Corporate Tax 2024 Comparisons

Businesses usually adopt some of the following corporate forms:

• sociedades anonimas (corporations, or SAs);
• sociedades de responsabilidad limitada (limited liability companies, or SRLs);
• agencia de una empresa extranjera (a Chilean branch of a foreign corporation);
• sociedad por acciones (joint stock company, or SpA).

Notwithstanding the above, other corporate vehicles used to incorporate certain businesses consist of sociedades en comandita (limited companies which can be simple limited companies or companies limited by shares), sociedades contractuales mineras (contractual mining companies) and empresas individuales de responsabilidad limitada (individual limited liability companies, or ILLC).

Generally, the same tax treatment applies to these legal entities: up to a 27% corporate income tax (CIT) and a withholding tax of up to 35%. All these entities are taxed as separate legal entities and provide limited liability to their shareholders. Only in certain exceptional cases of bankruptcy or fraud (eg, in the fields of labour and tax law) may equity holders be held liable for the legal entity’s obligations.

Division of Corporate Capital

The corporate capital of an SA and an SpA is divided into shares, while in an SRL, it is divided into quotas (the owners of the equity are named quotaholders). An SRL and SA requires the existence of at least two quotaholders or two shareholders, respectively. An SpA can be formed by one or more shareholders. Additionally, single-shareholder companies can be shareholders of other single-shareholder companies.

There is no minimum registered capital for creating an SA, SpA or SRL; however, depending on the activity to be pursued by the company (eg, banking or insurance), it requires approval by the Financial Markets Commission (CMF) and/or Banking and Financial Institutions Superintendence (SBIF) to legally exist and have a minimum registered capital.

There are no restrictions with respect to the nationality of the partners; nor it is required that foreign partners have their residence in Chile. However, an attorney domiciled or resident in Chile must be appointed for tax purposes.

Corporate Bodies

Legal entities have three corporate bodies:

• a management body (comprised of directors or managers);
• a governing body (meetings of equity or quotaholders); and
• an audit body (external auditors or account inspectors, depending on the nature of the legal entity to be formed). 

An SA, by legal mandate, is managed by a board comprising at least three directors in the case of closed corporations. Meanwhile, in the case of open corporations, the minimum number of directors is five on its board and seven directors in open corporations with assets in the stock exchange which are equivalent to or exceed the amount of UF1,500,000 (approximately USD$60 million). UF stands for Unidad de Fomento; UF1 was approximately equivalent to USD40 in May 2024).

The directors of the board are essentially removable. The board of directors also exercise the judicial and extrajudicial representation of the corporation, without prejudice to the judicial representation that may be exercised by general managers in case they are appointed. 

The initial management of a corporation is entrusted to a board of directors, which, upon the company’s incorporation, is unanimously elected by the founding shareholders. Such board of directors only lasts until the first shareholders’ meeting is held, in which the same directors may be confirmed or an entirely new board may be elected.

Directors may hold office for a tenure of up to three years when such term is mentioned in the company’s by-laws. However, at the end of the tenure, they can be re-elected indefinitely. If the company’s by-laws do not mention the duration of the director’s term, the law states that such director’s term may only last one year in which a shareholders meeting will be necessary to elect a new board.

The management of an SRL is performed by one or more managers, who can act individually, jointly or organised as a board, depending on the provisions established in the SRL by-laws. Managers may hold office indefinitely.

The management of the SpA can be conducted by managers or a board of directors, depending on the provisions established in the SpA’s by-laws. Managers may hold office indefinitely. One of the managers must be appointed as the legal representative, especially before the SII (Chilean Internal Revenue Service).

In all cases, the members of the management are not required to be equity holders.     

Meetings

At least annually, the equity holders of a legal entity will hold a meeting to:

• examine the company’s situation and the reports of the auditors and external auditors and the approval or rejection of the annual report, balance sheet and financial statements submitted by the directors or liquidators of the company;
• see to the distribution of profits for each financial year and, in particular, the distribution of dividends;
• elect or dismiss members and alternates of the board of directors, liquidators and supervisors of the administration; and
• in general, discuss any matter of corporate interest that is not the subject of an extraordinary meeting.

