On July 2020, the Chilean Congress adopted the “Multilateral Agreement on the Implementation of Tax Law Measures to Prevent Ground Erosion and Profit Shifting” (MLI).
What is the MLI?
Under the Convention implemented all tax treaty measures in the OECD Action Plan on Erosion and Profit Shifting (BEPS). Following the entry into force of the agreement, which could take place in 2020, the MLI could affect up to 34 Chilean tax treaties by January 2021. However, the MLI is only applied if the relevant contracting country has also ratified the MLI. The specific interpretation of the MLI may differ from country to country among the contractual partners.
What are the consequences of the MLI for the Chilean tax treaty network?
- Introduction of the “main purpose test” to combat contract abuse. This is designed as a provisional measure, as Chile will strive to simplify the terms of the benefits in the context of bilateral negotiations with its contracting parties.
- Changes to the concept of the permanent establishment with regard to dependent actors and anti-fragmentation rules are introduced.
- Provision of a minimum standard for a mutual agreement procedure (MAP) between the competent authorities. Chile has opted out of mandatory arbitration in line with its longstanding tax policy.
How does the MLI affect non-contractual partner countries?
The MLI has no impact on Chile’s tax treaties with countries that have not signed the MLI, such as Brazil, Ecuador, Paraguay and Thailand. There are also exceptions among the MLI signatories: contracts with China, Italy and Japan are also unaffected because they do not include the contract with Chile in their list of “covered tax agreements”.
What do companies have to consider?
Whether there are relevant provisions for the application of the Chilean tax treaty measures depends on the ratification status of the MLI by the contracting partner countries and the corresponding MLI provisions. This should be checked regularly and mapped on the system side.
These regulatory changes could affect your business with view to customizing or support of your ERP/SAP system. Please contact us to learn about possible necessary reactions to the changes – we are happy to assist you!