Chile: MLI approved by Congress

Chile: MLI approved by Congress

Chile’s Congress on 8 July 2020 approved the “Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting” (often referred to as the “Multilateral Instrument” or MLI).


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The MLI is a multilateral convention that will implement a number of tax treaty measures of the OECD’s base erosion and profit shifting (BEPS) action plan.

Chile became a signatory to the MLI on 7 June 2017. With this week’s action, the MLI is one step closer toward implementation with regard to Chile’s network of income tax treaties. The next step is signature by the president and then official publication after which the corresponding instrument of ratification can be deposited with the OECD.

The MLI will enter into force with respect to Chile on the first day of the month following a three calendar month period beginning on the date when the instrument of ratification is deposited. If the entry into force were to happen in 2020, the MLI could affect a significant portion of Chile’s tax treaties as early as 1 January 2021.

Based on the list of its “covered tax treaties” (as notified by Chile upon signing the MLI), 34 treaties could be modified. However, for the MLI to apply to a specific treaty, it is necessary that the corresponding treaty-partner country must also have already ratified the MLI. In addition, application of the specific MLI provisions to each covered tax treaty would depend on the corresponding choices made by the other treaty-partner countries and would be determined on a case-by-case approach.

According to the initial Chilean position upon signature of the MLI, the main consequences for the Chilean tax treaty network are as follows:

  • Introduction of the “principal purpose test” to counter treaty abuse. It will apply as an interim measure, as Chile will seek to introduce a simplified limitation on benefits provisions under bilateral negotiations with its treaty partners.
  • Changes to the concept of permanent establishment with respect to dependent agents and anti-fragmentation rules will be introduced to counter the artificial avoidance of permanent establishment status.
  • Provision for a minimum standard for a mutual agreement procedure (MAP) between competent authorities. Chile opted out of mandatory arbitration procedures consistent with its longstanding tax policy.

Tax treaties not affected

The MLI will not affect Chile’s tax treaties with countries that have not signed the MLI—such as Brazil, Ecuador, Paraguay, and Thailand.

The United States has not signed the MLI either, so the Chile-United States income tax treaty (which is still awaiting ratification by the U.S. Senate) would not be affected.

Treaties with China, Italy and Japan will not be affected either. Even though these countries are MLI signatories, they have not included the treaty with Chile in their lists of “covered tax treaties.”

KPMG observation

To determine that relevant provisions are considered when applying Chile’s tax treaty measures, taxpayers need to monitor and, in each case, consider the ratification status of the MLI by treaty-partner countries as well as the matching MLI provisions.

For more information, contact a tax professional with KPMG’s Americas Center or with the KPMG member firm in Chile:

Alfonso A-Pallete | +1 (305) 913 2789 |

Rodrigo Stein | +56 2 2997 1412 |

Andres Martinez | +56 2 29971459 |

Alberto Cuevas | +56 2 29971401 |

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