Decisions of the equity holders of an SpA or an SRL may be obtained through written consent or in a public deed.

As a general principle, companies are legal persons and taxable entities. Therefore, there are no transparent entities for tax purposes under Chilean law, except for private investment funds or SMEs which opt to be treated as transparent. Private investment funds are usually not subject to corporate income tax, to encourage the asset management and financial advisory industry for investors and national and foreign securities issuers, offering new financial products for investors, under a common legal frame (Law 20,712). 

Companies incorporated in Chile are treated as residents. Companies and other legal entities organised abroad are treated as non-residents. Permanent establishments (PEs) in Chile of non-residents are treated as separate entities for income tax purposes, and are also considered non-residents.

In general, the corporate income tax in Chile (Impuesto de Primera Categoría) of the entity can be (partially or fully) credited against the shareholder’s or quotaholder’s tax liability. According to the tax reform introduced by law, corporate tax has several regimes according to the size, billings, assets or investments allocation of the business:

• Large Businesses (Article 14A, Tax Income Law or TIL) - This tax regime is under full accounting records  where the shareholders or quotaholders shall be taxed on an accrual basis. They can deduct a partial amount (65%) of the corporate income tax paid up by the company as tax credit against its individual tax liability (eg, Impuesto Global Complementario (IGC) for Chilean tax residents or Impuesto Adicional (IA) for non-residents).
• Small and medium businesses (Article 14D N°3, TIL) - This allows taxpayers to choose between simple and complete accounting records, with a fixed 25% corporate tax rate. Shareholders and/or quotaholders shall be taxed on a receipt basis and may deduct 100% of the business income tax paid by the enterprise as a tax credit against its personal tax liability (IGC for Chilean tax residents or IA for non-residents). 
• Fiscal transparency regime (Article 14D N°8, TIL) - This tax regime is also focused on small and medium entities (SMEs) whose owners are final taxpayers (individuals with or without tax residence in Chile or non-resident companies established abroad). In this case, the company shall be exempt from corporate income tax and the taxpayers shall be taxed with personal income tax according to their residence status in Chile or abroad.

Taxable income is defined as gross income less direct costs of goods and services and necessary expenses to produce that income, adjusted for inflation and corrected as provided by law. Chilean source income is calculated on cash or accrual basis. Foreign source income is generally calculated on a received basis; however, income derived by PEs of resident companies located abroad is calculated on an accrual basis under CFC Rules, if the Chilean resident has an equity interest of 50% or more in the foreign corporation.   

On a general basis, taxable profits are calculated on an accrual basis in the case of an incorporated business. Exceptionally, for small and medium entities (subject to SMEs tax regime), profits are calculated on a receipt basis.

Law 20,241 (2008), as amended by Law 20,570 (2012), establishes that business income taxpayers reporting their taxable income based on full accounting records and investing in research and development (R&D) may credit amounts invested in R&D against the business income tax liability.

The R&D investment must be made under a written R&D contract with a registered research centre (which must comply with certain conditions under Law 20,241 and Law 20,570) for an amount exceeding 100 UTMs (one UTM equals approximately USD70, as of May 2024).

The corporate tax credit is 35% of payments made in the tax year under the R&D contracts. The annual credit is limited to 15,000 UTMs per year. Payments exceeding the maximum annual credit are considered deductible expenses. Any excess credit may be carried forward. Taxpayers can apply this benefit, complying with the legal procedures. 

Partial payments, which are considered as credits or deductible expenses, shall not be considered as non-deductible expenses under Article 21 of the income tax law.

Finally, Chilean tax law does not consider the establishment of a patent box or a special corporate tax regime for R&D investments regarding the tax rate applied to those expenditures.

Under Chilean law, there are several incentives that apply to certain industries and transactions, such as:

• foreign institutional investors;
• foreign investment funds;
• several taxation incentives from capital gains (immovable property, shares, among others);
• special regimes for income from bonds;
• research and development credit;
• regional incentives;
• financial leasing;
• credit for investments in tangible fixed assets; and
• training credits (SENCE).

