CHILE LAW AND PRACTICE Contributed by: Fernando Lathrop Aubert, Francisco Cárcamo Valdés, Jimena Illanes Diez, Joyce Jankelevich Mayer, Macarena Jaramillo Solís, Michelle Niedbalski Ramírez, Nicolás Maldonado Leyton and María Fernanda Heusser Errázuriz, Lathrop Mujica Herrera & Diez Abogado
• Consolidated tax grouping – Chilean tax law does not include provisions concerning taxation on a consolidated basis. Other incentives include foreign institutional investors, special regimes for income from bonds, research and development credit, regional incentives and financial leasing and credit for investments in tangible fixed assets, training credits (SENCE), among others. 9.4 Tax on Sale or Other Dispositions of FDI In Chile, capital gains derived by foreign investors from the sale or other disposition of FDI are generally subject to taxation being considered ordinary income and subject to corporate tax ( impuesto de primera categoría ) and final taxes. The tax treatment depends on the nature of the assets sold, the structure of the investment, and applicable treaties. Capital gains are taxed under the Income Tax Law. Foreign investors are typically subject to a 35% with - holding tax on capital gains unless a lower rate applies under a bilateral tax treaty. However, there are some provisions in the Income Tax Law ( Ley de Impuesto a la Renta ) that provide some tax relief or even a non- taxable income if some requirements are met. These are as follows. • Article 107 of the Income Tax Law imposes a 10% single income tax on capital gains arising from the transfer of: (a) shares in publicly traded companies, (b) investment fund units, and (c) mutual fund units, provided the legal requirements are met. Institutional investors, whether Chilean residents or foreign enti - ties, are exempt from this tax. • The capitals gains from transfer of shares and corporate rights not covered by Article 107 of the Income Tax Law are considered taxable income, except when the transfer is carried out by individu - als to unrelated parties. In these cases, approxi - mately EUR8,000 of the gain is qualified as non- taxable income.
Foreign investors may use tax-preferred vehicles that can help defer taxation on capital gains, particularly in jurisdictions with favourable bilateral tax treaties. However, Chile’s anti-abuse rules and controlled for - eign corporation (CFC) regime limit the advantages of these structures, ensuring transparency and align - In Chile, the tax framework includes several measures to prevent tax avoidance in the context of FDI. While there are no specific anti-avoidance rules targeting FDI alone, Chile’s general anti-avoidance provisions apply broadly, including to foreign investors. These rules, established under Article 4 bis, ter, quáter of the Income Tax Law, allow the SII to challenge transac - tions that lack economic substance or are primarily structured to obtain tax benefits. Transfer Pricing Rules Chile has robust transfer pricing regulations, governed by Article 41E of the Income Tax Law. These rules require transactions between related parties, including cross-border dealings, to adhere to the arm’s length principle. This principle ensures that the terms and conditions of related-party transactions are consistent with those agreed upon by independent parties under similar circumstances. It states that the SII may chal - lenge prices, values or profitability set, or determine them in the absence of established values, in cross- border transactions carried out by taxpayers domi - ciled or residing in Chile with related parties abroad, when these transactions have not been conducted at market value. The regulation establishes that parties will be considered related when: ment with global standards. 9.5 Anti-Evasion Regimes • one of them directly or indirectly participates in the management, control, capital, profits or income of the other; or • the same person or persons directly or indirectly participate in the management, control, capital, profits or income of both parties, with all of them being considered related to each other. Branches, agencies and permanent establishments are considered related to their headquarters. Addition - ally, parties will be considered related when transac - tions are carried out with a party resident or domiciled
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