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Francisco Selamé Marchant |
Gregorio Martinez |
To benefit from a double tax treaty (DTT), non-domiciled non-residents of Chile should provide proof that they are residents for tax purposes in a country with which Chile has a DTT in force. Along with this, non-domiciled non-residents of Chile should also provide a sworn statement in which they declare that it has no permanent establishment (PE) to which the amounts should be attributed.
Regarding the sworn statement, the Chilean IRS issued this year the Resolution 48, in which the contents and terms of said statement are regulated. In this resolution, the Chilean IRS established that foreign taxpayers should declare that they do not have a PE to which the amounts should be attributed, at the moment the amounts are paid, distributed, withdrawn, remitted, credited to an account or put at disposition.
All these actions (payment, distribution, withdrawal, remittance, crediting to an account or putting at disposition) match the actions that the Chilean Income Tax Law (ITL) identifies as triggering the obligation to withhold taxes when making payment to a non-domiciled non-resident of Chile.
But does this always make sense?
When making a payment to a non-domiciled non-resident of Chile, withholding tax may apply. However, the withholding tax rate and amount to be withheld is not always determined at the moment it must be actually withheld and paid. In fact, the rate and amount could have been determined days, months or years before the moment the obligation to withhold and pay the tax is triggered.
According to the Chilean ITL, the mere action of accounting an expense for tax purposes does not trigger the obligation to withhold, but it does determine the rate of the withholding tax and therefore the amount to be later withheld.
This situation is really far more common than it could be expected, in fact, it could be said that it is the most common situation. Such is the case when the expense is accounted as an expense for tax purposes in the debtors accounting, but paid in a different later moment.
Therefore, should a non-domiciled non-resident of Chile, in order to benefit from a DTT, declare that he does not have a PE to which the amounts should be attributed at the moment the withholding obligation is triggered? Or would it make more sense that the declaration covers the moment the withholding tax rate is determined? Or even at both moments?
The abovementioned criterion that the Chilean IRS has taken regarding when the sworn statement should be performed may leave some questions; in the context of a DTT, should a non-domiciled non-resident of Chile benefit from a treaty, in the following scenarios?
At the moment the expense is accounted in Chile, the non-domiciled non-resident of Chile had a PE to which the amounts should be attributed. Three years later, the Chilean entity is set to pay and the non-domiciled non-resident of Chile does not have a PE anymore.
At the moment in which the expense is accounted in Chile, the non-domiciled non-resident of Chile did not have a PE to which the amounts should be attributed. Three years later, the Chilean entity is going to pay and the non-domicile non-resident of Chile does have a PE that performs the activities that generated the income that is going to be paid.
Or even further:
At the moment the expense is accounted in Chile, the non-domiciled non-resident of Chile did not have a PE to which the amounts should be attributed. Three years later, the Chilean entity is going to pay and there is no longer a DTT in place.
At the moment in which the expense is accounted in Chile, the non-domiciled non-resident of Chile did have a PE to which the amounts should be attributed. Three years later, the Chilean entity is going to pay and there is no longer a DTT in place.
Francisco Selamé Marchant (francisco.selame@cl.pwc.com) and Gregorio Martinez (gregorio.martinez@cl.pwc.com)
PwC
Tel: +562 29400150
Website: www.pwc.cl