In general, losses are deductible as an expense against the profits of the tax year and could be set off against undistributed profits. If the profits were not sufficient to offset the losses, the losses can be carried forward indefinitely. However, carry-back of losses is no longer available.

If losses were set off against non-distributed profits, the business income tax paid on such profits was treated as an advance payment and could be set off against income taxes (corporate income tax, individual income tax or non-resident income tax) or refunded. 

Losses incurred by companies before the transfer of its shares or its rights to participate in the profits may not be set-off against the income accrued or received after the transfer if:

• as a result of the transfer or during the 12 months before or after the transfer, the company changes its principal business purpose;
• at the time of the transfer, the capital assets or other assets of the company are not sufficient to carry out the company’s activity;
• the value of the assets is not proportional to the transfer price; or
• the company's income will be derived only from its participation as a partner of, or shareholders in, other companies, or from the reinvestment of its profits.

Finally, losses arising from the disposal of securities cannot be deducted from taxable income if gains arising from the disposal of the securities would be excluded from taxable income.

In general, there are no limits for the deduction of interests for a company, except for the excess indebtedness provision (Thin Capitalisation Rule) of Article 41F of the Chilean Income Tax Law (TIL), which states that a company incorporated in Chile shall be deemed to be in such position when the company has a debt ratio of 3:1 in relation to its financial equity. 

However, the payment of interests abroad for the concept of royalties is subject to withholding tax established in subsection 1° of Article 59 of the TIL of up to 4% of the company’s annual income.

Chilean tax law does not include provisions concerning taxation on a consolidated basis.

Capital gains arising from the transfer of shares when derived by persons that are subject to the business income tax on actual net income are subject to tax under the general rules.

However, capital gains from the transfer of shares acquired before 1 January 1984 are never considered income for tax purposes and thus are not subject to income tax.

The TIL defines the taxable base for capital gains essentially as the “sale price” minus the “tax cost” of the shares. Tax cost is defined as the cost of acquisition of the shares adjusted for any capital increase or capital reduction, as appropriate.

Each amount involved in the determination of the tax cost should be indexed according to the Consumer Price Index (Indice de Precios al Consumidor, or IPC).

Regarding capital gains, more than reliefs or exemptions, companies can be subject to a restructuring process (eg, mergers, acquisitions or a spin-off between related companies of an entrepreneurial group) in which shareholders can acquire shares from a company without taxation on possible capital gains accrued.

In this case, companies are subject to the following taxes in certain transactions, such as:

• value added tax (Impuesto a las Ventas y Servicios, or VAT);
• inheritance and gift taxes (Impuesto a las Herencias, Asignaciones y Donaciones, or LIHAD);
• real estate tax (Impuesto Territorial);
• stamp duty (Impuesto de Timbres y Estampillas);
• business license (Patente Comercial); or
• excise duties (Impuestos Aduaneros).

It is worth bearing in mind that Chilean law does not consider the following as taxable events:

• No capital duty on the formation of companies. Notwithstanding this, a business licence fee calculated on the company’s capital is required to be paid on an annual basis for tax purposes.
• No net wealth tax.

Finally, in determined transactions, companies are subject to the following taxes:

• An over-rate of the real estate tax for owners of properties with a fiscal value of over USD500,000.
• A tax on luxury assets (such as helicopters, aircrafts, cars and yachts). This applies a 2% tax rate on the fiscal value. 

Although closely held local businesses are formed by small groups of partners related by family or business bonds, they usually operate under a corporate form.

Due to the nature of its partners or shareholders, they usually operate under one of the following corporate structures:

• an SRL;
• a closed corporation;
• a simple joint-stock company.

The above-mentioned corporate vehicles are usually chosen due to their flexibility on corporate administration and to establish provisions on the by-laws that include the shareholders or partners in matters such as dividend distribution, partner’s liability and dispute resolution, amongst others.

Residents or domiciled persons are liable to income tax on their worldwide income.

