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Canada-Chile: Income tax treaty, withholding tax rate reduced retroactively

Canada-Chile: Income tax treaty

The withholding tax rate under the Canada-Chile income tax treaty has been reduced retroactively.


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The Canada Revenue Agency (CRA) announced that the withholding tax rate under the Canada-Chile income tax treaty has been reduced retroactively, with the rate now being 10% (reduced from 15%) for certain interest paid or credited between 1 January 2017, and 31 December 2018. According to a CRA release, the reduced 10% withholding tax rate for this period applies in specific circumstances. For example, it applies 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 also applies to any other enterprise that meets certain thresholds of financial market activity in the three preceding tax years.

Effective on or after 1 January 2019, the 10% withholding tax rate under the treaty 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 and has been confirmed by Chile.

Refund opportunity

When 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 must file or amend the general Chilean tax return or request Mutual Agreement Procedure assistance from the CRA (provided for under Article 25 of the treaty).

Read a December 2019 report prepared by the KPMG member firm in Canada

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