Tax Aspects of International Reorganisation Processes

Applicable regulations and criteria

On 24 October 2024, Law No 21,713 was published, establishing rules to ensure compliance with tax obligations within the framework of the agreement on economic growth, social progress and tax responsibility. Among the various amendments introduced by this law, Article 64 of the Chilean Tax Code (TC) was entirely replaced. This provision regulates, among other matters, the appraisal powers granted to the Chilean Internal Revenue Service (Servicio de Impuestos Internos, or SII) to review transactions between related parties that are not conducted at arm’s length.

Within this context, this article addresses corporate reorganisation processes that limit such appraisal powers of the tax authority, including mergers and divisions of companies, as well as asset contributions carried out within a corporate group.

Prior to the amendment of Article 64 of the TC, reorganisation processes governed by law were limited to transactions between Chilean entities, with no reference whatsoever to international reorganisation processes. Consequently, the SII was compelled to develop application and interpretative criteria for such international reorganisations through a series of administrative rulings, which typically addressed specific taxpayer inquiries, without providing a comprehensive, exhaustive or harmonised regulatory framework for these matters.

Based on this, the amendment to Article 64 of the TC represents significant progress in recognising reorganisation processes in an increasingly global and interconnected environment, acknowledging the legal effects of such transactions and allowing both the tax authority and taxpayers to interpret the rule in a more structured and consistent manner.

Accordingly, this paper begins by analysing the regulations and administrative guidance governing such reorganisation processes prior to the reform, as well as the main aspects regulated by the new law, outlining the new criteria adopted by the SII following this legal amendment.

International reorganisation processes prior to Law No 21,713

International mergers and divisions

The former Article 64 of the TC established that mergers and divisions of companies were tax-neutral from a tax perspective, and prevented the SII from exercising its appraisal powers, provided that the tax values recorded in the companies’ accounts were maintained. As noted above, Chilean legislation did not expressly regulate international or cross-border mergers or divisions involving Chilean entities.

From a legal point of view, the validity and effects of a merger or division carried out abroad derive from general principles of private international law, pursuant to which acts executed abroad that produce effects in Chile must comply with Chilean law (Articles 16 and 17 of the Civil Code). Hence, Chilean law defines a division as the allocation of a company’s assets among itself and one or more newly created companies, with shareholders of the divided entity maintaining the same proportional ownership in the capital of each of the new companies, whereas a merger is defined as the combination of two or more companies into a single entity that succeeds them in all their rights and obligations, incorporating all assets and shareholders of the merging entities. Both definitions are set forth in the Corporations Law, although they apply to all types of companies.

The main legal effects of this type of reorganisation are as follows.

• Legal effects of a merger of companies:
1. the absorbing company succeeds the absorbed company(ies) by universal title, assuming all assets, liabilities, rights and obligations;
2. the partners or shareholders of the absorbed companies are automatically incorporated into the absorbing company; and
3. the absorbed companies are dissolved or extinguished – no liquidation is required.
• Legal effects of a division (spin-off) of companies):
1. the allocation of assets corresponds to an assignment of shares or quotas over a legal universality – ie, “specification of pre-existing rights”;
2. there is no transfer or conveyance of assets – rather, there is a specification of pre-existing rights; and
3. the division corresponds to a merely declaratory act.

Applying these general principles, the SII has stated in various rulings that international mergers and divisions involving Chilean and foreign entities will have the same tax effects as mergers between Chilean companies, provided that:

• in the jurisdiction where the foreign entities are resident, the merger or division has the same characteristics and effects as those established under Chilean law; and
• the transaction is carried out under a tax-neutral regime in that jurisdiction, meaning that no gains or losses arise from the operation (SII Rulings No 592 of 1998; 707 of 2008; 424 of 2009; 2,734 of 2016; 10 of 2017; 843 of 2017; 1,778 of 2017; 947 of 2018; 2,895 of 2019; 710 of 2020; and 1,465 of 2021).

Where these requirements are met, the SII recognises that such international mergers or divisions produce the same tax effects as applicable to domestic transactions, particularly that the SII is prevented from exercising its appraisal powers and that no taxable event arises for the entities involved or their shareholders.