If individual professionals choose to be subject to corporate tax instead of taxing at individual rates under the personal income tax, they can organise its activities under one of the following corporate structures:

• Individual Limited Liability Company;
• Simple Joint Stock company or SpA; or
• Limited Liability Company or SRLs.

Legal entities structured as SRLs formed exclusively by individuals performing exclusively professional services or consultancy are not subject to VAT taxes. Additionally, they may choose, within the first three months of the commercial year, to report their income under business income tax rules instead of the personal income tax rules. Once made, the election is irrevocable. 

Notwithstanding the above, in case the corporate form used by the individual professional is deemed to be a scheme to conceal an employment or labour relation, the Chilean Internal Revenue Service can requalify the operation and liquidate the respective taxes to the individual under the general anti-avoidance rules.  Also, there is a rule of deemed dividend for non-deductible expenses, subject to 40% to 50% of taxes.

As a general principle, there are no rules that prevent closely held corporations to accumulate earnings for investments purposes.

However, professional partnerships, due to their exclusive business purpose, can occasionally allocate earnings for the purpose of maintaining the available cash flow stock.

Dividends and capital gains derived from the sale of shares or quotas held by individuals in partnerships or other corporate structures are taxed under the general rules of the income tax law.

Capital gains derived from the sale of shares or held by individuals in publicly traded corporations are taxed at a 10% rate, under the special rule established on Article 107 of the income tax law. Dividends from public traded companies obtained by individuals are taxed under the general rules established in the income tax law. 

Interest, dividends and royalties are subject to withholding tax (Impuesto Adicional), under different rates according to several hypothesis established in the income tax law.

In that sense, interest paid up to non-residents is subject to withholding tax at the general 35% rate. Interest on loans granted by foreign banks or financial institutions is subject to a reduced withholding tax of 4%.

Royalties paid to non-residents are subject to the withholding tax rate of 30%. Royalty payments in connection to software are subject to a reduced 15% withholding rate, unless the software is non-customised or standard, in which case the full amount paid up is exempted from withholding tax. Such rate is increased in case the beneficiary of the payment is resident in a tax haven. 

Finally, dividends paid to non-resident recipients are subject to a 35% withholding tax with the foreign tax credit (FCT) paid at the corporate level being totally or partially creditable against this withholding tax, depending on the income tax system to which the source entity is subject to.

Consequently, the tax burden for a non-resident recipient of dividends, including taxes at the company level, is 35% if subject to the Small and Medium Enterprise (SME) regime or resident in a DTT country and 44-45% in case it is subject to a Partial Integrated System (PIS) regime and is not resident in a treaty country.

In order to achieve the mentioned purposes, Chile has a wide range of Double Taxation Treaties (DTTs), which are available for foreign investors, and they usually apply the provisions established in the following DTTs, such as:

• Chile-Argentina (2017).
• Chile-Australia (2014).
• Chile-Austria (2016).
• Chile-Belgium (2011). 
• Chile-Brazil (2004). 
• Chile-Canada (2000). 
• Chile-China (2017). 
• Chile-Colombia (2010).
• Chile-Croatia (2005).
• Chile-Denmark (2005).
• Chile-Ecuador (2004).
• Chile-United Arab Emirates (2023).
• Chile-Spain (2004).
• Chile-USA (2024). 
• Chile-France (2007). 
• Chile-India (2023). 
• Chile-Ireland (2009).
• Chile-Italy (2017).
• Chile-Japan (2017).
• Chile-Malaysia (2009).
• Chile-Mexico (2004).
• Chile-Norway (2004).
• Chile-New Zeland (2007).
• Chile-Netherlands (2023). 
• Chile-Paraguay (2009). 
• Chile-Perú (2004).
• Chile-Poland (2004). 
• Chile-Portugal (2009). 
• Chile-United Kingdom (2005). 
• Chile-Czech Republic (2017).
• Chile-Russia (2017).
• Chile-Sweden (2006). 
• Chile Switzerland (2011). 
• Chile-Thailand (2011).
• Chile-Uruguay 2019).

