Dealing with tax disputes in Chile

International Tax Review: What advice would you give to companies about how to reduce the risk of becoming involved in a tax dispute with Chile’s tax authorities?

Felipe Dominguez (pictured): Taxpayers should carefully plan their business operations, not only while establishing themselves, but also in the operative stage. It is advisable to have professional counsel on managing tax compliance, which can be essential for avoiding tax disputes arising from the company’s regular business operations.

A periodic review of the business operations from a contingency and avoidance perspective will minimise the tax dispute risk for any taxpayer.

ITR:What options do taxpayers in Chile have to resolve disputes other than through litigation?

Gonzalo Schmidt: The Chilean tax dispute resolution system consists of a complex process of interaction with the tax authority which can result in litigation if not handled carefully.

Failure to comply with the request for information at the formal audit – subpoena (citación) – stage can result in restrictions on producing evidence at the judicial stage.

If the subpoena stage is unfavourably resolved by the Chilean Tax Administration, taxpayers may file a claim before the Tax and Customs Courts of Law, initiating the judicial process.

However, if it has a strong argument, a taxpayer may file for an administrative review (Recurso de Reposición Administrativa) before the tax authority. The review does not suspend or interrupt the period in which the tax claim may be filed.

ITR: Are you seeing any trends in the types of cases which the Chilean tax authorities are taking up and those where they are succeeding in the courts?

FD: With the recent amendment to section 59 of the Chilean Tax Code, the Chilean Tax Administration is focusing on the review of tax refunds requested by taxpayers, due to tax losses that are imputable to accumulated profits of the company from previous commercial years.

Before the amendment to section 59 of the Chilean Tax Code, the local tax authority could take as long as the statute of limitations to review and resolve a tax refund request.

However, the amendment means that all tax refund requests must now be resolved by the tax authority within 12 months.

Efforts are therefore concentrated in reviewing and auditing tax losses that generate tax refunds for taxpayers.

ITR: What can multinationals expect from Chile‘s tax authorities in future?

GS (pictured): New Tax and Customs Courts entered into force with publication of Act N° 20.322 in 2009. This changed the whole tax judicial system in Chile as it created new courts that have complete independence from the tax authority.

This has had a profound impact on the way the tax authority plans its litigation strategy because it must act as a party in the trial under the same burdens as the taxpayer.

The Tax Administration had to create a new specialised litigation department, with lawyers now prepared to litigate under the same legal burdens as taxpayers.

It is also expected that the Tax Administration will devote greater resources to auditing transfer pricing issues.

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