In recently released guidance, the Chilean IRS specified how Chilean companies may elect and pay the 32% substitute tax on accumulated taxable profits and report commissions paid abroad from 2010 through 2014 that were not reported to Chilean tax authorities.

Background

Law 20,899, enacted on February 8, 2016, allows Chilean companies to pay a 32% substitute tax on all or part of their accumulated taxable profits balances as of December 31, 2015 and December 31, 2016. They may also credit any First Category Taxes (Corporate taxes) paid against the 32% substitute tax.

Profits subject to the 32% tax are not subject to the 35% dividend withholding tax upon distribution to foreign shareholders and may be distributed ahead of other accumulated taxable profits.

Chilean companies may elect and pay the 32% substitute tax at any time during 2016 on all or part of their accumulated taxable profits balance as of December 31, 2015 and until April 30, 2017, on all or part of that balance as of December 31, 2016

Additionally, Law 20,898 effectively allows companies to report commissions paid abroad from 2010 through 2014 on unreported transactions for purpose of apply withholding tax exemptions. The deadline for reporting these payments is June 30, 2016.

Guidance

In Resolution No. 27 (issued April 5, 2016), the IRS requires Chilean companies electing to pay the 32% substitute tax file Form No 50 electronically.

In Resolution No. 28 (issued April 5, 2016,) the IRS requires Chilean companies interested in claiming withholding tax exemptions for commissions paid abroad from 2010 through 2014, on transactions that were not reported to tax authorities to file Form 1854 electronically by June 30, 2016. Companies must report the 2010 through 2014 commissions with their 2015 commission payments.

———————————————