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Chile: Legislation intended to simplify provisions of 2014 tax reform

Chile: Simplify provisions of 2014 tax reform

The Chilean government on 15 December 2015 sent to Congress a bill that would make changes to the tax reform legislation enacted in 2014. The current legislative proposal is intended to simplify certain aspects of the “2014 tax reform”—measures that have proven to be too complex to implement.


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It is anticipated that the lower house would vote on the bill next week, and the Senate would then consider the bill in mid-January 2016. 


The “2014 tax reform” introduced a number of significant changes to Chile’s tax system—including provisions that, among other items, revised the corporate and dividend taxation integration rules; made changes to the thin capitalization rules; modified the expense deduction rules; imposed limits on the deductibility of “tax goodwill;” enacted controlled foreign corporation (CRC) rules; and provided for a general anti-avoidance rule (GAAR). 

These legislative changes also allowed for a set of complex transition rules.

Legislation proposed to simplify, clarify

Almost a year following enactment and publication of more than 1,000 pages of administrative guidance and interpretations on the application of the new tax rules, there is a consensus that certain aspects of the 2014 tax reform required simplification. 

The bill introduced by the government is intended to achieve the desired simplification. Yet, government officials have indicated that the proposed simplifications would not result in a reduction of tax rates or of projected tax revenues, and basically the bill would not affect the redistributive changes that were at the core of the 2014 tax reform.

Proposals affecting investors doing business in Chile

Some of the proposals in the bill that could affect investors doing business in Chile include the following:

  • The complexity derived from the coexistence of two different systems of corporate and shareholder taxation would be reduced, by limiting the availability of the “attribution system” to entities and businesses that are directly owned by Chilean resident individuals or non-resident taxpayers.
  • Registration and controls of pools of profits and imputation credits would be revised and reduced, and the interaction of the control of retained taxable profits and imputation credits (the “FUT”) existing as of 31 December 2016 would be streamlined. The FUT or “taxable profits fund” mechanism (Fondo de Utilidades Tributables) is used to encourage the reinvestment of profits in Chile, by deferring shareholder-level taxation when the profits are reinvested in Chile—rather than being distributed to shareholders.
  • The “ordering rules” for determining shareholder-level taxation on distributions under the “partial credit imputation system” would be reduced, and would consider only taxable profits, exempt or non-taxable income, and any other distributions in excess of these amounts. An imputation credit would be available for distributions that are treated as being made from taxable income and from other amounts to the extent of pooled credits, and subject to certain limits. 
  • A transition rule is proposed for the “partial credit imputation system,” under which a taxpayer resident in a country that has signed an income tax treaty with Chile prior to 1 January 2017, would be entitled to a full imputation credit, even if the treaty is pending ratification. This transition rule would be effective until 31 December 2019.
  • The scope of the GAAR would be clarified. The proposed rule provides that that facts, acts, transactions or series of transactions executed or concluded prior to 30 September 2015 would be outside the scope of the GAAR—even if the transactions were to have tax consequences beyond this date. This proposed rule change would apply only if the elements that determine the legal consequences for tax purposes of the concluded transactions were not modified after 30 September 2015.
  • The proposal clarifies that, under the new thin capitalization rules, the 35% tax on excessive interest payments made to non-resident related parties would apply not only to payments that had been subject to a reduced 4% interest withholding tax, but also to any payment that may have been subject to a withholding tax at a rate less than 35%, including interest payments that are subject to a reduced tax rate under an applicable tax treaty. 
  • The government’s’ bill proposes changes to the CFC rules, to expand the deduction of foreign tax credits and to address situations when international double taxation was not being eliminated or reduced. 
  • The bill proposes changes to the foreign tax credit rules, allowing a foreign tax credit for taxes paid in a country in which a Chilean taxpayer has an indirect investment, provided there is a tax treaty or information exchange agreement between Chile and the country where the indirect investment is made. 

The proposed legislation also contains several other changes and amendments addressing income taxes, value added tax (VAT), “green” taxes, among other items. 


For more information, contact a tax professional with KPMG’s Latin America Markets Tax practice or with the KPMG member firm in Chile:


Devon M. Bodoh | +1 (202) 533-5681 |

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

Andrés Martínez | + 56 227 981 412 |

Rodrigo Stein | + 56 227 981 412 |

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