10 April 2014

Global Tax Alert

News from Americas Tax Center

Chile proposes tax reform

EY Americas Tax Center

On 1 April 2014, a Tax Reform bill was sent by the Chilean Government to the
National Congress for discussion. This Tax Reform bill introduces a number of
important amendments to the current tax laws and regulations.

The EY Americas Tax

Center brings together
the experience and
perspectives of over
10,000 tax professionals
across the region to
help clients address
administrative,
legislative and regulatory
opportunities and
challenges in the 33
countries that comprise
the Americas region of the
global EY organization.

Tax rates

Copy into your web

browser:

Elimination of FUT

http://www.ey.com/US/en/
Services/Tax/Americas-TaxCenter---borderless-clientservice

The Tax Reform bill would increase the corporate tax rate (First Category Tax) from
20% to 25% over a four-year period. The rate would increase to 21% in 2014, 22.5%
in 2015, 24% in 2016 and 25% in 2017 thereafter.
The penalty tax rate applicable to expenses determined to be nondeductible, as
defined by the law, and differences due to transfer pricing adjustments would
increase from 35% to 40%.
The highest marginal rate of income tax on individuals would be reduced from a
maximum 40% rate to a 35% rate, except for political and legislative authorities.
The Tax Reform bill also increases the Specific Tax on alcoholic beverages and
certain non-alcoholic beverages, depending on the nutritional composition thereof,
in the last case.
Under the FUT (Fondo de Utilidades Tributables or Accumulated Tax Profit Fund),
partners and shareholders are generally not taxed on business profits until those
profits are distributed. The Tax Reform bill would eliminate the FUT that allowed
for a deferral or withholding from personal taxes and create a new system under
which shareholders are taxed on an accrual basis, effective April2018 (affecting
incomes earned in 2017). In accordance with this new system, the annual taxable
profits of companies will be deemed automatically distributed at year end to
those entities or individuals that as of 31December of each year are considered
partners, shareholders, or the parent company (for branches or other permanent
establishments in Chile). The corporation would be required to apply a 10%
withholding tax to distributions made to Chilean resident partners or shareholders.

The rules applicable to mutual funds

and investment funds will also be
modified.
A transitory system will be in place
between 2014 and 2016.

Taxes on capital gains

The Tax Reform bill would modify
taxes on capital gains. The main
modifications relate to real estate
and share capital gain taxes.
The Tax Reform bill would eliminate
the tax exemption for gains from
most transfers of real estate.
However, the exemption would still
apply to gains derived from the sale
of a primary residence, assuming
certain requirements are met.
The Tax Reform bill also would
modify the capital gains regime
bytaxing as ordinary income gains
on the disposition of shares or
social rights held for a year or less.
Gains held for more than a year
would be taxed at the capital gains
rate. However, shares traded in
the Chilean stock exchange would
remain exempt from capital gains
tax.
The bill also would modify how tax
basis is calculated for purposes of
capital gains. For example, loan
derived interest related to an
acquisition of shares or social rights
would no longer be deductible for
corporate income tax purposes.
That interest would be capitalized
into the tax basis of the shares or
social rights (assuming a sale made
by a Chilean entity).

Changes to international tax

regulations
The Tax Reform bill would make
a number of changes to the
international tax regulations,
including:
Introduction of general antiavoidance rules. Under these
rules, the tax authorities will
have the right to challenge the
agreements, structures and other
activities developed by taxpayers
when those activities have been
performed in order to avoid
paying taxes.
A new obligation to recognize
foreign passive incomes from
controlled foreign entities, on
anaccrual basis (CFC Rules)
Changes to expense regulations
so that expenditure in favor of
related foreign residents will only
be deductible upon payment
Introduction of joint responsibility
for capital gains taxes for local
companies subject to indirect
transfer rules
Changes to transfer pricing
regulations and excess
indebtedness rules

Incentives to investment and

savings
The Tax Reform bill would modify
the incentives for investment and
savings as follows:
Changes to the depreciation
mechanism (immediate
depreciation for micro- and
small-sized companies and up
toone tenth of the useful life
formedium-sized companies)

Global Tax Alert Americas Tax Center

Extension of accelerated
depreciation effects to taxpayers
subject to final taxes
Special rules for small-sized
companies:
E
ntities with annual sales not
greater than 25,000 UF1 would
not be obligated to maintain full
accounting and would have a
reduction in provisional monthly
payments. The new rules also
would change the person liable
for VAT.
F
ixed asset acquisition credit
would increase to 6% for small
and medium-sized companies.

