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Chile: Update on preferential tax regimes

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Tax Reform Law 20.780 of 2014 introduced Article 41, letter H to the Chilean Income Tax Law, setting new criteria in order to determine whether a preferential tax regime was characterised for Chilean tax matters.

Since 2003, the characterisation of a preferential tax regime in Chile was entrusted to a fixed blacklist of 39 tax haven jurisdictions based on the OECD report of 1998, 'Harmful Tax Competition: an Emerging Global Issue', and its 2000 update. The aforementioned blacklist was issued by the Chilean Ministry of Finance (Decree 628 of 2003) and was relevant regarding certain international transactions, triggering the application of special rules when such transactions were performed involving a tax haven (i.e. long arm capital gain rules, thin capitalisation rules, royalty payments and remuneration for services).

Tax Reform Law 20.780 of 2014 introduced Article 41, letter H to the Chilean Income Tax Law, setting new criteria in order to determine whether a preferential tax regime was characterised for Chilean tax matters. According to such provision, a jurisdiction or territory would be deemed as having a null or preferential tax regime, when at least two of the following requirements were met: (a) its effective tax rate for foreign income is less than 17.5%; (b) the jurisdiction has not entered into an agreement with Chile for the exchange of information for tax purposes; (c) legislation of the jurisdiction does not provide for transfer pricing rules, which substantially comply with OECD recommendations; (d) the jurisdiction does not have the conditions to be considered as compliant or substantially compliant with OECD international standards in matters of transparency and exchange of information for tax purposes; (e) the jurisdiction maintains preferential tax regimes that do not follow OECD standards; and/or (f) the jurisdiction only impose taxes on domestic source income. Article 41, letter H allows taxpayers to apply before the Chilean Internal Revenue Service for a specific pronouncement, confirming whether a jurisdiction would be deemed as having a preferential tax regime as per the requirements set forth above.

Henceforth, since 2014, Chile has held two different rules in order to determine whether a jurisdiction would be deemed as having a preferential tax regime: one that provided a specific list of tax havens, and another that required an analysis of the requirements listed above.

Law 21.047 of November 23 2017 indirectly repealed the blacklist established by the Ministry of Finance and, as of December 1 2017, the characterisation of a preferential tax regime was entrusted solely to Article 41, letter H.

The Chilean Internal Revenue issued a preliminary list of possible preferential regimes in December 2017 (Resolution 124 of 2017) that included 150 preferential tax regimes. In July 2018, an updated list was issued by the tax authority (Resolution 55), reducing the list from 150 to 147 preferential regimes. Uruguay and Panama were excluded from the list, as both jurisdictions signed the Convention on Mutual Administrative Assistance in Tax Matters (MAAT) and introduced amendments to their internal tax legislation following BEPS recommendations.

The preferential tax regimes list is expected to be updated periodically, at least once a year, according to the Chilean Internal Revenue Service. This matter should be closely monitored as countries continue to adapt to new standards and trends on international taxation and transparency.

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