The Chilean Senate unanimously endorsed a treaty that streamlines trade between both countries after 13 years of discussion.
The Diario Financiero newspaper reported that the Senate unanimously approved a treaty between Chile and the USA that streamlines investment and trade between both countries, which creates rules to avoid double taxation and prevent income and wealth tax evasion.
After 13 years, the treaty has been legally ratified and will shortly take effect, as the U.S. Congress already ratified it mid year.
Gloria de la Fuente, Undersecretary of Foreign Affairs, appreciated that the treaty had received universal support. She said that «it provides a clear and stable legal framework for both countries, which will contribute to trade and investment», encourage greater capital flows and diversify transnational trade. Therefore, she expects Chile to become a «business platform for foreign companies that aim to operate in other countries in the region.»
Paula Estévez, CEO of the Chilean American Chamber of Commerce (AmCham), said that «we are now awaiting for the president to sign it and then exchange diplomatic notes. We are confident that the treaty will become effective on January 1, 2024.»
She said that «we believe that this treaty will ensure that Chile becomes a hub for U.S. investments from a variety of sectors such as technology, mining, renewable energy and green hydrogen.»
Capital attraction
Hugo Hurtado, Deloitte's Tax & Legal lead partner, explained that this treaty will benefit investments by U.S. companies in Chile and vice versa. For the former, it will lower the withholding taxes on Chilean dividends, interest, royalties and services paid to the USA.
For the latter, it will decrease the withholding taxes on U.S. dividends paid to Chile from 30% to 15%, and even 5% in certain circumstances.
He believes that it will give greater stability to Corporate Income Tax credits against the Additional Tax liabilities when Chilean dividends are payable to the USA. These had totaled 44.45% before the treaty, compared to 35% after the treaty becomes effective.
Javiera Suazo, KPMG's Tax & Legal partner in Chile, mentioned that since the treaty first began to progress through the US Senate this year «we have seen tremendous interest from investors and companies operating in the USA to explore the scope of the treaty’s benefits and how they will impact existing relationships».
He added that «this treaty will encourage economic relations between both countries and we hope that it will make a difference.» Felipe Espina, EY's International Tax partner, anticipates substantial interest in this treaty from within the world's leading economy.
«It will achieve legal certainty regarding taxation relationships between both countries. It will help to resolve disputes and prevent one event from being levied with the same tax».
He said that for Chilean investors «the advantages are significant. A market that was once almost prohibitively expensive, due to the embedded tax burden, will become competitive and stable. This is already being analyzed by Chileans with US investments or investment plans, which has triggered more than usual interest in the USA, which should increase as the treaty’s benefits permeate the market.»
Loreto Pelegrí, PWC's Tax & Legal partner, said that this treaty «will ensure that Chile becomes a hub for U.S. investments from a variety of sectors such as technology, mining, renewable energy and green hydrogen, as it clearly increases Chile’s attractiveness for investors and positions us as a gateway for the rest of the region.»
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