicable to distribution
rights at least for DTA purposes. However, from a domestic law
perspective, and particularly as regards software, there are
still some exemptions that could be explored.
Given the above, it is quite important that companies
operating in Chile under any kind of distribution structures
take into account the Chilean IRS's position on the application
of Article 12, as this could potentially imply that withholding
taxes could be applied in Chile. It is also crucial that a
thorough review of the relevant agreements and licences is
performed, to further confirm the tax treatment from a domestic
law perspective, especially to determine whether some
exemptions available on software could be applied.
Santiago Lopez (firstname.lastname@example.org)
and Nicolas Foppiano (email@example.com)