US Treasury announces entry into force of the US-Chile tax treaty

The United States and Chile have exchanged instruments of ratification for the "Convention between the Government of the United States of America and the Government of the Republic of Chile for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital" (Treaty) to enter into force. This is the first US tax treaty with Chile. For taxes withheld at source, the Treaty will have effect for amounts paid or credited on or after 1 February 2024. For all other taxes, the Treaty will have effect for tax periods beginning on or after 1 January 2024.

Background

On 22 June 2023, the US Senate gave its advice and consent to ratify the Treaty and included two reservations concerning IRC Section 59A (the Base Erosion and Anti-abuse Tax) and Article 23 (Relief from Double Taxation). Provisions relating to the reservations were subsequently approved by the Chilean Congress. President Biden signed the instruments of ratification in December. The Treaty entered into force on 19 December 2023, when the US notified Chile that it had satisfied all applicable procedures to bring the treaty into force.

Treaty provisions

Significant provisions of the Treaty include:

• Reduced withholding tax rates on certain payments of dividends, interest and royalties
• A permanent establishment (PE) provision that deems a PE to exist from the provision of services under certain circumstances
• A limitation-on-benefits provision that includes a "headquarters company test" and a triangular provision
• Provisions on the sale of shares or other rights in Chilean resident companies
• Provisions providing for exchange of information between the tax authorities of the United States and Chile

For details about the provisions of the Treaty, see Tax Alert 2023-1138. For additional background, see EY Global Tax Alerts, U.S.-Chile tax treaty ratified by Chilean Congress closer to entering into force, dated 15 November 2023, and Double tax treaty with United States inches towards Chilean ratification, dated 8 November 2023.

Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young LLP (United States), Washington

• Colleen O’Neill, Washington, DC
• Arlene Fitzpatrick, Washington, DC
• Julia Tonkovich, Washington, DC
• Anna Moss, Washington, DC
• Nathalie Nguyen, Washington, DC

EY Chile, Santiago

• Javiera Contreras, EY Chile Tax Leader
• Janice Stein
• Felipe Espina
• Juan Pablo Navarrete
• Nicolas Brancoli
• Victor Fenner
• Dario Romero
• Nicolas Orezzoli
• Jonnathan Martinez
• Cristian Sepulveda

Ernst & Young LLP (United States), Latin American Business Center, New York

• Pablo Wejcman
• Benjamin Mosella, Chile Tax Desk

Ernst & Young LLP (United Kingdom), Latin American Business Center, London

• Sofia Hernandez, Chile Tax Desk
• Lourdes Libreros

Ernst & Young Tax Co., Latin American Business Center, Japan & Asia Pacific

• Raul Moreno, Tokyo
• Luis Coronado, Singapore
• Patricio Velasco, Hong Kong, Chile Tax Desk

Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.