Tax Alert

The last months of 2021 and the beginning of 2022 have been highly active in tax matters. Among the most important updates are:

1.    The tax plan of the new President-elect.
2.    Updating the Catalogue of Tax Schemes. 
3.    The bill on the elimination of tax exemptions. 
4.    The bill that modifies the Tax Code on banking secrecy. 
 
1. Regarding the tax plan of the new President-elect, there are no further details on how the proposed changes will take shape. However, it is expected that:
 
1.1. Regarding Income Tax:
(i) In relation to large companies. The Corporate Income Tax that they would pay would not serve as a credit for final taxpayers (65% can be used today). This could result in one of two situations:

a) A flat tax could be created (e.g. 15%) that is applied to the distributed dividend and that -as it is not progressive- can be withheld by the companies. This means that said dividends are not included in the calculation of the Surtax ("IGC" for its Spanish acronym) or the Additional tax of the taxpayer; or
b) The dividend that is distributed is subject to progressive IGC. 

Both systems produce problems with the countries with which Double Taxation Treaties have been signed, but it is not yet possible to establish how this issue will be addressed. It should be noted that said system will not affect small and medium-sized enterprises that stay in their current regime.

(ii) Regarding residents, the IGC rates increase, especially for those who earn over CLP 4.5 million (EUR 4,744.31) per month.

(iii) A tax is incorporated on retained earnings.

1.2. Regarding Wealth Tax:
(i) A tax would be applied to the net worth of the "super rich", applicable at a 1.5% over USD 5 million and 2.5% over USD 22 million. 

(ii) In relation to the inheritance tax, the exemptions for amounts paid for life insurance would be eliminated and the way of valuing the inheritance assets would be modified. The market value of the assets would apply primarily. (E.g. Property today is valued using the tax assessment, so inheritances that have many properties can increase considerably.) 
 
1.3. Elimination of exemptions: such as presumptive income, trading instruments (mainly shares), sales of shares and real estate (taxation of these sales had already been increased recently and now any associated benefit would be simply eliminated), residential properties less than 140m2, credits to construction companies (Value Added Tax or VAT); application of taxes to private investment funds (PIFs).
 
1.4. Increase in auditing powers:  The Chilean tax agency ("SII", acronym for its Spanish, Servicio de Impuestos Internos) could make more extensive use of anti-avoidance rules; SII expansion; creation of the anonymous whistle-blower in tax matters; elimination of bank secrecy for the SII; authorization for the Public Prosecutor's Office to prosecute some tax crimes.

2.  Updating of the  Catalogue of Tax Schemes by the SII, which included 10 new behaviours (resulting in 65 cases) of taxpayers, which it estimates will be audited for potential evasion. Additions to this kind of catalogue-guide prepared by the tax authorities for taxpayers is among the recommendations and international good practices made by the Organisation for Economic Co-operation and Development (OECD) in tax matters for its member countries, where the BEPS ( “Base Erosion and Profit Shifting”) Action Plan stands out  against the erosion of the tax base and the transfer of profits to other countries.

 
3. The bill to eliminate tax exemptions presented on 21 December 2021:

3.1. Exemptions in the capital market:  tax the higher value obtained in the sale on the stock market of certain instruments:  Article 107 of the Income Tax Law states that profits obtained from the sale of certain instruments traded on the stock market are considered as non-taxable income (not subject to taxes). The bill proposes to tax the highest value obtained in the sale of said instruments with a single tax of 10%. Notwithstanding the foregoing, the highest value obtained by institutional investors is kept as non-taxable income.

3.2. Elimination of special credit to construction companies:  The bill proposes a gradual reduction, until the total elimination of special income tax credit for construction companies (65% of the VAT). The gradual reduction will begin as of 1 January 2023, and the elimination of the benefit will be effective as of January 2025.

3.3. Elimination of benefits for residential properties less than 140m2 acquired before 2010:  It has been proposed to limit the benefit only to individuals and establish a maximum of two residences per person, as of 1 January 2023, regardless of the date the property was acquired.

3.4. Payment of services with VAT:  The general rule would be that all services are subject to VAT, except for those expressly exempted (individuals, professional associations, health services and those that the law establishes). It would apply for services provided from 1 January 2023.

3.5. Life insurance:  Inheritance and Donations would be subject to Tax, with respect to all benefits obtained by virtue of life insurance contracts entered into after the publication of the bill, except for the disability and survivors insurance of Decree Law 3.500, of 1980.
 

4.  The bill  was approved by the Senate on 22 December  2021 that modifies the Tax Code in matters of banking secrecy, which obliges  banks and other financial institutions to deliver information on balances and amounts of deposits in financial accounts to the SII.

The new regulation seeks to give the SII better tools in the fight against tax evasion and avoidance, and prevent certain crimes such as money laundering and corruption (e.g. bribery), creating the obligation of banks and financial institutions to deliver information to the SII through sworn statements of the balances and monthly deposits corresponding to the immediately preceding calendar year, to the extent that said balances or amounts of deposits record daily, weekly or monthly movements equal to or greater than UF 1,500 (approximately CLP 46 million or EUR 48,946.18). (The UF, Unidad de Fomento, is a unit of account used in Chile constantly adjusted for inflation.) The information must be submitted to the SII annually within the first 15 days of March. 

 The law states that the SII must maintain strict confidentiality of the information received, not being able to disclose it by any means and only use it for auditing purposes. Finally, it indicates that the obligation to report will be applied with respect to the balances and amounts of deposits identified in the financial accounts from the third month following the date of publication of this bill as law in the Official Gazette. We estimate that the aforementioned law should be enacted and published in early 2022.
 
If you have any questions or comments, please contact us.