New changes only affect reporting requirements
The Chilean IRS has issued Resolution 119/2020 (Resolution 119) and Resolution 11/2021 (Resolution 11) which provide more information on the indirect sale of foreign companies that indirectly own Chilean underlying assets (i.e. shares / quotas of a Chilean company, Chilean ) movable or immovable property, Chilean PE). The regulation came into force on January 1, 2021.
The new resolutions change the reporting rules in force since 2015 and established by resolution 65/2015 (resolution 65) in relation to the indirect sales provision introduced into our income tax law by the 2012 tax reform.
Before reviewing these new obligations, it should be noted that the chargeable event related to the indirect sale of Chilean underlying assets has not been changed. These changes only affect reporting requirements.
With regard to the new regulations, the main changes relate to which party is required to provide information and which transactions must be informed.
Resolution 119 has been in force since January 1, 2021 and requires that all parties involved report the indirect transfer (seller, buyer and Chilean owner of the Chilean underlying assets). This is a major change compared to the previous regulations, which only required the seller to report the transactions. Previously, the buyer or the Chilean underlying could do this even if the seller did not do so or if he did not agree with the information provided by the seller. In the future, all parties will have to explain.
Reporting must be made before the last business day of the month following the day on which the transfer takes place. If the Chilean underlying is not informed at the time of the transaction, the required affidavit can be filed before the last day of the sixth month after the operation.
Resolution 119 also stipulated that all indirect transfers involving Chilean underlying assets must be reported even if the chargeable event tests are not met. Resolution 119 does not include a reporting threshold. Therefore, every transaction with Chilean underlying assets should be reported. This could potentially affect public companies whose shares are transferred on an exchange. In this case, these transactions should have been reported to the Chilean IRS.
To address this issue, the Chilean IRS issued Resolution 11 (February 4, 2021) which states that only the transaction or group of transactions must be reported in which the assets transferred are at least 10% of the shares (or Quotas or rights) of making up the overseas company, taking into account all operations performed by overseas related parties, will be transferred within a period of 12 months prior to the last sale.
It is important to note that the amendment to resolution 119 has been in effect since January 1, 2021, so reporting should not have been carried out under the original wording of resolution 119.
However, the current wording provides for a change compared to the 2015 regulation, since under this rule only transactions that met the thresholds had to be reported, even if no tax was due. With this change, all foreign taxpayers selling companies with underlying assets, or even taxpayers undertaking a reorganization within the group of companies, must consider this disclosure requirement if they transfer more than 10% of the shares or quotas of the respective company entity.
In order to comply with these information obligations, the seller and buyer must receive a Chilean tax ID (RUT number). This should be taken into account as the process includes providing legalized documentation and appointing a legal representative in Chile (among other things), which can take a considerable amount of time.
Foreign buyers and sellers who are in the middle of an acquisition process, or even groups of companies undertaking internal restructuring, should consider these new information requirements and conduct an analysis to see whether filing the relevant affidavit is necessary to avoid fines or audits to avoid this that could be imposed by the Chilean IRS.
Senior Manager, PwC Chile
Senior Associate at PwC Chile
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