Tax Reform Project: What are the implications for the Income Tax Law?

You can download the document prepared by our Tax Group by clicking here.

On january 29 of this year, the Government submitted to Congress the Bill on Compliance with Tax Obligations within the Pact for Economic Growth, Social Progress and Fiscal Responsibility called “Bill on Compliance with Tax Obligations”.

The bill contemplates the amendment of several legal bodies, the most important of which are the Tax Code, the Income Tax Law and the VAT Law. It also incorporates a new transitory regime for the regularization of foreign capital.

The main implications of the Income Tax Law are detailed below.

In general terms, there will be no major changes to the Chilean income tax system. The amendments to the LIR are limited to the rules for the control of aggressive international tax planning.

Indirect transfer

Article 10, in the case of indirect sales, specifies the cause for exclusion in the event that, in the case of disposal of entities under preferential tax regimes with Chilean underlying assets, there are no persons with domicile or residence in Chile who directly or indirectly are holders, shareholders or beneficiaries of 5% or more of the rights or shares disposed of.

Transfer pricing

The arm’s length principle is expressly incorporated as a guiding principle in transfer pricing. In this sense, the SII may question the prices, values or returns used in transactions between related parties when their transactions have not been carried out at normal market prices, values or returns.

Control of Foreign Passive Income (CFC)

The passive income rule is amended to clarify the way of recognizing profits generated abroad, in the sense that, for the purpose of calculating the limit of income accrued abroad, which triggers its application, its related parties must be considered. Once the limit of 2,400 UF is exceeded, all passive income is deemed accrued.

Territories or jurisdictions with a preferential tax regime

In line with the recommendations of the Global Forum for Transparency and Exchange of Information for Tax Purposes and BEPS Action 5, the criteria to qualify a jurisdiction with a preferential tax regime are modified.

You can download the document in our e-book section here.

For more information on these topics you can contact our Tax team:

Rodrigo Albagli | Partner | ralbagli@az.cl

Álvaro Rosenblut | Partner | arosenblut@az.cl

David Ancelovici | Director Tax Group | dancelovici@az.cl

Pablo Trucco | Senior Associate | ptrucco@az.cl

Elisabet Pinto | Associate | epinto@az.cl

Valentina Herrera | Associate | vherrera@az.cl