Global Daily Tax News, Chilean Lower House Approves US DTA, (Nov 16, 2023)

Chile's lower house of parliament has signed off on legislation to ratify the double tax agreement with the United States.

Following approval from the Chamber of Deputies, the legislation has now been tabled in the Senate and is currently being considered by two committees, as of November 14.

Approval of the text has been held up for more than a decade, initially due to privacy concerns raised by US Senator Rand Paul (R-KY), who voted against the deal, and more recently due to the need for amendments in response to the addition to the US tax code of the Base Erosion and Anti-abuse Tax (BEAT) in the Tax Cuts and Jobs Act of 2017 and changes, since the agreement's signature, to US foreign tax credit rules.

Among other things, the treaty would cap the withholding tax that may be charged at source on cross-border payments of dividends, interest, and royalties.

For dividends, the treaty provides for a concessionary five percent rate of withholding tax if the recipient owns at least 10 percent of the voting stock of the company paying the dividends. A maximum 15 percent rate applies in all other cases. Specific provisions concerning the taxation of dividends paid by a regulated investment company or a real estate investment trust were subsequently added by an accompanying amending protocol.

The treaty provides for a four percent concessionary rate of tax on certain interest income connected to finance sector activities listed in Article 11 or where a recipient receives interest from credit provided with the sale of machinery or equipment. Otherwise a rate of 15 percent will apply for the first five years of the agreement and 10 percent thereafter.

The agreement provides for a two percent rate of withholding tax on payments of any kind received as consideration for the use of, or the right to use, industrial, commercial, or scientific equipment, but not including ships, aircraft, or containers as dealt with in Article 8.

Otherwise, a rate of 10 percent applies to payments for the use of, or the right to use, any copyright of literary, artistic, scientific or other work, any patent, trademark, design or model, plan, secret formula or process, or other like intangible property, or for information concerning industrial, commercial, or scientific experience.