Waiting for the Senate’s Finance Committee reaction about the amendments of the Tax Modernization bill (committed in the “Framework of Understanding”), and the bill’s votation in the Congress, we will review the most relevant administrative and judicial jurisprudence of the months of October and November.
BANKING SECRECY LIFT
On October 14, 2019, the Supreme Court rejected Uber’s complaint deducted against the ministers of the Santiago’s Appeal Court based on the misdemeanors or abuses that they would have committed in their decision to uphold the ruling of the Tax and Customs Court (“TTA”), which acceded to the SII’s request to lift the banking secrecy on accounts related to Uber.
As it was pointed out previously in a Newsletter, Uber based its complaint on the fact that through the lifting of bank secrecy the SII would have access not to it tax information, rather from its parent company (Uber B.V.) and its drivers partners, therefore the purpose of the SII request was not made to “determine the tax obligations of the taxpayer” rather of third parties. This argument was not accepted by the Supreme Court, who decided taking into consideration that the SII is entitled to require to the taxpayer documentation that justify and support their investments.
CORPORATE REORGANIZATION AND “LEGITIMATE BUSINESS REASON”
In October, the SII published two official letters regarding “legitimate reasons” for corporate reorganizations.
Official Letter No. 2522, the SII states that the provisions of the General Anti-avoidance Rules would not be applicable to a reorganization that obeys to personal and family reasons and is not based on an economic reason. The reorganization does not cause fiscal damage and will be carried out to avoid future conflicts between the taxpayer’s children at the time the inheritance is divided, by donating such assets to them during their lifetime.
Official Letter No. 2734, the SII establishes that, provided all legal requirements are fulfilled, it faculty of determine the value would not proceed in a corporate reorganization, whose legitimate business reason consists in the taxpayer’s willingness to contribute goods from one company to another, with the purpose of separating the different lines of business into different legal entities in order to establish an efficient and orderly administration according to each company object.
Official Letter No. 2622 refers to the application of the Double Taxation Treaty (“DTT”) currently in force between Chile and France, in the case of a resident in Chile, who contracts with a resident in France, but the French resident receives it payment through a representative, who is resident of a country without a DTT. In this context, the SII resolves that to the extent that the French resident continues to be the effective beneficiary of the rent, the DTT between Chile and France is applicable to said rent.
Official Letter No. 2625 refers to article 41 A of the Income Law. This article, allows to use as a credit in Chile the tax paid by subsidiaries that distribute profits to the company that finally distribute such profits to Chile; for such purposes, when these two companies are domiciled in different countries, the law requires that Chile has in force with the subsidiary’s country, a DTT or an agreement that allows the exchange of information. Hereby, the SII recognizes that between Chile and the United States there is an agreement in force that allows the exchange of information (Convention on Mutual Administrative Assistance in Tax Matters), therefore, the requirement establish in article 41 A that allows to use in Chile as credit, taxes paid in United States it would be complied.
TAX’s CREDITS FOR TAXES PAID ABROAD
Officials Letters No. 2800 and 2801, refer to Chilean incomes taxed abroad and its relationship with the Foreign Net Income (“RENFE”). The Income Tax Law establishes a limit to the amount of taxes paid abroad on foreign income, that can be used as a credit against taxes in Chile. This limit corresponds to 32% or 35% of RENFE calculated at the end of the fiscal year, depending on whether or not the country where the payment was made has a current DTT with Chile. However, the law does not expressly refer to whether or not there is a limit when it comes from a Chilean income that is taxed abroad. By means of the aforementioned documents, the SII established that the limit associated with RENFE to use said tax as a credit against taxes in Chile is not applicable to Chilean incomes taxed abroad.
MERGER BETWEEN FOREIGN AND CHILEAN COMPANIES
Officials Letters No. 2877 and 2895, referring to the merger of foreign companies with Chilean companies, in which the Chilean company subsists, in relation to the financial profits of the foreign company: (i) if the absorbent is a company subject to the system of attributed income, such profits must be attributed to the partners or shareholders at the end of the fiscal year to be taxed with final taxes; on the other hand, (ii) if the absorbent is a company subject to the partially integrated system, such financial profits are not incorporated in the registers at the time of the merger, but will have as effects the increase of the RAI, when this is calculated at the end of the fiscal year. In addition, if the absorbing company has prior investments in the absorbed foreign company, it clarifies that the Income Tax Law’s rules of goodwill and badwill are applicable to the difference between the value effectively invested and the total or proportional value of the foreign company’s tax equity as determined by Chilean Income Tax Law.