On October 24, 2024, Chile enacted Law No. 21,713, amending tax compliance regulations and enhancing the IRS’s assessment capabilities. Changes include expanded appraisal powers, a clearer definition of market value, and revised criteria for tax-free reorganizations. While these reforms are significant, uncertainties remain until the IRS issues a final circular letter interpreting the law.
On October 24, 2024, Chile published Law No. 21,713 in the Official Gazette, introducing new regulations to enhance tax compliance. This law notably amended Article 64 of the Chilean Tax Code, which governs the tax assessment authority of the Internal Revenue Service (IRS) and tax-free reorganizations. Though the IRS has issued a draft circular letter interpreting these changes, uncertainties endure until the final version is released.
Among the notable changes effective from November 1, 2024, is a new provision regarding assessments during transactions. Previously, a ‘transfer’ necessitated an assessment of the transaction’s price; however, the new regulation allows the IRS to assess transaction prices even without a transfer, covering situations such as capital increases or spin-offs.
Additionally, the new appraisal provisions broaden the IRS’s authority. Under the former rules, IRS appraisal powers were limited to instances where transaction prices fell below market value. Now, the IRS can assess transaction prices, regardless of whether they exceed or undercut market value, enhancing their oversight capabilities.
The definition of ‘market value’ has also been refined. Previously unclear, the new definition specifies market value as the price that non-related parties would agree upon in comparable transactions and circumstances. This clarity aims to standardize assessments for better compliance.
Changes to the tax-free reorganization provisions are significant. Previously, mergers and spin-offs were deemed tax-neutral only if they preserved the tax basis of assets and liabilities. The new requirements include maintaining a legitimate business purpose and ensuring no cash flows are triggered, thus facilitating tax-free capital contributions without the need for comprehensive accounting records.
Moreover, the necessity for the contributor to continue existing in corporate form has been eliminated. This means that converting an individual enterprise into a company, subject to corporate tax, will no longer incur additional taxation.
Finally, regarding international reorganizations, the old regulations did not clarify the tax treatment for such transactions affecting Chile. Under the new law, international reorganizations are included under safe harbor provisions if they satisfy several criteria, such as maintaining a legitimate business purpose and preserving tax basis without triggering cash flows.
In conclusion, these reforms in Chilean tax law present significant changes to tax compliance and assessment procedures. Nevertheless, many questions remain about how the regulations will be implemented, and further clarification is anticipated in the forthcoming IRS circular letter.
In conclusion, the enactment of Law No. 21,713 introduces comprehensive changes to Chile’s tax assessment framework. Key alterations include expanded IRS appraisal authority, clearer definitions of market value, and refined tax-free reorganization criteria. While these reforms aim to enhance compliance and streamline operations, uncertainties persist until the IRS finalizes its interpretive circular, warranting close attention from corporations and taxpayers.
Original Source: www.internationaltaxreview.com