Notwithstanding the above, the tax authority has distinguished cases involving international mergers in which the Chilean entity is absorbed by a foreign entity (Rulings No 1,511 of 2020; 1,643 of 2021; and 2,592 of 2021), stating that since the absorbing company is foreign and not subject to SII oversight, a simplified termination of activities is not applicable. Accordingly, the dissolved Chilean entity is subject to taxation under Article 38 bis of the Income Tax Law.

In such cases, the absorbed Chilean company must be subject to a 35% tax rate on retained earnings attributable to shareholders subject to final taxes or to shareholders not required to maintain full accounting records. Nevertheless, the assets of the absorbed Chilean company are transferred to the absorbing entity at tax book value, provided that the legal effects of the merger are similar to those under Chilean law. In addition, shareholders are not required to recognise a capital gain and must retain the original tax basis of the shares exchanged.

Contributions of assets between foreign and Chilean entities

As a general rule, a contribution constitutes a transfer, which under Chilean law and pursuant to Article 64 of the TC must generally be carried out at market value.

The former Article 64 established that the SII could not exercise its appraisal powers in the case of total or partial contributions of assets of any kind – tangible or intangible – if the following requirements were met:

• the contribution was made as part of a corporate group reorganisation process;
• it was based on a legitimate business purpose;
• it resulted in a capital increase in an existing company or the incorporation of a new entity;
• no effective cash flows were generated for the contributor; and
• the contribution was carried out and recorded at the tax or accounting book value at which the assets were recorded in the contributing entity.

However, this rule did not expressly regulate contributions made or received by entities without domicile or residence in Chile – situations that, as noted, were addressed administratively by the SII.

In this regard, the SII has indicated in several rulings that contributions at tax value made or received by foreign entities could fall within the scope of the reorganisation rule set forth in the former fifth paragraph of Article 64 of the CT, provided that “their effects occur and are fully exhausted within the country”.

Through Ruling No 2,213 of 2022, the SII clarified that the requirement for the tax effects of the reorganisation to be produced and exhausted in Chile aims to safeguard the fiscal interest and ensure effective auditability of such transactions, provided that the reorganisation seeks an efficient allocation of assets within a corporate group, without involving a transfer of wealth or the realisation of gains in another jurisdiction.

Thus, according to the tax authority, the requirement that the effects of these reorganisations be produced and exhausted in Chile implies that:

“(...) the transfer may be taxed in Chile at a later stage, when the asset effectively leaves the control of the corporate group, which explains the need to maintain it recorded at tax book value. The effect of preventing appraisal is therefore to defer taxation, but in no case to eliminate it.

“Accordingly, for a transaction to fully exhaust its tax effects in Chile, any gain realised upon the subsequent disposal of the contributed assets must be subject to taxation in Chile.”

It should also be noted that Article 10 of the Income Tax Law provides that income derived from assets located in Chile or activities carried out therein is considered Chilean-source income and is therefore subject to Chilean taxation.

New regulations applicable to international reorganisation processes

Following the tax reform enacted by Law No 21,713, Article 64 of the TC was entirely amended, expressly establishing the possibility of limiting the SII’s appraisal powers in the case of international mergers and divisions, as well as cross-border contributions, subject to the general requirements set forth in the law.

With respect to mergers and divisions, the new rule provides that appraisal powers shall not apply in either domestic or international transactions, provided that the tax value of the assets is maintained in the absorbing or newly created entity, or in the entities resulting from a division.

In this regard, the SII, through Circular No 23 of 2025, has clarified that the key requirement for a merger or division not to be subject to appraisal is that the assets remain recorded at their tax book value. This guidance maintains the pre-existing criterion that foreign transactions must be equivalent to those defined as mergers or divisions under Chilean law for the SII to refrain from exercising its appraisal powers, without generating gains or losses.

The tax authority further clarifies that this does not require international mergers or divisions to comply with the same formalities applicable under Chilean law, where such formalities do not exist under foreign law. Instead, the essential requirement is that the foreign transaction produces effects analogous to those of a merger or division under Chilean legislation and qualifies as such in the relevant jurisdiction.

It should be noted that the exit taxation regime continues to apply in cases where a Chilean company is absorbed by a foreign entity.

