1. Amendments to general anti-avoidance rules

The bill establishes that the simulation or abuse of legal forms does not require a prior judicial declaration and can be directly declared in an administrative manner by the Internal Revenue Service (“Service” or “IRS”), which must summon the taxpayer and request the information required to subsequently issue a tax assessment.

The IRS is also empowered to apply the General Anti-Avoidance Rules, even if there is a special rule that governs that case.

The statute of limitations is increased, where the limitation period begins after the last avoidance fact, event or business transaction has been completed. However, such period is suspended between the abuse or simulation declaration by the Service and the court’s related decision.

The consolidated text of Article 100 bis creates administrative fines that apply to the sanctioned taxpayer, equivalent to the value of the computed tax difference, subject to a limit of 250 UTA. The directors, representatives or administrators are jointly liable for the fine if they have breached their duties of direction and supervision.

The reform has two amendments with respect to advisors. The first extends the scope of the fine to include the people who planned, designed or implemented the avoidance event. The second refers to the value of the fine, as the fine was previously of the avoided amount, subject to a limit of 100 UTA (except in repetition cases). Now 100 UTA is the minimum fine, which may be higher depending on whether there is repetition or if the professional fees are higher.

2. Registry of Beneficial owners

The bill will create a National Registry of beneficial owners, which aims to compute taxes and prevent breaches in tax rules correctly. The IRS will record all beneficial owners of legal entities, investment funds, unincorporated entities or permanent establishments, who are income tax taxpayers.

The law foresees several circumstances that constitute a beneficial owner, which is a percentage equal to or greater than 10% of the capital, profits or voting rights; the authority to appoint managers or directors; the ability to exercise control effectively; and anyone who exercises administrative or management functions with respect to the beneficial owners.

In principle, such entities must report their beneficial owners under any of these circumstances as of December 31 of the previous year, in a declaration to the IRS. However, the IRS may require that an individual final beneficiary must report this fact.

Fines for breaching this law range from 1 UTM to 1 UTA for individuals, and from 0.01 UTA to 40 UTA for legal and similar entities. Fines increase if there is a late declaration and if it is done repeatedly, the entity is prevented from both receiving government subsidies and contracting with the government. Furthermore, individuals may be disqualified from holding certain positions. When false or incomplete information is maliciously submitted, or information is destroyed or concealed, the penalty is minimum to medium term imprisonment.

This register will provide to the IRS with an overview of the beneficial owners of a wide range of legal entities, in order to prevent tax avoidance and the formation of tax-aggressive structures.

3. Amendment of passive income control rules

The rules governing controlled foreign entities are currently established in Article 41 G of LIR. It states that control exists when 50% or more of the foreign entity’s capital, profits or voting rights are held. Related party interests must also be considered when calculating this percentage.

Therefore, the bill proposes to stop referring to the Securities Market Law, which defines related parties as companies within the same corporate group, parent companies, subsidiaries and associated companies. The bill relates to Article 8 number 17 of the Tax Code, which includes further relationships, such as a 10% interest, the common controller, and relationships between individuals.

These make relationship rules more demanding and increases the individuals that must be treated as related for the purposes of Article 41 G.

4. Anonymous Tax Whistleblower

The bill aims to enshrine the Anonymous Tax Whistleblower in Article 100 ter. This may apply in two situations.

Firstly, the bill recognizes that a taxpayer under investigation for tax breaches that may result in both a fine and a prison sentence, may cooperate during the information gathering process and provide accurate, truthful and verifiable information. Without such cooperation the aforementioned purposes may not have been achieved. Such cooperation shall constitute qualifying circumstances for the Director to apply only the financial penalty. If the taxpayer cooperates with an investigation by the Public Prosecutor’s Office, then the penalty may be reduced by up to two degrees.

Secondly, the bill refers to an individual who voluntarily provides information and consequently a taxpayer is fined more than the minimum amount. In such circumstances, the individual may request the Treasury to pay 10% of the fine as a reward.

5. Multi-jurisdiction and business groups

The reform provides new auditing authority to the IRS, by giving Regional Directors the authority to audit taxpayers domiciled in any jurisdiction, so they are no longer limited to their own territory.

The IRS will also be empowered to audit transactions performed in Chile by all the taxpayers belonging to the same corporate group.

6. Amendment to Article 64, relating to the Service’s authority to conduct valuations.

The bill introduces the concept of “normal market values” as a reference for the purposes of valuing an event, convention or transaction that is used to compute a tax. Four valuation methods are recognized. The choice of one method over another is not discretionary, as the rules require the taxpayer to use the one that best suits the circumstances in their particular case, and the taxpayer must submit a market study that justifies the use of such values.

The treatment of corporate reorganizations is reformed. The bill proposes that any corporate reorganization must be driven by a legitimate business reason, in order to avoid applying the valuation rules.