This content is from: Chile

Chile: Notice to non-Chilean resident entities in the context of the indirect sales provision

Carolina Gonzalez Cortes
Sandra Benedetto
We commented in previous publications that the tax reform enacted in September 2012 modified the indirect sales rule contemplated in the Chilean Income Tax Law. According to this new rule, the concept of Chilean source income is broadened to capture capital gains obtained in the indirect transfer of Chilean underlying assets wherever the purchaser is domiciled. It was expected that an administrative regulation regarding how this rule will be implemented would be issued by the tax authorities in the short-term, but several months have passed since the new law was enacted and we have no news on such pronouncement.

Notwithstanding the above, for those who thought this provision could end up being a "dead loss" as it is difficult to think how the Chilean tax authorities would prevail its tax jurisdiction over the capital gain generated entirely abroad by non-resident entities, especially in cases where the transaction is undertaken far up the chain, be advised that the Chilean tax authorities might be preparing itself to catch up with those incomes deemed to be Chilean-sourced.

According to the indirect sales provision, the Chilean tax authorities could demand from the transferor, its Chilean representative, from the Chilean entity or the acquirer, a statement informing the alienation price of the titles, rights, quotas or shares, and the fair market value of the relevant underlying assets, as well as any other information for the purpose of determining the capital gain levied.

Trough recently issued Ruling No. 1455/2013, the Chilean tax authorities declared that when it is necessary to notify an administrative act to a foreign entity, we must consider the methods indicated in Article 11 and subsequent articles of the tax code (for example, in-person notice, notice through certified letter) all those that are duly regulated trough Circular Letter 48/97, but in addition, it could be possible to use any kind of announcements, as permitted in Article 6 N° 10 of the tax code.

What that is supposed to mean is unclear up to now, but it brings certain examples to our minds, such as letters of requests addressed to foreign tax authorities, publications in foreign newspapers, e-mails sent to corporative electronic addresses, letters sent to postal codes, and faxes, among others.

To this list you can add as many methods as you can imagine, as it seems that in this respect the Chilean tax authorities are revealing itself to be totally flexible, but surely this will be a very controversial issue which opposes the legitimacy of the procedures used with their effectiveness in gathering information to collect taxes.

This implication, among several others surrounding the practical application of the Chilean indirect sales provision, further highlights the urgency of having an official guidance of the Chilean tax authorities with respect to this matter.

Carolina Gonzalez Cortes ( and Sandra Benedetto (
Tel: +562 2940 0155

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