4 de Agosto, 2015
Chile prepared to simplify corporate tax code
The Chilean government is seeking suggestions from auditing firms and businesses on how to simplify the country's new corporate tax regime after publishing final instructions for its implementation.
Deputy Finance Minister Alejandro Micco said July 23 that the government has arranged meetings with representatives of the private sector and professionals to hear their feedback on the two corporate tax regimes coming into force Dec. 31, 2016 and to address concerns that the new regime is too complex. The debate will help form a dialogue to allow the government to simplify the new system before it becomes effective.
According to Bernardo Marchant, tax partner at EY previous hitChilenext hit, the new system is significantly more complex than Chile's existing corporate tax regime. If it takes 67 pages just to explain just one of the new corporate tax systems, “it means the issue is pretty complex,” he told Bloomberg BNA July 24, adding that there are many rules to consider.”
The government's decision to listen to what businesses have to say about the new corporate tax regimes comes after it dismissed calls from some business leaders to eliminate one of the two systems. However, while addressing journalists in Santiago, Micco warned that this dialogue between government and businesses is not “an invitation to reopen the debate over the tax reform because we do not believe that this is what the country requires.
Micco issued the statement after six circulars (Circulars 65-71) were released July 23 by the internal tax service (SII). Circulars 65-71 were the last of a total 50 documents providing details on the new Tax Code and tackle the heart of the tax legislation (Law 20,780), promulgated in October 2014 by President Michelle Bachelet. The new tax regime, which is the largest overhaul of the Chilean tax system in 40 years, is being introduced gradually with some aspects effective immediately and others being introduced over several years. Despite the huge volume of instructions published by the tax service over the last six months there are still doubts about the certain aspects will be implemented.
The reform includes two corporate tax regimes — “attributed” and “semi-integrated.” Under Law 20,780, companies must choose between the two corporate tax regimes to pay their businesses taxes. Currently, businesses are subject to a 20 percent corporate tax. Under the new Tax Code, business can either opt for the “attributed” tax regime, which will levy a 25 percent tax on profits, but will not allow companies to gain tax credits against tax paid by business owners, or chose the “semi-integrated” corporate tax regime that levies a 27 percent tax on business profits, but allows businesses to receive a tax credit of up to 65 percent on the tax paid.
Marchant noted that until the new system is implemented, companies will have to continue to keep track of undistributed profits that are not taxed under the current system, which imposes a significant additional cost for companies, auditors and the tax authority.
Rather than eliminating one of the two tax regime, which is want business campaigners are calling for, Marchant suggested the two regime could work parallel to each other and be directed towards different types of taxpayers. For example, while one system could largely apply to small businesses whose owners consume all their income, the other could be favored by large corporations. “One would thus avoid having two tax regimes,” he said.
GAAR Ambiguities Highlight Need for Clarity
The new corporate tax regime also includes a General Anti-Avoidance Rule (GAAR), giving the SII the power to challenge certain tax planning measures and sanction executives and auditors when found to be violating the rules.
However, under the current wording, the rules could apply to tax planning undertaken by companies before Sept. 30, 2015 when the GAAR is due to enter into force. This ambiguity in the application of the new rules derives from the law itself, Marchant pointed out, which highlights the need for legislative change to provide clarity, he said.