Taxation is usually a distant concept to individuals and entities alike, due to the complexity and different interactions that the tax system and practices entail. The globalisation of commerce and new ways of trading means a new wave of difficulties for taxpayers to carry out their business. This has been exacerbated by COVID-19.
Tax administrations and new legislation are always looking for ways to improve interaction with taxpayers, in order to make the complexities of the diverse tax systems easier (but not necessarily easy) to understand and comply with.
One of the most evident manners these issues are reflected is through the diverse interpretations the tax administration makes of the tax law. As an example, the Chilean IRS publishes rulings and circular letters frequently. The first acts as interpretations applicable to a case submitted by a consultant taxpayer. The second serves as a systematisation of the Chilean IRS’ view of a particular matter.
After the 2014 tax reform, and following a continued effort to make the tax administration friendlier to its users, a public consultation mechanism was introduced in 2015. This meant the upload of circular letters projects to the Chilean IRS website, where taxpayers are able to post their comments on the project in a 14-day window. This showed preliminary feedback, allowing the administration to foresee the circular letter weak areas and the taxpayers’ areas of focus.
Even though the availability of this system is not new, COVID-19 and the 2020 tax reform has pushed both the administration and the taxpayers to a more extensive use of this online platform. The pandemic skyrocketed the use of digital mediums to interact with all types of institutions, while the second introduced a series of new provisions to be interpreted by the administration and taxpayers alike.
One recent experience is related to one of the 2020 tax reforms most practical changes: the new fiscal definition of ‘resident’, that now follows the OECD countries line and requires a certain number of days of stay. The Chilean IRS considered the application of the residence concept, in principle, for the whole calendar year when a certain taxpayer met the legal threshold (as a side note, given the requirement of a period that ‘exceeds 183 days’, the Chilean IRS set the threshold at 184 days).
This led to a series of comments regarding the extension of the new definition, where diverse taxpayers collaborated, especially regarding the aforementioned interpretation. This public consultation ended finally with improved and, perhaps more importantly, friendlier wording for the concluded circular letter issued on November 25, showing a demonstration of the value of taxpayers’ administration communication and communicability.
The efforts to make processes less complicated for taxpayers is ongoing on a series of fronts. The resolution derived from the aforementioned circular letter established a simplified online procedure to inform the loss of residence or domicile, allowing a less cumbersome process for taxpayers.
Continuing with the digitalisation process, and the expansion of e-commerce and digital services, the 2020 tax reform established a special VAT taxable event, for digital services provided from abroad, to which purpose it created a Simplified VAT Registry, that can be used by service providers from abroad, relieving taxpayers from invoicing and full registration in some cases.
As a final example, the 2020 tax reform introduced a new public institution, the Taxpayer’s Protection Office. This new institution was created in an effort to provide advice and guidance to taxpayers, as a counterweight to the Chilean IRS, especially focused on low-income individuals and entities. The experience related to the Protection Office is yet to be seen, as the national taxpayer’s protector has only recently been appointed, and the office will enter into operation at the beginning of 2022.
As tax reforms happened in rapid succession in Chile – with a high chance of more to come in the medium-term – the mechanisms to approach the tax administration and the interaction with all types of taxpayers will be crucial in allowing correct tax compliance, and more importantly, an easier and friendlier tax system in general.
Sandra Benedetto Back
Partner, PwC Chile
Andrés Torrejón Correa
Associate, PwC Chile
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