Tax Newsletter November

In this edition, we refer to recent rulings and official notices issued by the Internal Revenue Service (“SII” or “Service”) and a decision of the 4th Tax and Customs Court (“TTA”):

1. TAX REFORM 2024 (LAW NO. 21,713): REPATRIATION OF CAPITAL AND REMISSION FOR EARLY TERMINATION OF TAX LAWSUITS 

On October 25 (the day Law No. 21,713 was published), the SII issued the following Resolutions:

• Resolution N°103: Instructs on voluntary declaration of assets located abroad to pay a single tax of 12% (transitory art.11°). 
• Resolution N°104: Instructs on the request for early termination of pending legal proceedings and total remission of fines and interest (art.12 transitory).

Both have a deadline of November 31, 2024 to be presented, although the Executive presented a bill (Boletín 17205-05) to extend it until December 31, 2024.

2. PRONOUNCEMENTS OF THE SII ON THE SUBSTITUTE TAX ON FINAL TAXES (“ISIF”) 

During the month of October, the SII issued three official notices related to the substitute tax on final taxes (“ISIF”) at a 12% rate, which may be declared until January 31, 2025, applied on all or part of the profits accumulated in the Corporate Registry of income subject to final taxes (“RAI”) as of December 31, 2023 and pending final taxes (arts. 10 and 11 of Law No. 21.681): 

• Oficio 1769/2024: Dividends distributed during 2024 before paying ISIF and that are imputed to the RAP record or to profits affected with ISFUT should not be deducted from the ISIF taxable base. However, if as of 12.31.2023 there is only RAI, such dividends will reduce the ISIF taxable base.
• Oficio 1890/2024: New companies resulting from divisions after December 31, 2023 are not eligible for ISIF.
• Official Letter 1945/2024: The SII pronounces on: (i) excess withdrawals: which should not be deducted from the RAI because they should have been imputed to that record as of 12.31.2023, and (ii) capital returns during 2024: which should be deducted from the maximum amount to be eligible for ISIF if such distributions had been imputed to the RAI.

3. TAX TREATMENT OF ASSIGNMENT OF INVOICES AND RECEIVABLES TO A COMPANY LOCATED IN THE USA..

Oficio No. 1944/2024 analyzes how profits obtained by a U.S. company acquiring invoices and loan portfolios at less than face value, assigned by a Chilean company under the Chilean Income Tax Law (“LIR”) and the Chile-U.S. Double Taxation Avoidance Agreement (the “Agreement” or “DTAA”), are taxed: 

• Assignment of credit portfolios: these are money credit operations, therefore the profits obtained by the U.S. company are considered as interest, subject to additional tax (art. 59 N° 1 of the LIR). In view of the Convention (Art. 11), they can be taxed both in the USA and in Chile, with the rate limits established therein, provided that the beneficial owner of the interest is a US taxpayer.
• Assignment of invoices: Individually considered, an assignment of an invoice does not constitute a money credit operation, and therefore the resulting profits are taxed with a different additional tax (Article 60 of the LIR), and are considered business profits, unless there is a Permanent Establishment in Chile (all this according to Article 7 of the Convention). However, if the assignment of invoices is a means of financing the Chilean company (whether operating as factoring or not), then the profit would be considered an interest, being taxed for purposes of the Convention as in the assignment of credit portfolio (art. 11 of the CDTI).

4. PROFESSIONAL PARTNERSHIP AND NGA

In Oficio No. 2069/2024 the SII is asked whether the NGA is applicable to a SpA that is engaged in both the leasing of machinery and the supervision, maintenance, and placement of workers. The SpA intends to isolate the personnel provision services in a new professional partnership to be exempted from VAT.  The SII concludes that the NGA is not applicable, but that both operations (carried out jointly or separately) are taxed with VAT, since (i) providing personnel is proper of a business agency, and (ii) leasing is affected by Article 8 letter g) of the VAT Law.

5. RULING ON JUSTIFICATION OF INVESTMENTS AND DISGUISED WITHDRAWAL OF PROFITS FOR LOANS BETWEEN RELATED PARTIES

The SII questioned two loans received in favor of the claimant, who is a natural person:

• Loan granted by a relative of the claimant: The TTA accepted the claim, accepting that this loan did not fall under Art. 70 of the LIR, which questions the origin of the funds, presuming them to be income, nor Art. 63 of the Law on Inheritance or Donations Tax (“LIHAD”), which could qualify it as a disguised donation. It was a loan contract, agreed without interest or installments, which ITE paid in due time.

Therefore, this loan was not considered taxable income for the debtor, since it does not constitute income but a personal debt.

• Loan granted by a corporation: In this case, the TTA classified it as a disguised withdrawal of profits, because it is a loan granted by a corporation:
  • The taxpayer was a partner of the creditor company.
  • It could not be proven that it was a real loan.

The TTA considered it an undeclared distribution of profits and applied the Global Complementary tax increased its rate by 10%, according to art. 21 of the LIR.

CONTACTO

Mario Gorziglia
Partner
mgorziglia@prieto.cl

­Leonidas Prieto
Partner
lprieto@prieto.cl

­Luz María Calvo
Counsel
lcalvo@prieto.cl

“This information was prepared by Prieto to keep you informed and does not constitute legal advice.”