Executive summary

On 25 September 2024, the Chamber of Deputies passed a second comprehensive tax compliance bill. The draft bill is still undergoing the necessary legislative processes, including a constitutional review, and awaits formal promulgation and publication. Once approved, the bill will generally come into force on the first day of the month following the law's publication (however, effective dates may vary depending on the specific changes).

Relevant measures in this tax package include changes in the following matters:

• General Anti Avoidance Rules (GAAR) and tax evasion
• International taxation
• Reformulation of tax-free reorganization rules, including international reorganizations
• Improvements in transfer pricing regulations, particularly focused on advance pricing arrangements (APAs)
• Exclusion rules for indirect transfer rules limited in case of tax-haven regimens
• Requirements to qualify as tax-haven regimens reformulated
• Relationship rules for controlled foreign corporations (CFCs)
• Value-added tax (VAT)
• Enhancement of VAT regime for digital economy, including digital platforms and marketplace for imported goods remotely acquired
• New specific anti-avoidance rule (SAAR) to requalify reorganization to circumvent application of VAT
• VAT for low-value goods exemption abrogated
• Export VAT refunds restrictions
• Tax compliance and related aspects
• Corporate governance by the Chilean tax authorities
• General audit powers
• Tax sustainability
• Anonymous whistleblower
• Bank secrecy
• Penalty interest rate aligned with market conditions
• Tax Ombudsman powers expanded
• Transitional measures
• 12% voluntary disclosure and repatriation tax
• Early termination of tax trials

Background

After facing an initial rejection of a more ambitious tax package in 2023, the Chilean Government under President Gabriel Boric submitted the second draft bill to Congress on 29 January 2024, primarily focusing to enhance tax compliance and measures to tackle tax evasion and avoidance. This is the bill that the Chamber of Deputies passed in late September.

Further, it is expected an additional separate draft could be presented next year to Congress to address substantial changes in tax matters that were not included in this tax package, such as increases in personal income taxes, restrictions in carryforward tax losses, introduction of wealth taxes and changes in capital gain taxes, investment funds tax regime, register of beneficial ownership, among others.

This Tax Alert provides brief summary of selected main aspects contained in the tax bill.

General Anti-Avoidance Rule (GAAR)

The bill maintains the existing prior judicial procedure but introduces a variety of changes regarding substantive and procedural matters at the administrative level. Among them, the application threshold of the rule is modified (approximately US$73,000 of the taxable base), obtaining refunds or access to special tax regimes are also included as triggering thresholds, and the special anti-avoidance rule deference principle is altered, allowing the Chilean tax authority to choose between the application of the GAAR and specific anti-avoidance rules.

The measure will enter in force on first day of the month following the publication of the law.

Corporate governance of the Chilean tax authority

Two new governance institutions are created for the Chilean tax authority:

1. The Executive Committee is an internal decision-making body whose participation is deemed necessary for the adoption of various decisions, such as recommending the application of GAAR provisions, authorize settlement of tax trials, and approve rewards for anonymous whistleblowers.
2. The Tax Council is an advisory nature body assigned to provide opinions in the publication of general instructions and interpretations of the law and audit annual plans of tax compliance of the Chilean tax authority.

Deputy directors in charge of the audit, legal and normative units of the Chilean tax authorities will be appointed under the state management system.

The entry into force is the first day of the month following the publication of the law, with the exception of the Tax Council, which must be established by the first day of the seventh month following the approval of the law.

Business groups and tax sustainability

The concept of "tax sustainability" is elevated to a legal status, stipulating that taxpayers will now be able to utilize third parties to certify their compliance with sustainability standards, as well as enter into cooperative compliance agreements with the Chilean tax authorities.

Economic groups shall designate a representative to facilitate communications and coordination around prevention and collaboration measures with the Chilean tax authorities. Also, tax authorities are authorized to perform multi-jurisdiction audits involving different members of an economic group.

The entry into force date is the first day of the month following the publication of the law.

