Chile’s Law No. 21,713 introduces significant reforms to tax compliance regulations, effective November 1, 2024. Key amendments enhance IRS assessment powers on transfers and appraisals, clarify market value definitions, and simplify tax-free reorganization procedures. Pending final circular letter may resolve existing uncertainties regarding the application of these provisions.
On October 24, 2024, Chile’s Law No. 21,713 was published, amending certain tax compliance regulations. One notable change was the replacement of Article 64 of the Chilean Tax Code, which governs the Internal Revenue Service’s (IRS) tax assessment authority and tax-free reorganizations. A draft circular letter has been issued to interpret these alterations, yet uncertainties persist until the final version is released, which is expected to clarify application details.
Key amendments from the new tax assessment provisions, effective November 1, 2024, include a revised approach to assessing transfers. Previously, a transfer required a transaction price assessment; the new law enables the IRS to evaluate prices even without a transfer event, such as in capital increases that dilute ownership or in spin-offs.
Additionally, the new appraisal provision expands the IRS’s authority. Previously, IRS assessments applied only when transaction prices fell below market value. Under the new rules, the IRS can assess transaction prices regardless of whether they exceed or fall short of the market value.
The concept of market value has also been clarified. Previously ambiguous, the new definition states that market value is defined as a price agreeable between unrelated parties in similar transactions and circumstances, thus enhancing transparency and consistency in valuation.
The new provisions on tax-free reorganizations streamline previous requirements. The earlier rules mandated various criteria, including the existence of the contributor and adherence to accounting standards. The updated requirements allow more flexibility, noting that contributors do not need to exist in cases of capital contributions and accounting records can be bypassed as long as the tax basis is preserved.
For international reorganizations, the old legislation lacked clear guidelines for tax treatment. The new regulations stipulate that international reorganizations can qualify for the safe harbour, provided they meet specific criteria, including a legitimate business purpose, no cash flow triggers, and retention of tax basis.
The recent amendments to Chile’s tax assessment provisions introduce significant changes with implications for compliance and tax planning. Major updates include expanded IRS assessment powers regarding transaction prices, a clarified definition of market value, and streamlined requirements for tax-free reorganizations. Despite these advancements, uncertainties remain until the IRS publishes a final circular letter to address pending questions regarding application and compliance processes.
Original Source: www.internationaltaxreview.com
