On 14 August 2025, Chile's tax authority issued Ruling No. 1611/2025, addressing the tax implications of payments made by a Chilean company to a US software provider under a reseller agreement. The agreement grants the Chilean entity the right to resell standard software licenses to local customers, without acquiring ownership or rights to reproduce, modify or exploit the software.

The ruling confirms that, under the Chile-US Tax Treaty, these payments qualify as business profits (Article 7), as long as the US provider is a resident under Article 4 and meets the limitation on benefits criteria under Article 24. Consequently, these payments are not subject to Chilean withholding tax, unless the US provider has a permanent establishment in Chile.

Importantly, the tax authority referenced paragraph 14.4 of the Organisation for Economic Co-operation and Development (OECD) Commentary (2008), which excludes distribution rights from the definition of royalties under Article 12. This interpretation supports the classification of the payments as business profits.

The ruling also confirms that VAT applies under Chilean domestic law, specifically Article 8(n)(3) of the VAT Law, which covers the provision of software, cloud services and information technology (IT) infrastructure. The VAT is typically handled via a reverse charge mechanism by the Chilean customer.

Notably, the tax authority emphasized that this interpretation is exclusive to the Chile-US Tax Treaty, which explicitly incorporates references to OECD Commentary. Other treaties signed by Chile may not contain similar provisions and, therefore, the same treatment may not apply.

Implications

This ruling provides a technical basis for considering Chile as a potential jurisdiction for regional software distribution structures. Additionally, the interpretation may have implications for the treatment of prior payments and evaluating potential refund claims.