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Chile: Tax consequences on international mergers


International mergers have been a topic of discussion in the tax arena lately. Astrid Schudeck and Francisca Peña of PwC Chile examine whether or not they may be done without any Chilean tax consequences.


Astrid Schudeck

Francisca Peña

International mergers have been a topic of discussion in the tax arena lately, particularly regarding whether or not they may be done without any Chilean tax consequences. If the merger means the absorption of one or more companies into a single existing company, could this derive in a capital gain for Chilean tax purposes when the transfer of a Chilean company is involved?

As a general rule, the Chilean Internal Revenue Service (Chilean IRS) is allowed to assess the value assigned by the parties to the assets transferred as a result of any transaction.

Nevertheless, the Chilean tax law provides for a reorganisation exemption applicable to mergers and splits. To that effect, Chilean IRS has stated that it will not be able to assess an international merger if the absorbing company maintains the Chilean tax cost value registered for the assets being transferred at the level of the absorbed company before the merger takes place, as long as the merger that is performed abroad has the same characteristics as a Chilean merger. The key point is that the foreign merger should not imply a liquidation of the absorbed entity so the absorbing one continues as a legal entity.

Recently, the Chilean IRS has issued two rulings regarding this matter:

  • Ruling No. 2734 of 2016: The taxpayer was evaluating the reorganisation of a company group, where firstly a split of a foreign company takes place and afterwards a merger between two foreign companies. The absorbed entity owned shares of a Chilean entity; and

  • Ruling No. 10 of 2017: In this particular case, a foreign company decided to reorganise its group structure that involved Chilean shares. The taxpayer asked the Chilean IRS about the tax consequences of possible merger alternatives. One of them envisaged a universal succession where one of the foreign companies absorbs all the assets and liabilities of the other.

In both rulings, the Chilean IRS concluded that tax neutrality will apply as long as the Chilean tax cost of the assets and liabilities of the absorbed company are maintained at the level of the absorbing entity and as long as the merger generates the same effects in the relevant countries as a merger taking place in Chile.

Therefore, is it possible to say that the criteria adopted by the Chilean tax authority is that an international merger can be done with Chilean tax neutrality as long as it complies with the requirements previously mentioned.

However, this topic has not been fully solved yet. There is still no clarity regarding cross-border mergers, the application of the reorganisation exemption in the case of a merger involving an indirect transfer of Chilean assets because the commented rulings only referred to direct ones and the Chilean tax treatment of the differences that may exist between values paid for the foreign entity abroad and the Chilean tax cost of the underlying Chilean assets.

Astrid Schudeck (senior manager) and Francisca Peña (associate)


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