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Taxes on the digital economy in Chile

Rodrigo Winter Salgado and Raul Fuentes Ugalde of PwC provide an update on imminent changes and the status of tax in the digital economy (DE).

Announcement on new tax

On June 21 2018, the Chilean finance minister announced that the government was intending to apply a tax on the DE. He stated: "We have decided to include the taxation of the digital economy in our tax modernisation. We believe that companies … will be taxed, contributing to the development of Chile and levelling the 'playing field' with regard to their competitors."

The minister mentioned that specific details of the government's bill would be provided in September. However, he said that the government was studying what other OECD members had done in this regard, adding: "We are analysing an indirect taxation alternative like charging a tax on transactions."

Finally, we cannot ignore the finance minister's comment that "digital economy companies do not pay taxes (in Chile)".

OECD policies

Local and international tax systems were designed based on physical activity in a determined jurisdiction. In this sense, important tax challenges arise from the DE, which are being scrutinised by the OECD.

In 2015, the OECD delivered its final report containing 15 actions for addressing BEPS issues. The DE was tackled in particular in Action 1 (Addressing the tax challenges of the digital economy) and partially in Action 7 (Preventing the artificial avoidance of permanent establishment status).

In this sense, Action 1 agreed on:

  • Modifying the definition of permanent establishment (PE): It was also agreed to modify the definition of PE to address circumstances in which artificial arrangements relating to the sale of goods or services of one company in a multinational group effectively resulted in the conclusion of contracts, such that the sales should be treated as if they had been made by that company; and

  • Reducing exemptions to the definitions of PE: It was agreed to modify the list of exceptions to the definition of PE to ensure that each of the exceptions included therein is restricted to activities that are otherwise of a preparatory or auxiliary character, and to introduce a new anti-fragmentation rule to ensure that it is not possible to benefit from these exceptions through the fragmentation of business activities among closely related enterprises.

However, it is quite evident that the above actions are not sufficient, and that they do not include DE companies, which have no physical presence in a determined jurisdiction.

Likewise, the OECD mentioned that these measures combined with other BEPS actions would substantially address the BEPS issues exacerbated by the DE. However, it acknowledged that the DE raises tax challenges that go beyond BEPS, in particular for direct tax purposes: (i) nexus; (ii) data; and (iii) characterisation.

In this regard, Action 1 analysed (i) a new nexus in the form of a substantial economic presence; (ii) a withholding tax on certain types of digital transactions; and (iii) an equalisation levy.

It is important to bear in mind that when issuing the Action 1 report of 2015, none of the three options mentioned above were recommended. However, the OECD is engaging in a further study of the issue, committing to deliver a final report in 2020.

Tax challenges arising from digitalisation – interim report 2018 (OECD)

As we mentioned, a final report will be issued in 2020 however, an interim report was delivered in 2018. The interim report acknowledges that the OECD needs to gather more input and to monitor the evolution of the DE in order to have consensus-based solutions by 2020.

Additionally the OECD is concerned about uncoordinated and unilateral measures being used before the release of the final report. In this sense, since some countries are taking interim measures, they should take into account the following considerations: (i) be compliant with a country's international obligations; (ii) be temporary; (iii) be targeted; (iv) minimise over-taxation; (v) minimise the impact on start-ups, business creation and small businesses more generally; and (vi) minimise cost and complexity.

In this regard, the report considers an interim measure in the form of 'an excise tax on the supply of certain e-services within the jurisdiction that would apply to the gross consideration paid for the supply of such e-services'.

European Union (EU)

The EU is considering short-term and medium-to-long term measures.

The short-term measure would be interim until a final solution was found, and it proposes an excise tax over the gross revenues generated by some digital services in which the value is created through interaction with users on the website.

On the other hand, the medium-to-long term measures consider a new PE concept deriving from the 'significant digital presence' tax proposal; in this sense, it would be fundamental to identify the jurisdiction where the users operate.

Additionally, the significant digital presence proposal would require that transfer pricing provisions were adapted to this new concept.

Finally, it is important to bear in mind that the EU acknowledges the possibility that the medium-to-long term measures would affect double tax treaties, thus the latter would need to be amended.

