14 de Abril, 2016
Chile to Lower Taxes on Exported Services
The Chilean government plans to reduce taxes on Chilean companies that provide software and engineering services to their foreign-related firms, to help boost its technology sector.
The changes, announced March 30 by Finance Minister Rodrigo Valdes, are part of a 22-pointProductivity Agenda to bolster the country's economy, which has been badly hit by the declining price of copper, Chile's main export.
The agenda also would establish mechanisms to avoid double taxation of exported services, making it easier for domestic businesses to claim a credit against taxes paid on exported services, and expanding the scope of exported services exempt from value-added tax. The 22 initiatives, which would cost about $8 billion, focus on three areas: expanding financing; promoting the export of services; and simplifying procedures to facilitate entrepreneurship and investment.
Chile Undersecretary of Finance Alejandro Micco Aguayo said at a March 31 seminar organized by the Inter-American Bank of Development in Buenos Aires that lowering taxes on exported services “could be an important source of future economic growth” for the country and potentially a “new axis of growth.”
The tax measures will require legislative change, but the government hasn't commented on the timing.
Lower Taxes for Foreign-Related Firms
The plans to reduce the tax on exported software and engineering services to related firms involve a change to rules originally set up to combat artificial shifting of income out of the country.
Currently, software and engineering services are taxed at 15 percent and 20 percent, respectively, under Chile's Law on Income Tax. These rates rise to 20 percent and 30 percent respectively when the services are provided to a foreign-related party or an entity in a deemed tax haven. The higher rates were introduced to prevent businesses from shifting income abroad by disguising them as costs.
However, the higher taxes have become a significant barrier to the development of a robust information technology and services sector in Chile , Claudio Salcedo, a tax lawyer specializing in transfer pricing at Salcedo & Cia in Chile , told Bloomberg BNA April 1.
Therefore, the government said it will now move to eliminate the higher rates when a service is provided to a foreign-related company, and will instead require businesses to use the transfer pricing regime to determine the arm's-length value of the transaction. Chile's transfer pricing regime was recently updated in line with Organization for Economic Cooperation and Development standards outlined in its base erosion and profit shifting action plan (15 ITM, 1/22/15).
Salcedo said the government's aim behind the planned change is to bring more technology to the country. “We have traditionally been importers of technology but we need to make it easier for technology to be produced here,” he said.
The government also plans to establish mechanisms that will ensure companies avoid double taxation on exported services, and make it easier for businesses to claim a credit against taxes paid on exported services abroad.
The current definition “of technical assistance and similar which appear in the income tax law is restrictive,” Salcedo explained. The changes will allow companies to “make full use of credit on taxes paid abroad for services in general,” he said.
The government's plans also include a host of other changes to boost the export sector, such as expanding the definition of export services so that more services can access the benefit from the VAT exemption when exported.
The exemption currently only applies to services provided in Chile by Chilean taxpayers to a foreign entity to be used abroad. The change would mean it applies to export services that don't fulfil this requirement, Mariela Gonzalez, manager of international tax services at EY Chile in Santiago, told Bloomberg BNA April 6.
Other planned changes include:
• standardizing information concerning exported services using an international coding system for services to replace the current coding of the National Service Customs;
• simplifying procedures for exporting services with a special form in the Integrated Foreign Trade System (SICEX) and the electronic application for qualifying export before the National Customs Service;
• expanding the exemption from additional tax on sums paid to employees abroad for work and engineering services, provided they are used for exporting goods or services from Chile ;
• allowing businesses to establish additional port warehouses to facilitate the flow of foreign trade to the country;
• facilitating the movement of individuals and mutual recognition of titles to encourage the provision of Chile's exporters in the Pacific Alliance; and
• allowing insurance companies to invest directly in infrastructure projects.
The government said that as part of its plans, it will set up an online platform containing information about regulations and procedures related to the export of services, as well as promotion mechanisms.
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