This content is from: Chile

Chile: Concept of beneficiary of a double tax treaty

Gregorio MartínezIgnacio Núñez

Chilean domestic law provides a withholding mechanism that requires the Chilean resident who pays a non-domicile or non-resident to withhold the amount of tax due and revert it to the tax authorities.

Before the latest tax reform, the law requested that in order to apply a double tax treaty (DTA) and, therefore, prevent withholding or perform a limited one, a residence certificate and a sworn statement of having no permanent establishment had to be presented. However, due to the tax reform, since January 1 2017, a provision was added that states the foreigner should also be a beneficiary of the DTA.

The Chilean Internal Revenue Service (IRS) recently issued a ruling establishing their view over the concept "beneficiary of a DTA", explaining that the expression meant a person that in virtue of their residence can invoke the benefits established by the corresponding DTA regarding the corresponding income.

This confirms the criterion of the Chilean IRS that a resident of a contracting state, in the context of a DTA, is not always a synonym of beneficiary of a DTA.

The abovementioned criterion is closely related to the recommendations introduced by the Multilateral Convention to implement tax treaty related measures to prevent base erosion and profit shifting related to the prevention of treaty abuse. These recommendations have been incorporated in the latest DTAs subscribed by Chile.

In line with the above and acting in accordance with Action 6 of the BEPS action plan, a principal purpose test clause was introduced in Chile's DTAs with Japan and Italy. Limitation of benefits clauses were introduced in DTAs held with Uruguay and Argentina.

The inclusion of these clauses in DTAs improves the control and assessment of international tax planning, but the practical effects should also be considered. These clauses establish a very important burden on the withholding agent, where they will have to request a no PE declaration, a certificate of residency of the foreign taxpayer and perform a tax analysis of such taxpayer to apply principal purpose test or limitation of benefits clauses. However, technicalities are involved, but not every withholding agent has familiarised themselves with these – they should do so now.

Gregorio Martínez ( and Ignacio Núñez (
Tel: +56 2 2940 0000

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