Chile aiming to join era of indirect tax on digital services
As a rule, remuneration for services – digital or otherwise – rendered by a non-resident non-domiciled in Chile to Chilean taxpayers are subject to a withholding tax, with rates of up to 35% over the full paid amount depending on the type of service.
The tax is withheld, declared, and paid by the payer of the remuneration, independent of the means of payment.
Considering the number of users and different types of digital services (with various applicable rates), the Chilean tax system has a substantial flaw in how to control the compliance of such taxes; the investment required to assess every user and their payments exceeded the possible gains from such an assessment.
Enter the indirect tax on digital services.
A major tax bill was presented in Parliament on August 23 2018, entitled Modernisation of Tax Legislation. The bill proposes an assortment of changes, including a tax on digital services, which aims to resolve the abovementioned issues.
The proposed tax is characterised as a specific, indirect, and substitute tax, meaning that it only applies to a particular sector of the economy (i.e. digital services); the burden is easily passed on to consumers; and the tax replaces any other applicable tax, direct or indirect.
The tax rate is 10%, applicable to the full price paid by the consumer, and it is established by law that the withholding agent is the issuer of the electronic means of payment, i.e. the credit card issuer or online payment service provider.
Digital services means any digital intermediation activity between users and service providers (even if the final service is not digital), digital entertainment services (images, movies, videos, music, or games), marketing, and data storage (cloud storage).
The tax on digital services will coexist with the withholding tax exemption on standard software already present in Chilean legislation, and it remains to be seen how the Chilean IRS will apply it, especially considering that in their rulings, they have said that software-as-a-service benefits from the standard software exemption.