Status in Chile


For income tax purposes, Chilean sourced income is defined as being derived from: (i) goods located in Chile; or (ii) activities developed in Chile.

Additionally, Chilean law also considers the concept of 'payment source' in order to apply withholding taxes to some payments going abroad.

Permanent establishment

Permanent establishments are not defined by Chilean law, but only by certain jurisprudence under which an agent has the authority to sign binding contracts (or preparatory documentation) on behalf of its head office. Additionally, under both this interpretation and the country's double tax treaties, DE companies usually fall below the threshold of activity to be considered a PE.

In this sense, a significant digital presence does not trigger a permanent establishment.

Withholding taxes

  • Payments overseas for commissions are exempted. By 'commissions', the law is referring to any payment related to a commercial mandate.

  • The scope of exemption is quite broad, for instance, DE transportation, hospitality and retail companies could benefit from this exemption.

  • Article 7 of all the double taxation treaties that Chile has entered into: since many of the services of these companies are rendered completely from abroad without triggering a PE, they are exempt from taxation in Chile.

  • Therefore, DE companies whose services cannot be characterised as a commercial mandate might be subject to double tax treaty exemption under Article 7. Moreover, most services provided by DE companies might fall into this category.

  • Small and medium-sized enterprises are exempt from withholding tax.

  • Non-customised software: standard software and related services that are considered indispensable for its use are exempt.

What happens with services that do not fall within any of the above mentioned exemptions?

If services cannot be characterised under any of the exemptions mentioned above, they could either be subject to a general rate of 35%, or 30% in the case of certain royalties, or 15% in the case of certain patents, utility models and software. However, in cases where there is a double tax treaty in force and services are characterised as royalties as per the treaty, reduced rates might be available.

Additionally, despite the fact that under Chilean income tax law the taxpayer of the withholding tax is the non-resident taxpayer (that is, the DE company), the law provides that the liability in the first instance for withholding the relevant tax falls to the Chilean resident payer.


In order to avoid the double taxation of withholding taxes and VAT, the law provides that services are exempt from VAT payments subject to withholding tax unless: (i) the services are rendered from Chile; and (ii) they are exempt from withholding tax due to an internal provision or a double tax treaty exemption.

The above means that payments are exempt, unless both of the two circumstances mentioned above are met. However, in the case of DE companies, the first of the circumstances mentioned, that is, that services are rendered from Chile, is usually not met, since their services are almost always rendered abroad.

In this sense, under Chilean legislation, DE companies are not only exempt from withholding taxes but also from VAT.

Additionally, there are exemptions in place for the importing of goods below certain amounts.

Challenges for Chilean legislation

The government has only recently made these announcements, and no accurate related information has been provided as yet.

However, the 'indirect taxation alternative of tax over the transaction' would be in line with OECD's guidelines on interim measures, including: 'an excise tax on the gross consideration paid for the supply of such e-services'. Moreover, this alternative would be outside the scope of the double tax treaties signed by Chile since it is not referred to as an income tax.

Even supposing the incorporation of this new tax, Chilean legislation would still be obsolete for DE purposes, especially regarding the nexus and PE concepts. In this sense, a more comprehensive reform would be needed, incorporating a PE for significant digital presences, or to include the PE concept within the law. There is also a need for new source rules regarding digital services to be issued, both from a VAT and income tax perspective.

Finally, further changes might require that Chile amends its double tax treaties. In this sense, in our opinion it would be advisable to wait for the OECD's final report in 2020 before taking further action, since is possible that any actions needed would require a multinational effort.

Rodrigo Winter Salgado


PwC Chile

Tel: +56 2 2940 0155

Rodrigo Winter Salgado joined PwC Chile in 2009 and became a partner in 2016.

He graduated with a law degree from Pontifical Catholic University and has an LLM in international taxation from the University of Florida and an LLM in tax law from the University of Chile.

Raul Fuentes Ugalde

PwC Chile

Raul Fuentes Ugalde joined PwC Chile in 2016.

He graduated with a law degree from Pontifical Catholic University and is studying for an LLM in taxation at the same university.

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