Other international reorganisations

The legislator has provided that, in the case of international reorganisations other than mergers or divisions (such as contributions made or received by foreign entities), the appraisal power shall not apply if the following cumulative requirements are met:

• the transaction produces effects on assets, shares or rights located in Chile;
• it is based on a legitimate business purpose;
• no cash flows are generated for the contributor;
• the tax basis of the transferred assets is preserved;
• the legal requirements of the relevant foreign jurisdiction are complied with; and
• Chile’s taxing rights are preserved, meaning that any subsequent transfer of the assets must be effectively subject to taxation in Chile.

Through Circular No 23, the SII emphasises that it is essential for any subsequent transfer of the assets to be taxable in Chile, which justifies the requirement to maintain them at tax book value. If this is not possible, Chile’s taxing rights would be impaired, and the requirements for limiting the SII’s appraisal powers would not be met.

In addition, the new provision introduces a statutory definition of “legitimate business purpose”, which includes:

• improving or facilitating business conditions;
• achieving competitive advantages;
• obtaining financing;
• mitigating costs or risks;
• increasing productive capacity or market presence;
• optimising management; or
• any similar purpose, provided that it is not merely tax-driven.

Relevant SII guidance

The SII has issued several rulings in connection with this new framework. The most relevant include the following.

• Ruling No 1619 of 2025 establishes that a transaction consisting of a series of steps aimed at transferring assets from one foreign entity to another (involving significant Chilean assets) cannot, by its nature, be characterised as a spin-off. Nevertheless, it may fall within the scope of paragraph 12 of Article 64 of the TC, provided that it satisfies the requirements applicable to other types of international reorganisations in order to benefit from the limitation on the SII’s appraisal powers. In this regard, the ruling underscores the need to demonstrate a legitimate business purpose and to ensure that Chile’s taxing rights are not adversely affected.
• Ruling No 1981 of 2025 provides that a transaction structured as a division under Norwegian law (referred to as a “demerger with transfer to an existing company”) that does not meet the requirements of an international division, nor those applicable to other reorganisation processes, may be subject to valuation adjustments for Chilean tax purposes where relevant Chilean assets are involved. Conversely, a merger by absorption carried out abroad may qualify under Article 64 of the Chilean Tax Code, provided that it conforms to the Chilean legal concept of a merger.
• Ruling No 2065 of 2026 clarifies that, in the context of international reorganisations, the taxpayer bears the burden of demonstrating compliance with the legal requirements imposed by the relevant foreign jurisdiction for the type of transaction carried out (in this case, an asset contribution). The ruling further provides that the requirement to preserve the tax basis of the assets does not preclude the transaction from being executed at a different value (such as market value or any other value agreed upon by the parties). However, the SII emphasises that, for all legal and tax purposes, the recorded tax value is the one that must be considered by the contributing entity. Accordingly, the receiving entity must maintain a separate record of the tax basis of the assets in order to effectively preserve such basis and comply with the applicable tax obligations. This, in turn, enables the proper determination of the tax outcome upon a subsequent disposal of the assets to third parties or in any other relevant scenario.

• Ruling No 208 of 2026 confirms that a reorganisation consisting in a dividend distribution or a capital reduction paid in kind, involving a Chilean entity and received by a foreign company, followed by the contribution of such participations to other group entities, may qualify as an international reorganisation under paragraph 12 of Article 64 of the TC. The SII clarifies that a dividend distribution or a capital reduction paid in kind, when considered in isolation, does not qualify as an international reorganisation. However, such transactions may form part of a broader sequence of steps that, when viewed as a whole, constitute a reorganisation, provided that they are carried out at tax book value and are supported by a legitimate business purpose.

Final considerations

Based on the foregoing, the amendment to Article 64 of the TC represents a significant legislative effort to organise the regulation of corporate reorganisation processes, providing a coherent, unified and efficient framework that enables a systematic interpretation of such transactions, while aligning them with domestic operations.

It is also important to highlight the prior administrative development carried out by the SII, which established practical criteria through case-by-case rulings, many of which have now been incorporated into the statutory framework.

Finally, it should be noted that, as a general rule, the reorganisation processes governed by this provision require a legitimate business purpose (except in the case of mergers and divisions), although the transaction must be supported by a rationale beyond purely tax considerations even in such cases, to avoid the application of Chile’s general anti-avoidance rule.