As a general principle, if a person or company considers itself to be a tax resident of a certain state that has a standing DTT with Chile and has a residence certificate, Chile usually accepts such qualification as a tax resident by that person, although that person was previously a tax resident of a state without a standing DTT with Chile.

Notwithstanding the above, if Chile considers that such person does not comply with such conditions to be considered a tax resident (Beneficial Owner), Chile can challenge that qualification via the mutual agreement procedure established in the corresponding DTT with the other state.

Law N°21.210 introduced certain modifications to the Chilean Transfer Pricing (TP) regulations as of 1 January 2020.

In order to ensure that transactions between related parties are valued at market prices and to avoid tax base erosion, the Chilean Internal Revenue Service has strengthened its enforcement capacity throughout the Large Paytaxers Directorate, conducting audits on high-risk transactions with foreign related parties.

Penalties for non-compliance include significant fines, which can reach up to 300% of the evaded tax for the submission of false statements. In that sense, taxpayers are obliged to issue information regarding the so-called local file (DDJJ 1951), tax characterisation (DDJJ 1913) and the master file (DDJJ 1950), as well as the annual transfer pricing statement (DDJJ 1907).

Among the control actions usually deployed by the SII, it frequently questions the use of related-party limited risk distribution agreements.

The SII carefully examines if the income allocation reflects the risks, functions and assets involved in each case, to ensure its correspondence with the arm’s length principle.

In general, Chilean legislation has implemented transfer pricing rules according to the OECD standards. Nevertheless, it contemplates certain related party rules and new types of transfer pricing methods (residual or alternate models to determine transfer pricing).

During the last year, the SII’s current approach towards transfer pricing has been more cooperative and oriented toward reducing the probability of certain liabilities regarding transfer pricing of intangibles and the market transfer of shares by taxpayers of certain economic sectors, such as private or public investment funds.

Also, the current tax administration is promoting the subscription of advanced transfer pricing agreements (APAs) in order to resolve transfer pricing issues with taxpayers, and mutually agree on a market value price according to the risks, assets and functions involved in the transactions between related parties.

Notwithstanding the above, since the establishment of the APAs with the tax reform of 2012, this tool has not been used much by taxpayers. 

On the other hand, mutually agreed procedures (MAPs) have been promoted by the Chilean authorities, particularly throughout the establishment of instructions by the SII to resolve transfer pricing disputes between taxpayers and the respective tax administration.

The taxpayer must comply to the satisfaction of the tax administration that its operations are carried out on an arm’s length principle. Therefore, self-adjustments in price transfers are allowed in Chile. 

If this is not the case, the tax administration is empowered to make transfer pricing adjustments, by which means the SII can increase the taxable base to a final tax rate of 40%. In addition, they can impose a fine equal to 5% of the balance.

Local branches of non-local corporations are not generally taxed differently from local subsidiaries of non-local corporations.

Non-residents are subject to non-resident income tax on their Chilean source income. In general, Chilean source income is income from assets located in Chile or activities carried out therein, including direct capital gains from the sale or transfer of shares.

However, Chilean source income also covers capital gains from the indirect disposal of Chilean assets (shares of a non-local holding company that owns the stock of local corporations directly) made between non-residents that are taxed under very specific conditions: 

This income is subject to a withholding tax at the rate of 35% when one of the following scenarios are met:

• When at least 20% of the market value of the shares or quotas that the transferor possesses, directly or indirectly, in the foreign entity, at the time of its transfer or during the previous 12 months to its transfer, is derived from one or more underlying assets established in a), b) or c) below and in the corresponding proportion to the direct or indirect interest possessed by the foreign transferor valued at market price:
• Shares, rights, quotas or other shareholding titles in the property, control or profits in a company, fund or entity incorporated in Chile.
• An agency or other permanent establishment (PE) in Chile of a non-resident or non-domiciled taxpayer in Chile, considering that such PE for tax purposes is an independent entity from its main office or parent company.
• Any type of movable or immovable property located in Chile, or the titles regarding those, whose owner is a non-resident company or legal entity.

• When the alienated shares, quotas, rights or foreign titles has been issued by a company or legal entity located on a preferential tax regime jurisdiction.       

