On 27 March 2025, the Chilean Tax Authorities issued new regulations in Circular No. 23, addressing the tax-neutral regime for domestic and foreign reorganizations and the prerogative to evaluate if the value agreed by taxpayers in their transactions are aligned with fair market value. This development follows amendments introduced by tax compliance bill Law No. 21,713, in October 2024, which came into force as of 1 November 2024. (For additional background, see EY Global Tax Alert, Chile enacts comprehensive tax compliance bill, dated 25 October 2024.)

Background

In general, Chile requires that all transactions be carried out under arm's-length conditions, regardless of whether they are domestic, cross-border, related or nonrelated. Transactions that significantly deviate from market value conditions can be challenged by the Chilean Tax Authorities and the assessed differences are subject to a 40% penalty tax. Taxpayers may, however, recognize pre-inspection self-adjustments that result in an increase in the taxable base, which would not be subject to the 40% penalty tax.

No specific valuation method is required by law to support transaction values. To determine whether market conditions are deemed arm's-length comparable, relevant circumstances, such as industry, functions, assets and risks, specific particularities, components of goods, services, contracts and operations, are considered. If challenged, market conditions may be supported by third-party valuation reports.

In principle, Chilean Tax Authorities may also challenge corporate restructurings, unless they meet the requirements for the tax-neutral regime. Corporate restructuring alternatives that qualify for the tax-neutral regime include mergers, demergers, conversion and contributions in kind, among others.

Tax-neutral reorganization regime requirements

Generally speaking, the requirements to claim the tax-neutral reorganization regime depend on the type of transaction. To qualify for the regime, mergers and demergers require a rollover of the tax cost basis of all assets and liabilities. Foreign mergers and demergers should also share legal characteristics similar to or equivalent to those under Chilean corporate regulations.

Other type of domestic reorganizations can qualify for the tax-neutral regime if they pursue a legitimate business purpose, do not generate cash flows and there is a rollover on the tax cost basis of assets and liabilities.

International reorganizations (that are not mergers or demergers) can qualify for the regime if they are implemented for a legitimate business purpose, do not generate cash flows, roll over tax cost basis of assets and liabilities, and comply with legal requirements of the foreign jurisdiction. Under the new regulations, international reorganizations should also not affect the taxing rights of Chile.

Restructurings involving entities resident in deemed tax havens and entities exempt from keeping accounting records are prevented from utilizing the tax-neutrality regime under certain conditions. For the new list of deemed tax-havens jurisdictions, see EY Global Tax Alert, Chile releases updated list of 'blacklisted' jurisdictions, dated 12 March 2025.

Legitimate business purposes are defined as those aimed to:

• Improve or facilitate business conditions
• Obtain competitive advantages
• Secure financing
• Eliminate or mitigate costs or risks
• Increase productive capacity or market presence
• Optimize management
• Serve any other similar purpose, distinct from merely tax-related purposes

Implications

The new rules and regulations codify the requirements for implementing international restructuring under the Chilean tax-neutrality regime (previously recognized only under rulings of the Chilean tax authorities) and expand the reorganization possibilities for domestic purposes. The situation regarding additional foreign reorganization opportunities is still to be confirmed by new specific rulings.