Green taxes
The Tax Reform bill would establish
a tax on emissions from stationary
sources and a tax on light vehicles
considered as a source of pollution.

Indirect taxes
The Tax Reform bill would establish
new regulations to apply the Value
Added Tax (VAT) on the sale of
immovable property. It also would
restrict the special VAT credit
available to construction companies
for houses priced at 2,000 UF or
less. Additionally, the Stamp Tax
maximum rate would increase from
0.4% to 0.8% (to be 0.66% per each
month or part of a month).

Repeal of DL 600 (Foreign

Investment Statute)
The Tax Reform bill would repeal
DL600 effective on 1January
2016. However, contracts signed
before 2016 will remain in effect for
the term covered by the contract.

Other anti-avoidance and evasion regulations

The Tax Reform bill would make the following changes
to the anti-avoidance and evasion regulations:
Incorporate the General Anti-Avoidance Rules into
the Tax Code
Vest the IRS with the authority to obtain information
from other governmental entities (Superintendence
of Securities and Insurance, Chilean Copper
Commission, etc.), with regard to purchases paid

using electronic means and the possibility to use

statistical methods to determine tax differences. In
general, an increase of the audit powers of the tax
authorities is proposed.
Limit on presumed income regimes now limited to
micro companies, which will be repealed in 2015 (real
estate, agriculture, transport and mining). A new
tax system based on presumed income or the new
Article14ter would be created for companies with
sales below 2,400 UF.

Endnote
1. The Unidad de Fomento (UF) is a Unit of account (standard monetary unit) that is used in Chile.

Global Tax Alert Americas Tax Center

For additional information with respect to this Alert, please contact the following:
Ernst & Young Ltda., Santiago
Felipe Espina
Osiel Gonzalez
Antonio Guzmn
Mauricio Loy

+56 2 676 1328

+56 2 676 1141
+56 2 676 1316
+56 2 676 1419

felipe.espina@cl.ey.com
osiel.gonzalez@cl.ey.com
antonio.guzman@cl.ey.com
mauricio.loy@cl.ey.com

Co-Directors of EY Americas Tax Center

Global Tax, Eric Solomon, Washington, DC

Global Tax, Michael Mundaca, Washington, DC

EY Americas Tax Center

Americas Tax Center Chief Operating Officer

Declan Gavin, Washington, DC

ATC - Operating Model Effectiveness (OME)

Lisa Lim, New York

ATC - Customs
William Methenitis, Dallas

ATC - Tax Performance Advisory (TPA)

Gary Paice, Chicago

ATC - Global Compliance and Reporting (GCR)

Ken Brown, Dallas

ATC - Tax Policy

Michael Mundaca (interim), Washington, DC

ATC - Global Tax Desk Network

Gerrit Groen, New York

ATC - Value Added Tax (VAT)

Jean-Hugues Chabot, Montreal, Canada

ATC - Tax Controversy

Rob Hanson (interim), Washington, DC

ATC - Insurance
Terry Jacobs, Washington, DC

Global Tax Alert Americas Tax Center

EY | Assurance | Tax | Transactions | Advisory

About EY
EY is a global leader in assurance, tax, transaction and advisory
services. The insights and quality services we deliver help build trust and
confidence in the capital markets and in economies the world over. We
develop outstanding leaders who team to deliver on our promises to all
of our stakeholders. In so doing, we play a critical role in building a better
working world for our people, for our clients and for our communities.
EY refers to the global organization, and may refer to one or more, of
the member firms of Ernst & Young Global Limited, each of which is a
separate legal entity. Ernst & Young Global Limited, a UK company limited
by guarantee, does not provide services to clients. For more information
about our organization, please visit ey.com.
Americas Tax Center
2014 EYGM Limited.
All Rights Reserved.

EYG No. CM4347

This material has been prepared for general informational purposes only and is not intended to
be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for
specific advice.

ey.com