Chilean government introduces important changes to proposed tax on digital services
Sandra Benedetto and Fernando Binder analyse several amendments made by the Chilean government to the Tax Bill submitted to Congress in August last year, one of which seeks to tax digital services with value added tax (VAT).
During July of this year, the Chilean government introduced a number of amendments to the original Tax Bill that currently being discussed in the Senate. The original Tax Bill proposed the introduction of a new indirect tax, which levied, at a 10% rate, certain digital services provided by foreign companies to Chilean individuals on a gross basis. The tax originally proposed had the character of a substitute to other taxes and the withholding obligation felt on the financial intermediaries, such as the credit card issuers.
However, with the supposed goal of aligning the tax burden of traditional service providers with that of digital service providers, the Chilean government introduced important changes to the regulations described above.
Broadly speaking, the government decided to eliminate the special Services Digital Tax and to charge those services with VAT, by including them as a special taxable event within the Value Added Tax Law, thus increasing the rate to 19%.
Services that will be subject to this tax have also undergone changes. They are the following services:
intermediation of services rendered in Chile, of any nature or of sales performed in Chile or abroad provided the latter derives in an import;
the supply or delivery of digital entertainment content;
making available software, storage, platforms or technological infrastructure; and
advertising, regardless of the support or media through which it is materialised, delivered or performed.
An important change introduced by the amendments is that, as opposed to the initial Tax Bill where only digital services provided to individuals were taxed, the taxable event extends to the provision of digital services in business-to-business contexts.
As a presumption of fact, the amendments consider that a service is used in Chile, when the IP address of the device used by the user, or by any other geolocation mechanism, indicates that the device is in Chile, or when the means of payment used for the payment is issued or registered in Chile.
As a final comment, the government introduced an interesting change, making a simplified registration system available, where foreign companies will be able to declare and pay VAT derived from taxed digital services given to individuals. In cases where the services are rendered to entities, VAT reverse charge mechanism would apply.
The Tax Bill still has a long way to go to see the light. At the end of August, the Tax Bill with the amendments was approved by the chamber of deputies and it passed to the senate. The discussion in the senate is expected to begin in September and the Tax Bill is likely to continue undergoing changes in this process. We advise companies to keep monitoring this situation in order to prepare in case the Tax Bill is finally approved.