A new Treaty for the Elimination of Double Taxation in Relation to Taxes on Income and Equity and to Prevent Tax Evasion and Tax Avoidance between Argentina and Chile (the “DTT”) took effect on January the 1st, 2017.
This document is based on the model prepared in the 10th update of the Bilateral Agreement Model to Avoid Double Taxation and Fiscal Fraud (OECD Fiscal Model), published by the Organization for Economic Cooperation and Development (OECD), following its guidelines.
Implementation of the DTT
This DTT applies to taxes payable on income and assets of taxpaying residents[1] in Chile and Argentina[2], to restrict the tax jurisdictional force and coordinate the tax regulatory matrix in the interest of eliminating international double taxation.
The DTT benefits residents of one or both of the Contracting States, with respect to taxes on income and patrimony to which taxpayers who carry out transnational activities between the contracting parties are affected, thus reducing fiscal barriers that affect capital and services flow between both States.
– Business benefits. They shall be taxed exclusively in the State of residence of the taxpayer who obtains the income, unless the latter establishes in the other State a “permanent establishment”, insofar as they are attributable to that establishment, in which case both countries may tax the income up to limit of the profits attributable to the permanent establishment.
– Dividends. Dividends paid by a company which is a resident of one of the Contracting States to a resident of the other Contracting State may be taxed in that other State[3]. These will be the yields of the shares, or other rights, except those of credit, that allow participating in the profits, as well as the returns of other participation or corporate rights subject to the same tax treatment as the returns of the shares.
Argentine taxation of dividends distributed from Argentina to Chile cannot be higher than 10% of dividend distributions that hold more than 25% of the capital of the company, or with a maximum of 15%, in the other cases. In Chile´s case, the power to apply the Additional Tax on dividends paid from Chile with a rate of 35% was maintained, insofar as the First Category Tax is deductible against the Additional Tax.
– Interests. Interest from one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, subject to certain ceilings[4]. The tax demanded in the source country cannot exceed 4%, 12% or 15% depending on the interest rate in question.
– Royalties. These may be taxed in the country of origin: Argentina acquires the power to tax royalties paid to companies resident in Chile[5]. The tax demanded in the country of the source may not exceed 3%, 10% or 15% depending on the type of royalty involved.
– Estate. Property constituted by real estate held by a resident of a Contracting State and located in the other Contracting State may be taxed in that other State.[6]
– Independent personal and professional services. They will be taxed in the country of residence of the person who receives them[7].
For the purposes of the Agreement, a permanent establishment shall be a fixed place of business through which a company carries out all or part of its activities[8]. The fact that a company resident in Argentina controls or is controlled by a company that is resident in Chile or that carries out activities in Chilean territory does not convert any of these companies per se into a permanent establishment of the other.
Avoid double taxation
The DTT applies to all the income treated by the Agreement, the possibility that Argentine taxpayers compute as a payment on account the tax withheld in Chile, even though for Argentine legislation such profit does not constitute income from a foreign source. It also contemplates deducting an amount equivalent to the tax on equity paid in Chile, from the tax on that resident´s estate.[9] This deduction may not exceed the part of the income tax or the equity, calculated before the deduction, corresponding, as the case may be, to the income or assets that may be taxed in Chile.
Residents in Chile who obtain income or own assets that, in accordance with the provisions of this Agreement, may be taxed in Argentina, may accredit the taxes paid in Argentina, in accordance with the Chilean taxes corresponding to those income or assets. the applicable provisions of Chilean legislation.
[1] Section 4 of the DTT; “Any person who, by virtue of the legislation of that State, is subject to tax on it by reason of his domicile, residence, place of incorporation, seat of management or any other criterion of a similar nature”
[2] DTT, Section 2
[3] DTT, Section 10
[4]DTT, Section 11
[5] DTT, Section 12
[6] DTT, Section 22
[7] DTT, Section 14
[8] DTT, Section 5
[9] DTT, Section 23
