December 2, 2020
Chile deposits Multilateral Convention to Implement Tax Treaty Related Measures to prevent BEPS
The deposit of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) means the MLI will apply to taxes levied in tax periods beginning on or after January 1, 2021.
Following the Chilean Congress's recent ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), Chile deposited its instrument of approval with the Organisation for Economic Co-operation and Development (OECD) on November 26, 2020. It also submitted its MLI positions and reservations and the list of covered tax agreements.
For more information related to the ratification of the MLI, see Tax Alert 2020-1777.
MLI — Entry into force
The MLI will enter into force on March 1, 2021 (i.e., the first day of the month following the expiration of a three-month period after the deposit of the MLI ratification).
Once in force, the MLI will generally apply to covered tax agreements if the counterparty ratified the MLI. For covered tax agreements for which the MLI is already in force, the MLI will apply in Chile:
For its own application of the MLI for other taxes, Chile has opted to have the MLI apply for tax periods beginning on or after January 1 of the next calendar year following a six-month period after the MLI's entry into force.
Effects of MLI in Chile
With the enforcement of the MLI, more than 33 double tax treaties (DTTs) will be upgraded by incorporating, in some cases, higher standards than the existing ones to claim treaty benefits. These new standards will be relevant to cases in which withholding tax (WHT) may be eliminated or reduced by application of a DTT (e.g., payment of services or insurance abroad without WHT, or payment of royalties and interest with reduced WHT rates).
Currently, Chile has the following 33 DTTs in force:
DTTs with the United States, United Arab Emirates and India have been signed but are still pending ratification.