WHAT ARE DOUBLE TAXATION AGREEMENTS?
Double Taxation Agreements promote collaboration between the tax authorities of the Contracting States. In addition, the existence of the agreements makes Chile more interesting for foreign investors and, on the other hand, stimulates Chileans to invest in other countries. They facilitate the flow of investments, since it is known in advance the tax costs that investors will have to bear for the income generated, which implies a greater certainty regarding the scenario in the foreign country.
ARE THEY THE SAME AS FREE TRADE AGREEMENTS?
No, Free Trade Agreements are negotiations that mainly cover the customs area, related to the entry of goods and services from one border to another border. On the other hand, agreements to avoid double taxation are part of a different negotiation, covering purely tax matters, mainly related to income tax. These agreements establish, for example, the rules for the determination of the State that has the right to tax the income obtained, the subjects of the tax, the type of tax, the tax rates to be applied, among other points.
WHICH COUNTRIES HAVE DOUBLE TAXATION AGREEMENTS WITH CHILE?
Currently 35 countries have double taxation agreements, these are:
1.Argentina
2.Australia.
3.Austria
4.Belgium.
5.Brazil.
6.Canada.
7.China
8.Colombia.
9.Korea.
10.Croatia.
11.Denmark.
12.Ecuador.
13.United Arab Emirates
14. Spain.
15.United States of America
16.France
17.India
18.Ireland
19.Italy
20.Japan
21.Malaysia
22.Mexico
23.Norway.
24.New Zealand.
25.Netherlands.
26.Paraguay.
27Peru.
28.Poland.
29.Portugal.
30.United Kingdom
31.Czech Republic
32.Russia.
33.South Africa
34.Sweden.
35.Switzerland.
36.Thailand
37.Uruguay
SOME OF THE MOST IMPORTANT DOUBLE TAXATION AGREEMENTS FOR CHILE ARE:
CHILE – UNITED STATES AGREEMENT
This treaty, one of the most significant for Chile, establishes:
- Corporate Benefits.
- Dividends: Differential rates.
- Interest: Maximum rates for bank loans and other cases.
- Benefit Limitation Clause: Specific provisions to avoid treaty shopping.
CHILE – CHINA AGREEMENT
The agreement with China reflects the growing importance of bilateral trade relations:
- Permanent Establishment: Expanded definition.
- Dividends: Maximum rate.
- Royalties: Rate for industrial, commercial or scientific equipment; and for other cases.
- Capital Gains: Special regime for alienation of shares.
CHILE – PERU AGREEMENT
The TDC between Chile and Peru, in force since 2004, has particular characteristics given the close commercial relationship between both countries:
- Business Income: Taxed in the country of residence, unless there is a permanent establishment.
- Withholding Tax Rate for Dividends: Maximum limit under certain circumstances.
- Royalties: Maximum withholding rate.
- Professional Services: Shared taxation within a threshold.
CHILE – POLAND AGREEMENT
This more recent treaty incorporates modern elements of international taxation:
- Dividends: Maximum rates for direct investments and in other cases.
- Interest: Maximum rate for bank loans and other cases.
- Collection Assistance: Includes provisions on exchange of information and mutual assistance.
- Anti–Abuse Measures: Incorporates modern anti-tax avoidance clauses.
COMMON ASPECTS
Despite the fact that each agreement is particular and different, we can find relevant common aspects that such agreements usually contain, such as, for example:
- Clauses that include exchange of tax information.
- Specific protocols for the request and delivery of information.
- Mutual Agreement Procedure.
- Detailed mechanisms for resolving interpretative disputes.
- Specific deadlines for filing cases before competent authorities.
- Anti-circumvention measures.
- Progressive incorporation of elements of the OECD BEPS Plan.
- Specific provisions against the abusive use of the agreements, among others.