The withholding tax rate under the Canada-Chile Tax Convention has been retroactively reduced
The CRA has announced that the withholding tax rate under the Canada-Chile Tax Convention (the Treaty) has been retroactively reduced. The rate is now 10% (reduced from 15%), for certain interest paid or credited between January 1, 2017 and December 31, 2018. According to a CRA release, the reduced 10% withholding tax rate for this period applies in specific circumstances. For example, it would apply to interest paid or credited to an unrelated enterprise that substantially derives its gross income from an active lending or finance business involving transactions with unrelated persons. The reduced rate would also apply to any other enterprise that meets certain thresholds of financial market activity in the three preceding tax years.
Effective on or after January 1, 2019, the Treaty's 10% withholding tax rate applies to all interest paid or credited.
The CRA notes that Article 11 of the Treaty (which covers interest payments) has been changed as a result of the "Most Favoured Nation" provision in the Protocol to the Treaty and has been confirmed by Chile.
How to obtain a refund
Where tax was withheld at a rate of 15% on interest payments eligible for the new 10% withholding rate, taxpayers can apply for a refund for the difference. To apply for a refund, a Chilean resident taxpayer must submit Form NR7-R, "Application for Refund Part XIII Tax Withheld" to the CRA within two years from the end of the calendar year in which the interest was paid. A Canadian resident taxpayer, on the other hand, must file or amend their general Chilean tax return or request Mutual Agreement Procedure assistance from the CRA (which is provided for under Article 25 of the Treaty).
For more information, contact your KPMG advisor.
Information is current to December 10, 2019. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500
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