DTTs to which Chile is a party do not specifically resolve the taxation on capital gains from the indirect disposal of Chilean assets. In that sense, a case-by-case analysis should be done by the foreign investor according to the applicable DTT between Chile and the other state. 

Under Chilean law, there are no change of control provisions. In that sense, indirect capital gains shall be taxed regardless of how many companies there are in between the holding and the Chilean local corporation, if the transfer complies with the requirements stated in 5.3 Capital Gains of Non-Residents. Please also refer to the change of control provisions for loss relief in 2.4 Basic Rules on Loss Relief. 

Formulas are mainly used in transfer pricing rules to provide an estimated arm’s length price for transactions between related companies or with entities located in preferential tax regime jurisdictions.

However, it is important to remember that these are just transfer pricing methodologies, and each company still needs to prepare its own independent financial statements for tax compliance and financial reporting purposes.

Usually, the standard applied is the “arm’s length principle”. Additionally, the deduction shall only be allowed once the payments are effectively made on a receipt basis. Expenses accrued with related parties abroad only can be deducted at the effective payment of such expenses on a cash basis.

Thin capitalisation rules apply to these transactions, in the case of related-party loans, at a 3:1 debt-to-equity ratio, and a 35% sole penalty tax is levied on interests, commissions, services or any other financial disbursement associated to loans subject to the withholding tax at a rate lower than 35% (for example, interest paid up from loans granted by foreign banks), or that have not been taxed under domestic law or due to the application of a reduced rate under a DTT, when the taxpayer is in an excess of indebtedness position.

The excess of indebtedness is calculated on an annual basis, and, to determine if the taxpayer is in an excess of indebtedness position, its total annual indebtedness takes into consideration all loans, domestic or foreign, with related parties or not.

Finally, in the event that the company is in an excess of indebtedness position, the tax will apply only to cross-border loans granted by related parties and subject to the 4% withholding tax rate, to a rate lower than 35%, or that have not been taxed under domestic law or due to the application of a reduced rate under a DTT.

Chile has a worldwide residence-based tax regime. In that sense, foreign income accrued or received by local corporations is subject to the corporate income tax (25%-27%).

Under Chilean Law, there are no limitations imposed on local corporations regarding the deductible expenses accrued to obtain income from abroad.

Dividends from foreign subsidiaries of local corporation are taxed under the corporate income tax regime. Generally, taxes paid abroad for such distribution (or in the event the corporate income tax is paid by the foreign subsidiary) will be offset as a tax credit against Chilean corporate income tax within certain limits and conditions according to the tax regime of the receiving company (Foreign Tax Credit).

Intangibles developed by a local corporations can be used by non-local subsidiaries throughout the duration of a licensing arrangement. Transfer pricing rules apply for determining the adequate price of the intangible transference or license to related parties.

The fees paid up by the non-local subsidiaries to the local corporations are taxed under the corporate income tax and the amounts used in the R&D required to develop the intangible can be deducted by the local corporation as necessary expenses to determine their corporate income tax.

Effectively, but only with respect to the passive income obtained by local corporations from their non-local subsidiaries, if the local corporation has at least a 50% shareholding interest in the capital, profits or control of such company, the income from the non-resident companies shall be taxed under an accrual basis.

Additionally, profits derived by foreign branches are generally considered as a foreign source income for the local corporation in which foreign tax credits may apply.

Chilean income tax law does not define such concept nor establish any rules to that regard, unless general anti-avoidance rules apply in case of lack of substance. Chile also applies the rules of the DTT and the treaty shopping provisions of the OECD.

It has been understood that the substance of an affiliate consists in the organisation of human and material resources necessary for a company to conduct its economic activities.

Gains on the sale of shares in foreign subsidiaries by local corporations are subject to the corporate income tax up to 27%, which rate shall depend on the tax regime of such local corporation (SME or PIS). Tax credits rules shall be available according to the tax regime and if a tax treaty applies.

