Modifications to the indirect transfer reporting obligations in Chile
Gregorio Martínez and Nicolas Foppiano of PwC Chile discuss the changes to the reporting rules in relation to the indirect sale of foreign entities that indirectly own Chilean underlying assets.
The Chilean IRS has issued Resolution 119/2020 (Resolution 119) and Resolution 11/2021 (Resolution 11) which provides further information regarding the indirect sale of foreign entities that indirectly own Chilean underlying assets (i.e. shares/quotas of a Chilean company, Chilean movable or immovable property, Chilean PE). The regulations became effective on January 1 2021.
The new resolutions modify the reporting rules that have been in effect since 2015 and established by Resolution 65/2015 (Resolution 65), regarding the indirect sale provision introduced by the Tax Reform of 2012 to our Income Tax Law.
Before reviewing these new obligations, it is important to bear in mind that the taxable event regarding the indirect sale of Chilean underlying assets has not been modified, these modifications only affect the reporting duties.
Regarding the new regulations that are in place, the most relevant changes refers to which party is obliged to inform and which transactions must be informed.
Resolution 119 has been in force since January 1 2021 and requires that all parties involved report the indirect transfer (seller, buyer and Chilean entity owner of the Chilean underlying assets). This is a significant change from the previous regulations, which only obliged the seller to report the operations. Previously, the buyer or the Chilean underlying asset could also do it if the seller did not do it or if they did not agree with the information provided by the seller. Going forward, all parties have to declare.
Reporting must be performed before the last business day of the month following the one in which the transfer occurs. Nevertheless, if the Chilean underlying asset is not informed at the time of the transaction, then the required sworn affidavit may be filed before the last day of the sixth month after the operation.
Also, Resolution 119 established that all indirect transfers involving Chilean underlying assets must be reported, even if the tests of the taxable event are not met. Resolution 119 does not provide a threshold for the reporting, and therefore, any transaction involving Chilean underlying assets should be reported. Potentially, this could have an impact on stock corporations whose shares are transferred in a stock market, in which case those transactions should have been reported to the Chilean IRS.
To rectify this issue the Chilean IRS issued Resolution 11 (February 4 2021) which states that it is only necessary to report the transaction or group of transactions in which the transferred assets represent at least 10% of the shares (or quotas or rights) of the foreign entity being transferred, considering all of the operations performed by foreign related parties, in a 12-month period before the last sale.
It is important to note that the amendment to Resolution 119 has been in force since January 1, 2021 so no reporting under the original wording of Resolution 119 should have been performed.
Nevertheless, the current wording does provide for a change compared to the 2015 regulation, as under such rule only the transactions that complied with the thresholds were required to be reported even if no tax was due. Upon this change all of foreign taxpayers that are selling entities that have underlying assets or even taxpayers that are performing a reorganisation among the business group, must consider this informative duty, if they are transferring more than 10% of the shares or quotas of the respective entity.
In order to comply with these informative duties, the seller and buyer are required to obtain a Chilean Tax-ID (RUT number). This should be taken into consideration, since the process involves providing legalised documentation and appointing a legal representative in Chile (among other requirements) which may take a considerable amount of time.
Foreign buyers and sellers in the midst of an acquisition process or even business groups performing internal reorganisations should bear these new informative duties in mind and perform an analysis looking at whether filing the relevant sworn statement is required, in order to avoid fines or audits that could be imposed by the Chilean IRS.
Senior manager, PwC Chile
Senior associate, PwC Chile