Chile reports a rise in tax challenges emerging from the pandemic

International Tax Review is part of Legal Benchmarking Limited, 4 Bouverie Street, London, EC4Y 8AX

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

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

Chile reports a rise in tax challenges emerging from the pandemic

Sponsored by

sponsored-firms-pwc.png
For tax purposes, the 'new normal' has brought unforeseen and challenging scenarios.

Sandra Benedetto and Alejandra Salinas of PwC Chile consider how national lockdowns have created innovative tax challenges for cross-border workers.

On March 11 2020, the World Health Organization (WHO) declared COVID-19 as a pandemic. Most of the world has had to quarantine, millions have lost their jobs and others – the lucky ones – have been forced to start working from home. 

While the idea had been around for a while, in order to survive the pandemic, most businesses had to make the shift completely to remote-working. Our conception of work has undergone severe changes, and situations that seemed inconceivable some time ago, are now happening. 



For instance, the need to daily go to a certain workplace will most probably be outdated sooner than later and certain jobs will no longer require any physical presence at all, especially in the case of service companies. With remote-working, the employees could even work from a country other than the one where their employer is located. 



For tax purposes, this new way of working represents several unforeseen and challenging scenarios. Among these scenarios, the possibility of an employee working from another country could imply undesired tax consequences for both the companies (employers) and the employees. 



From the employer’s perspective, a scenario in which one of its employees works from another country could be deemed to be a permanent establishment (PE) in this other country. 



Indeed, in the case of Chile, on February 24 2020, the Chilean Tax Modernisation Bill was enacted, introducing several modifications, such as a legal definition of PE. 



In this sense, a permanent establishment would be deemed to exist where: 

  • A place is utilised to perform permanently or habitually all or part of a business or activity of an entity without residence or domicile in Chile; and

  • A foreign individual or entity performs its activity in Chile through a representative who habitually closes agreements related to the business of the entity without residence or domicile, or has a key role in the closing of the agreements, or negotiates key parts of the agreements which are not further modified. This excludes auxiliary and preparatory activities. 


Considering this definition, if an employee of a foreign entity was locked down in Chile due to the pandemic and continues to work from here, it could potentially have a PE in Chile. 




Note that PEs in Chile shall comply with several tax obligations, among others, to file annual tax returns on their worldwide source income. Another relevant issue would be then how to attribute income to such PE. The same situation could be identified the other way around, thus, workers from Chilean entities being locked down in third countries could create the risk of being considered a PE. 



On the other hand, in the case of the employees, their salaries could be subject to taxation by both the country where they are located and by the country where their employer is located. 



These risks could be countered, but not eliminated, by the existence of a double taxation treaty or the utilisation of tax credits. Nonetheless, they would certainly be in a less favourable position than other employees that did not render services from another country. 



Even though the control of these situations represents a challenge for tax authorities, we cannot deny that there is a matter that needs to be further discussed. It seems that the old concept of ‘residence vs source’ is being put under scrutiny due to these new ways to provide services under a highly connected and technological world. 





Sandra Benedetto

T: +56 2 29400155

E: sandra.benedetto@pwc.com



Alejandra Salinas

T: +56 2 29400030

E: alejandra.s.salinas.aljovin@pwc.com



more across site & shared bottom lb ros

More from across our site

Countries which care about fair taxation of tech multinationals and equitable global distribution of wealth should back the UN’s tax framework, writes economist Abdelmalek Riad
The cuts disproportionately affected staff in certain positions, the report also found; in other news, MHA announced the €24m acquisition of Baker Tilly South East Europe
The plan aims to improve the efficiency, transparency, and effectiveness of direct tax administration in India
Meanwhile, South Africa’s finance minister has accepted a court decision on suspending a VAT increase and US President Donald Trump mulls a 100% tariff on foreign films
Jaime Carey speaks about the benefits of his tax background, DEI values, the use of AI for a smarter legal practice, and other priorities that will define his presidency
Historically low levels of attrition over consecutive years made a ‘difficult decision’ necessary, PwC has reportedly said
WTS Global is also vetting new potential member firms in Algeria, Cote D’Ivoire and Benin, Kelly Mgbor tells ITR in an exclusive interview
The scope of qualifying pillar two tax credits could reportedly be broadened; in other news, hundreds of IRS appeals staff are to resign
For many taxpayers, the prospect of long-term certainty that a bilateral APA offers can override concerns about time, cost and confidentiality
Levine, who served under the Joe Biden administration, led the US’s negotiations on the OECD’s two-pillar solution
Gift this article