18 October 2016 Argentina-Chile tax treaty enters into force The Treaty provides reduced withholding rates on interest and royalties. It also limits the capital gains tax on the disposal of shares and other participation interests. Taxpayers should review these provisions to determine how they might benefit. On October 11, 2016, the "Tax Treaty for the Avoidance of Double Taxation with Respect to Taxes on Income and on Capital and to Prevent Fiscal Evasion and Tax Avoidance" (the Treaty) between Argentina and Chile entered into force after Argentina notified Chile that its internal requirements were satisfied. Article 31 of the Treaty provides that the entry into force would occur on the date of the last notification. On August 1, 2016, Chile notified Argentina that Chile had satisfied its internal requirements. Argentina notified Chile on October 11, 2016, that Argentina had met its internal requirements. The Argentine Government published the entry into force in the October 14, 2016 Argentine Official Gazette. — For tax years beginning on or after January 1, 2017, for other taxes on income and taxes on capital For Chile, the Treaty provisions will be effective on January 1, 2017, for: (1) amounts paid, credited to the account, accounted as expense or put at the disposition of the recipient and (2) taxes on income generated after the mentioned date. The provisions of Article 8 related to International Transport will be effective for fiscal years starting from June 30, 2012, onwards in both Argentina and Chile. Current domestic tax rates for interest, royalties and dividends (general rates, exceptions may apply) are: The Treaty will reduce those withholding rates on payments of interest to 4%, 12% or 15% and royalties to 3%, 10% or 15%. Note that dividends paid from Argentina to taxpayers abroad are currently not subject to dividend withholding tax under domestic law. If the dividends paid exceed the pool of accumulated taxable profits (i.e., the profits subject to the 35% corporate income tax in Argentina) of the Argentine entity, however, a 35% Argentine dividend withholding rate applies and the Treaty does not reduce this "equalization tax." The Treaty does not provide any tax relief for dividend distributions from Chile to taxpayers abroad (the so-called Chile Clause included in all of the treaties signed by Chile). — Limits capital gains tax to 16% of the gain upon the disposal of shares and other participation interests, if the participation interests are lower than 20% during the 365 days before the disposal — Deems the operation of large or valuable equipment in the other Contracting State for more than 183 days within 12 months to be a permanent establishment — Eliminates the exemption for Chilean shareholders from the Argentine tax on personal assets, which was included in the previous tax treaty — Includes an exchange of tax information clause that will not limit the exchange to taxes covered by the Treaty, and mutual assistance in the collection of taxes To benefit from the provisions of the Treaty, in addition to the usual requirements (such as tax residence certificate, beneficial ownership clause, etc.), Article 24 introduces Limitation of Benefits (LOB) provisions. For Argentina, this is the first treaty that provides for LOB provisions. The main purpose of these rules is to prevent residents in countries outside of Argentina and Chile from obtaining advantages from the Treaty. In this regard, in order to benefit from the provisions of the Treaty, the residents must also be regarded as "qualified persons" (according to the detailed rules included in Article 24). Furthermore, Treaty benefits will not apply if, based on facts and circumstances, it is reasonable to conclude that obtaining tax treaty benefits was one of the main purposes of a given structure or transaction.
Document ID: 2016-1772 | |||||||||||||||||||||||||||||||||||||||