Chilean law establishes a wide variety of local anti-avoidance rules, from general to special anti-avoidance hypotheses such as:

• General anti-avoidance rules (Articles 4.3 and 4.4 of the Tax Code).
• Special anti-avoidance rules established mainly on the income tax law, such as the following:
1. Controlled Foreign Corporations rules indicated in Article 41G of the TIL.
2. Transfer Pricing Legislation rules established in Article 41E of the TIL.
3. Thin Capitalisation Legislation indicated in Article 41F of the TIL.
4. Tax Haven Legislation on Article 41H of the TIL.
5. Indirect Capital Gains Tax.

Generally, the Chilean tax system is one of self-assessment. Chilean tax administration sets its audit policies according to each economic activity, and to each tax in particular.

These policies are generally set at the beginning of each year and are made public by them. These audits are focused on big economic groups and other businesses with relevant revenue from both national and foreign sources.

Regarding individuals, audits are generally conducted after the tax administration finds inconsistencies between the proposed tax returns and the information collected via several automatic information regimes, mainly through withholding agents such as banks, financial institutions, insurance companies and employers, amongst others.

Chile has implemented several of the Base Erosion and Profit Shifting (BEPS) recommendations issued by the OECD/G20 Inclusive Framework on BEPS, including some of the following:

Implemented Actions

• Action 3 - Limiting Base Erosion Through Controlled Foreign Company (CFC) Rules. Chile has adopted CFC rules, taxing income of foreign subsidiaries controlled by Chilean residents that is considered low taxed or not taxed, under an accrual basis in case certain conditions are met. 
• Action 5 - Countering Harmful Tax Practices More Effectively. Chile has taken steps to address harmful tax practices identified by the OECD, such as preferential tax regimes and lack of transparency.
• Action 13 - Country-by-Country Reporting (CbC). Chile has completely adopted CbC reporting requirements, requiring multinational companies to report financial and tax information on a country-by-country basis. 
• Action 15 - Multilateral Instrument. Chile has ratified the above-mentioned instrument and has proceeded to  gradually implement the BEP recommendations.

Actions in Progress

• Action 1 - Addressing the Tax Challenges of the Digital Economy. Chile has already established a special taxable event in order to tax (with VAT) services provided by digital b2c platforms and other tech companies (such as Netflix and Spotify, amongst others). In that sense, foreign non-resident companies are also subject to a voluntary registry (Digital Service Providers Register with the SII). 
• Action 2 - Neutralising the Effects of Hybrid Mismatch Arrangements. The main actions in this sense have been related to the prevention of structured deals in the case of payments of interest by national banks or financial institutions to non-resident foreign banks. The absence of such structured deal is deemed as a sine qua non condition for the withholding tax reduction under Chilean law.
• Action 6 - Prevention of Tax Treaty Abuses. Chile has signed Tax Information Exchange Agreements with various countries.
• Action 7 - Permanent Establishment Status. Since the enactment of Law N°21.210, Chilean legislation incorporates a clear definition of permanent establishment which is according to the concept established in DTTs entered into by Chile with several states.
• Action 11 - BEPS Data Analysis. The Chilean Internal Revenue Service and other government agencies keep track of the necessary data that allows the adoption and implementation of BEPS at legislative and regulatory level.
• Action 12 - Mandatary Disclosure Rules. The actual tax reform bill discussed in congress may include provisions that enforce the burden of proof at the head of taxpayers in case the SII declares the existence of a tax avoiding scheme. In that sense, the SII requires certification of the existence of the acts configuring the avoidance scheme and the taxpayer shall prove that such structure complies with their economic and financial background and was not only motivated by mere tax purposes. 
• Action 14 - Mutual Agreement Procedure. Such procedure has been established by administrative rulings and resolutions which indicates the conditions for taxpayers dealing with the tax administrations of both states involved in a DTT.

Non-Initiated Actions

• Action 4 - Limitation on Interest Deductions. Chile is implementing these actions via establishment of thin capitalisation rules established on the income tax law.
• Actions 8-10 - Transfer Pricing Documentation and Country-by-Country Reporting for Tax Authorities. Chile is implementing these actions through several reports that must be submitted by the taxpayers annually, especially the information regarding multinational enterprises.

