International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Chile: Withholding tax, treaties and provision of PE certificates

selame.jpg

martinez.jpg

Francisco Selamé Marchant


Gregorio Martinez

To benefit from a double tax treaty (DTT), non-domiciled non-residents of Chile should provide proof that they are residents for tax purposes in a country with which Chile has a DTT in force. Along with this, non-domiciled non-residents of Chile should also provide a sworn statement in which they declare that it has no permanent establishment (PE) to which the amounts should be attributed.

Regarding the sworn statement, the Chilean IRS issued this year the Resolution 48, in which the contents and terms of said statement are regulated. In this resolution, the Chilean IRS established that foreign taxpayers should declare that they do not have a PE to which the amounts should be attributed, at the moment the amounts are paid, distributed, withdrawn, remitted, credited to an account or put at disposition.

All these actions (payment, distribution, withdrawal, remittance, crediting to an account or putting at disposition) match the actions that the Chilean Income Tax Law (ITL) identifies as triggering the obligation to withhold taxes when making payment to a non-domiciled non-resident of Chile.

But does this always make sense?

When making a payment to a non-domiciled non-resident of Chile, withholding tax may apply. However, the withholding tax rate and amount to be withheld is not always determined at the moment it must be actually withheld and paid. In fact, the rate and amount could have been determined days, months or years before the moment the obligation to withhold and pay the tax is triggered.

According to the Chilean ITL, the mere action of accounting an expense for tax purposes does not trigger the obligation to withhold, but it does determine the rate of the withholding tax and therefore the amount to be later withheld.

This situation is really far more common than it could be expected, in fact, it could be said that it is the most common situation. Such is the case when the expense is accounted as an expense for tax purposes in the debtors accounting, but paid in a different later moment.

Therefore, should a non-domiciled non-resident of Chile, in order to benefit from a DTT, declare that he does not have a PE to which the amounts should be attributed at the moment the withholding obligation is triggered? Or would it make more sense that the declaration covers the moment the withholding tax rate is determined? Or even at both moments?

The abovementioned criterion that the Chilean IRS has taken regarding when the sworn statement should be performed may leave some questions; in the context of a DTT, should a non-domiciled non-resident of Chile benefit from a treaty, in the following scenarios?

  • At the moment the expense is accounted in Chile, the non-domiciled non-resident of Chile had a PE to which the amounts should be attributed. Three years later, the Chilean entity is set to pay and the non-domiciled non-resident of Chile does not have a PE anymore.

  • At the moment in which the expense is accounted in Chile, the non-domiciled non-resident of Chile did not have a PE to which the amounts should be attributed. Three years later, the Chilean entity is going to pay and the non-domicile non-resident of Chile does have a PE that performs the activities that generated the income that is going to be paid.

Or even further:

  • At the moment the expense is accounted in Chile, the non-domiciled non-resident of Chile did not have a PE to which the amounts should be attributed. Three years later, the Chilean entity is going to pay and there is no longer a DTT in place.

  • At the moment in which the expense is accounted in Chile, the non-domiciled non-resident of Chile did have a PE to which the amounts should be attributed. Three years later, the Chilean entity is going to pay and there is no longer a DTT in place.

Francisco Selamé Marchant (francisco.selame@cl.pwc.com) and Gregorio Martinez (gregorio.martinez@cl.pwc.com)

PwC

Tel: +562 29400150

Website: www.pwc.cl

more across site & bottom lb ros

More from across our site

Two months since EU political agreement on pillar two and few member states have made progress on new national laws, but the arrival of OECD technical guidance should quicken the pace. Ralph Cunningham reports.
It’s one of the great ironies of recent history that a populist Republican may have helped make international tax policy more progressive.
Lawmakers have up to 120 days to decide the future of Brazil’s unique transfer pricing rules, but many taxpayers are wary of radical change.
Shell reports profits of £32.2 billion, prompting calls for higher taxes on energy companies, while the IMF warns Australia to raise taxes to sustain public spending.
Governments now have the final OECD guidance on how to implement the 15% global minimum corporate tax rate.
The Indian company, which is contesting the bill, has a family connection to UK Prime Minister Rishi Sunak – whose government has just been hit by a tax scandal.
Developments included calls for tax reform in Malaysia and the US, concerns about the level of the VAT threshold in the UK, Ukraine’s preparations for EU accession, and more.
A steady stream of countries has announced steps towards implementing pillar two, but Korea has got there first. Ralph Cunningham finds out what tax executives should do next.
The BEPS Monitoring Group has found a rare point of agreement with business bodies advocating an EU-wide one-stop-shop for compliance under BEFIT.
Former PwC partner Peter-John Collins has been banned from serving as a tax agent in Australia, while Brazil reports its best-ever year of tax collection on record.