Relationship rules for CFC rules

Qualified legal presumptions are introduced regarding family relationship (spouse, civil partner, ascendant or descendant relatives) for the application of the foreign passive income rule (Section 41 G of the Income Tax Law).

The entry into force date is 1 January 2025.

Exclusion rules for indirect transfer rules limited in case of tax-haven regimens

Chilean indirect transfer rules would look through the investors if the transferred entity is in a tax-haven jurisdiction to determine whether any direct or indirect Chilean tax resident persons own 5% or more in the foreign entity located in the tax haven.

This provision should enter into force on first day of the month following the publication of the law.

Requirements to qualify as tax-haven regimens reformulated

Jurisdictions considered to have a preferential tax regime are those that: (i) have not entered into a bilateral or multilateral agreement with Chile that allows for the exchange of information between tax authorities or have limitations that prevent effective exchange, or (ii) the Global Forum on Transparency and Exchange of Information for Tax Purposes does not consider compliant or substantially compliant in terms of transparency or exchange of information.

The reference to the non-application to OECD member countries is removed.

The entry into force date is 1 January 2025.

Bank secrecy

The deadlines of the general procedure for lifting bank secrecy will be expedited, subject to prior judicial authorization, but the tax package establishes qualified reasons (mainly related to tax crimes) under which the taxpayer's intervention is not required.

Financial institutions will have additional semiannual obligations to report suspicious multiple transactions to the Chilean tax authority. Suspicious transactions include situations in which (1) an individual, on a daily, weekly or monthly basis, receives 50 or more transfers from 50 or more different persons or entities, or (2) at least 100 deposits from 100 different persons or entities are made within a semester.

The entry into force date is the first day of the month following the publication of the law. Financial institutions will need to report transactions carried out during the second half of 2024.

Appraisal powers and business reorganizations

The ability of Chilean tax authorities to challenge transactions that deviate from market value conditions (i.e., agreed by unrelated parties, in comparable transactions and circumstances) has been improved. Valid valuation methodologies are not expressly regulated. However, comparable and relevant circumstances should be taken in consideration, such as by industry, function, assets and risks, specific particularities, components of goods, services, contracts or operations. The 40% tax penalty on differences determined under audit by the Chilean tax authorities still applies, although pre-inspection self-adjustments are permitted as long as they result in an increase in the taxable base.

The tax neutrality regime for business reorganizations is reformulated, legally recognizing international reorganizations and amplifying available legal restructuring alternatives. Domestic reorganizations would need to consider the following requirements. Mergers and demergers must not generate cash flows and tax cost basis of assets and liabilities must be rolled over. Any other type of reorganization must: have a legitimate business reason, not generate cash flows, and roll over tax cost basis of assets and liabilities.

International reorganizations would need to consider the following requirements. Mergers and demergers must not generate cash flows and the tax cost basis of assets and liabilities must be rolled over. Any other type of reorganization must: have a legitimate business reason, not generate cash flows, roll over tax cost basis of assets and liabilities, comply with legal requirements of the foreign jurisdiction, and not affect Chile's taxing authority.

Regarding restructurings involving entities resident in deemed tax havens, tax regimes and entities exempt from keeping accounting records would be prevented from utilizing the tax-neutrality regime under certain conditions.

The definition of a legitimate business reason includes actions taken for the purpose of: improving or facilitating business conditions; obtaining competitive advantages; financing; eliminating or mitigating costs or risks; increasing productive capacity or market presence; and optimizing management or any other similar purpose, different from merely tax-related purposes.

Entry into force is on the first day of the month following the publication of the law.

General audit powers

The tax bill establishes or reformulates various aspects of the Chilean tax authority's normal auditing activity. Key examples include:

• The Director of the Chilean tax authority is now able to include certain taxpayers in the sphere of an audit unit that does not correspond to the taxpayer's territory; safeguards to the taxpayer's rights are established in these cases.
• New audits would be prohibited if the subject or item has already been reviewed for previous fiscal years.
• Audit deadlines are reformulated according to different matters (e.g., 9, 12 or 18 months).
• The statute of limitations is increased to 12 months (even if the deadline has expired) if the taxpayer has not complied with reporting obligations.
• Self-reporting of potential tax offenses or crimes new procedures is introduced.
• E-mail notification is established as a general rule.
• The penalty interest rate is aligned with market conditions.

