International taxation

• Indirect credit is eliminated with respect to foreign subsidiaries. Likewise, the credit for WHT paid by entities without domicile or residence in Chile is eliminated with respect to income that must be subsequently recognized in Chile.
• Global and individual ceilings for the use of credits for tax paid abroad are reduced from 35% to 27% to the corporative income tax rate in force during the year.

• The transfer pricing rule is modified, expressly incorporating the “arm’s length” principle as a standard of compliance, notwithstanding the fact that the current regulation already reflects such principle, and it is the criterion followed by the Chilean IRS.
• The transfer pricing rules will be applicable to reorganizations that occur abroad and have effects on the property of taxpayers domiciled or resident in Chile. Provided these operations comply with the arm’s length principle, transfer pricing rules will not be applicable, nor will the Chilean IRS appraisal powers
• Modifications regarding “advance agreements”:
  • Taxpayers will be able to submit to the Chilean IRS a prior request for an advance agreement, in order to determine its viability.
  • The term of the agreement is extended from 3 to 4 years, and the possibility is contemplated that its effects reach operations of up to 3 previous business years (penalty tax of article 21 of the LIR would apply, but with no penal interest or fines).
  • Taxpayers must submit an annual report on compliance with the advance agreement.
• The possibility is established for taxpayers to make self-adjustments of transfer prices if they do not comply with the arm’s length principle. The adjustment must be added to the taxable base of the Corporate Income Tax (self-adjustments that reduce the taxable base are not allowed).

The possibility of deducting as an expense the sole tax of 35% resulting from thin capitalization rules is removed.

• The relationship rule is modified, eliminating the reference to article 100 of the Securities Market Law and incorporating a reference to number 17 of article 8 of the Tax Code. At the same time, the Bill includes new relationship hypothesis to the norm of the Tax Code incorporating as related parties the spouse, civil partner and relative, ascendants or descendants, up to the second degree of consanguinity or affinity.
• Taxpayers must also compute passive income obtained by persons or entities with which it is related for purposes of determining the 2,400 UF threshold.

• A jurisdiction will be considered to have a preferential tax regime when it meets the following copulative requirements: (i) It has not entered into an agreement with Chile that allows the exchange of information, or such agreement is not in force, or if it is in force, it contains limitations that prevent an effective exchange of information; and (ii) It does not meet the conditions to be considered compliant or substantially compliant in terms of transparency or exchange of information for tax purposes.
• The reference to the non-application of the article to OECD member countries is eliminated.

• Exception to the IRS’s faculty of assessment under Article 64 of the Tax Code applicable to reorganizations is limited only to cases where the assets in question are disposed of or assigned within the national territory (also requiring a legitimate business reason).
• Reorganizations that take place abroad and have effects in Chile or that start in Chile and have effects abroad shall be subject to transfer pricing regulations.
• The new unintegrated income tax system will only apply to taxpayers resident in countries with which Chile has signed a Double Tax Treaty (“DTT”) that is in force. Therefore, taxpayers resident in countries with which a DTT is in force will maintain the current integrated system (with a maximum tax burden of 35%).