In May 2010, Chile became a full member of the OECD after a two-year period of compliance with the organisation’s mandates and rules.

In that sense, Chilean government has a generally positive attitude towards BEPS. It has passed BEPS-related legislation and has ratified the Multilateral Convention to Apply Measures Related to Tax Treaties to Prevent Base Erosion and Profit Shifting (MLI/BEPS/OECD/G20).

Such provisions have also entered into effect between Chile and countries such as Australia, Austria, Canada, Korea, Croatia, Denmark, Spain, France, Ireland, Mexico, Norway, New Zealand, Poland, Portugal, South Africa, Thailand and Uruguay, amongst others.

The reason behind those politics is to continue the permanent opening by Chile to international markets. This is why Pillar One and Pillar Two are within the purview of Chilean Authorities.

International tax has a high public profile in Chile, especially after the “Panama Papers” and “Pandora Papers” leaks and various investigations into non-declared offshore accounts. These issues are likely to influence the further implementation of BEPS recommendations.

The information that the SII receives under CRS and FATCA agreements is quite relevant, due to the prominent data that can be used to identify and pursue international tax evasion.

Although Chile has passed several tax reforms that has increased tax rates levied up on corporations and high net worth individuals, it remains to be a competitive jurisdiction for tax purposes, specially for foreign investor, due to the wide range of DTTs signed with several of OECD and G20 members and to the free foreign exchange market.

Despite the measures tending to attract foreign investment and promote tax competitiveness, Chile has incorporated several BEPS principles into its legislation, such as thin capitalisation rules, foreign controlled company rules and transfer pricing rules, among others.

Chile has terminated or reformed several double taxation treaties (DTTs) that were vulnerable to treaty abuse by taxpayers, such as those with Argentina and the United States. This demonstrates their commitment to preventing tax evasion and avoidance.

Also, Chile participates in international tax information-exchange arrangements, leading to increase transparency in tax matters.

The best policy options for addressing hybrid instruments (such as convertible bonds, preferred shares and convertible notes, among others) are the specific anti-avoidance rules and the rules specifically addressing hybrid mismatch arrangements, recommended by the OECD. General anti-avoidance rules could also be useful in this matter.

Chile has a residence-based, worldwide income tax regime. Chile has thin capitalisation rules established in Article 41F TIL, in order to discourage an excessive interest deductibility by the foreign corporation which invests in the local corporation. In that sense, it restricts the amount of debt which interest is tax deductible to a pre-defined debt to equity ratio (3:1). Expenses accrued from related parties abroad are only deductible when whey are effectively paid (cash basis).

Chile has a residence-based, worldwide income tax regime, but has transparency or CFC rules that make deferral clearly more cumbersome. However, in broad terms, companies with no Chilean controlling shareholders will not be subject to this rule.

The proposed DTT LOB or anti-avoidance rules were included in the recently approved DTT between Chile and USA, with other treaty countries and at the MLI.

Before BEPS, Chile had certain transfer pricing legislation since 1998. Although, since 2012 Chilean transfer pricing legislation was widely altered in accordance with OECD guidelines. Intellectual property is particularly difficult to price adequately, mainly because its difficult to find an adequate comparison.   

As a general principle, the proposals for transparency and CbC reporting are favoured. As mentioned before, Chile has already included transparency rules in its local legislation. The CbC reports provide more detailed information to the Chilean tax authority, forcing the transfer pricing reports to be more thorough and to include other related party transactions that would otherwise not be dealt with for these purposes. 

The digital economy business is taxed under the VAT legislation (Article 8N) which has included clauses to tax B2C businesses operating from abroad (such as Netflix and Spotify).

Although Chilean government is promoting a comprehensive tax reform bill, the project does not include new proposals relating to digital taxation.

There are no other provisions dealing with the taxation of offshore intellectual property that is deployed within Chile. For the payment of royalties to non-resident beneficiaries, please see the explanation in 4.1 Withholding taxes, which could be reduced if a DTT applies.