Most of these measures will be enacted the first day of the month following the publication of the law.

Rules against tax evasion

A series of rules and new powers are established to enhance the fight against evasion. These include:

• Various actors (e.g., administrators of electronic payment methods and digital intermediation platforms) must require clients with whom they contract to provide a certificate (issued by the tax authority) of commencement of business activities.
• New criminal offenses are incorporated and penalties and sanctions for several existing ones are now increased.
• Transactions of a certain amount must be made via an electronic payment method (or one that allows the buyer's identification).
• Habitual sellers of used items must issue tax documentation that identifies their suppliers, the goods acquired and their quantity and origin.
• Banks considering granting credit or loans to corporate clients must request an "up to date" tax status for those clients.

The entry into force date is the first day of the month following the publication of the law.

Anonymous whistleblower

Anonymous whistleblowers are regulated under the tax package, including with regard to causes for losing protection and sanctions that may be imposed for malicious and false accusations. Additionally, a reward amounting to 10% of the fines applies for the whistleblower in certain cases.

This provision would enter into force six months after the publication of the law.

Tax Ombudsman

Tax Ombudsman powers are expanded to protect the rights of taxpayers before the Chilean tax authority, the Treasury and the National Customs Service; these enhancements include guidance, training and representation actions.

Most of these measures will be enacted the first day of the month following the publication of the law.

Value Added Tax (VAT)

The VAT regime for the digital economy is extended to digital platforms and marketplace for imported goods remotely acquired. The de minimis exemption for the import of low-value goods acquired abroad (below approximately US$41) is eliminated. Goods acquired by digital platforms and marketplaces costing less than US$500 will be subject to the 19% VAT under the simplified regime applicable to remote digital services, exempting them from further import VAT and customs duties.

A new VAT SAAR allows requalification of reorganizations involving abuse or simulation. The Chilean tax authority may recharacterize a business reorganization as a sale of fixed assets, provided that certain requirements are met (e.g., the existence of abuse or simulation to avoid the application of VAT that would have otherwise been applied).

An exporter ceasing its commercial activities will be required to demonstrate that its exports in the last 36 months accurately reflect the amount of VAT refunds they have obtained. VAT refunds will need to be repaid if exports amounts are not satisfied.

Most VAT measures will be enacted on the first day of the month following the publication of the law. The VAT regime for digital platforms and marketplace will be effective 12 months after the publication of the law and the Export VAT regime will apply six months after the issuance of the Export VAT Regulations.

Transfer pricing

The exit-tax regulations applicable to cross-border reorganization involving the transfer assets, functions, risk or substantial modification of arrangements that are not aligned with arm's-length principle will be reformulated.

The APA procedure will be improved. Specifically, a voluntary "consultation" stage will be considered for preliminary feasibility analysis; APAs will be valid for four years (rather than three years) and are subject to additional renewal or extension; and rollback of an APA affects up to the prior years.

Transfer pricing self-adjustments are expressly regulated, provided they result in an increase to the taxpayer's taxable base. The tax bill clarifies that transfer pricing adjustments would only affect corporate taxes (not VAT or customs).

These provisions would enter into force on the first day of the month following the publication of the law.

Transitional measures

The tax bill introduces a new voluntary tax on capital repatriation under which Chilean taxpayers with foreign assets or income that has not been declared or for which the corresponding taxes have not been paid may now be regularized by paying a single tax of 12%, which provides amnesty for any criminal, civil and administrative liability. This provision enters into force on the first day of the month following the publication of the bill and runs until the 30 of November of the year of the publication of the law.

Further, for a brief time, the tax bill allows taxpayers to choose to put an end to their pending tax trials if they pay the full amount of the assessed tax and its adjustments, in exchange for a total waiver on interest and fines. This provision enters into force on the first day of the month following the publication of the bill and runs until 30 November 2024.