Protocol

Protocol

On signing 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 the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (the “Convention”), the two Governments have agreed to the following provisions.

  1. With reference to Article 1 (General Scope)

An item of income, profit or gain derived through an entity that is fiscally transparent under the laws of either Contracting State shall be considered to be derived by a resident of a Contracting State to the extent that the item is treated for purposes of the taxation law of such Contracting State as the income, profit or gain of a resident.

  1. With reference to Article 1 (General Scope)

The Convention shall not restrict in any manner any exclusion, exemption, deduction, credit or other allowance or benefit now or hereafter accorded:

  1. a) by the laws of either Contracting State; or
  2. b) by any other agreement to which the Contracting States are parties.
  3. With reference to Article 1 (General Scope)

Notwithstanding the provisions of subparagraph b) of paragraph 2 of this Protocol:

for purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that any question arising as to the interpretation or application of this Convention and, in particular, whether a taxation measure is within the scope of this Convention, shall be determined exclusively in accordance with the provisions of Article 26 (Mutual Agreement Procedure) of this Convention; and

  1. a) for the purposes of paragraph 3 of Article XXII (Consultation) of the General Agreement on Trade in Services, the Contracting States agree that any question arising as to the interpretation or application of this Convention and, in particular, whether a taxation measure is within the scope of this Convention, shall be determined exclusively in accordance with with the provisions of Article 26 (Mutual Agreement Procedure) of the Convention; and
  2. b) the provisions of Article XVII of the General Agreement on Trade in Services shall not apply to a taxation measure unless the competent authorities agree that the measure is not within the scope of Article 25 (Non-discrimination) of this Convention.

For the purposes of this paragraph, a “measure” is a law, regulation, rule, procedure, decision, administrative action, or any similar provision or action.

  1. With reference to Article 1 (General Scope)

Notwithstanding any provision of the Convention, a Contracting State may tax its residents (as determined under Article 4 (Residence)), and by reason of citizenship may tax its citizens, as if the Convention had not come into effect.

For this purpose, the term “citizen” shall include a former citizen or long-term resident, but only for a period of 10 years following the loss of such status.

The provisions of this paragraph shall not affect:

  1. a) the benefits conferred by a Contracting State under paragraph 2 of Article 9 (Associated Enterprises), paragraphs 1 b) 3, 4, and 6 of Article 18 (Pensions, Social Security, Alimony and Child Support), and Articles 23 (Relief From Double Taxation), 25 (Non-Discrimination), and 26 (Mutual Agreement Procedure); and
  2. b) the benefits conferred by a Contracting State under paragraphs 2 and 5 of Article 18 (Pensions and Social Security), Articles 19 (Government Service), 20 (Students and Trainees), and 28 (Members of Diplomatic Missions and Consular Posts), upon individuals who are neither citizens of, nor have been admitted for permanent residence in, that State.
  3. With reference to paragraph 2 of Article 3 (General Definitions)

As regards the application of the Convention at any time by a Contracting State, the competent authorities may agree, pursuant to the provisions of Article 26 (Mutual Agreement Procedure), on an interpretation and arrive at a common meaning of a term not defined in the Convention. Any interpretation so agreed to shall be used with respect to the application of such term.

  1. With reference to paragraph 1 of Article 4 (Residence)

The term “resident of a Contracting State” includes:

  1. a) an organization that is established and maintained in that State exclusively for a religious, charitable, educational, scientific, or other similar purpose; and
  2. b) a pension fund established in that State,

notwithstanding that all or part of its income or gains may be exempt from tax under the domestic law of that State.

  1. With reference to paragraph 1 of Article 4 (Residence)

Chile shall treat a United States citizen or an alien lawfully admitted for permanent residence (a “green card” holder) as a resident of the United States only if such individual has a substantial presence, permanent home, or habitual abode in the United States and if that individual is not a resident of a State other than Chile for the purposes of a double taxation convention between that State and Chile.

  1. With reference to Article 5 (Permanent Establishment)

A person will come within the scope of paragraph 6 only if that person is independent of the enterprise both legally and economically, and acts in the ordinary course of that person’s business when acting on behalf of the enterprise.

  1. With reference to paragraph 5 of Article 6 (Income from Real Property (Immovable Property))

A resident of a Contracting State who is liable to tax in the other Contracting State on income from real property situated in the other Contracting State who is not otherwise allowed to compute the tax on such income on a net basis shall be allowed to elect for any taxable year to compute the tax on such income on a net basis as if such income were business profits attributable to a permanent establishment in such other State. Any such election shall be binding for the taxable year of the election and all subsequent taxable years unless the competent authority of the Contracting State in which the property is situated agrees to terminate the election.

  1. With reference to paragraph 2 of Article 7 (Business Profits)

Business profits to be attributed to the permanent establishment shall only include the profits derived from the assets or activities of the permanent establishment.

  1. With reference to Article 8 (International Transport)

An inland transport within either Contracting State shall be treated as the operation of ships or aircraft in international traffic if undertaken as part of a transport that includes transport by ships or aircraft in international traffic.

  1. With reference to Article 10 (Dividends)
  2. a) In the case of Chile, because of its integrated, two-level income tax on business profits (First Category Tax and Additional Tax), the provisions of paragraphs 2, 3, 7, and 8 of Article 10 (Dividends) shall not limit the application of the Additional Tax provided that under the domestic law of Chile the First Category Tax is fully creditable in computing the amount of Additional Tax to be paid.
  3. b) Notwithstanding subparagraph a):
  4. i) if at any time under the domestic law of Chile the First Category Tax ceases to be fully creditable in computing the amount of Additional Tax to be paid, subparagraph a) shall not apply and the amount of Additional Tax imposed by Chile shall be limited by the provisions of paragraphs 2, 3, 7, and 8 of Article 10; and
  5. ii) if the rate of Additional Tax imposed under the domestic law of Chile exceeds 35 percent, the provisions of Article 10 shall apply with respect to both the United States and Chile, but the tax charged under subparagraphs a) and b) of paragraph 2 of Article 10 shall not exceed 15 percent of the gross amount of dividends paid by a resident of a Contracting State and beneficially owned by a resident of the other Contracting State. The Contracting States also shall consult to reassess the balance of benefits of this Convention with a view to concluding a protocol to incorporate terms limiting the right of the source country to tax dividends under Article 10.

 

  1. With reference to Article 10 (Dividends)

The provisions of Article 10 shall not apply in the case of distributions or dividends paid by an enterprise when the investment is subject to a foreign investment contract under the Foreign Investment Statute (DL 600), as it may be amended from time to time without changing the general principles thereof.

  1. With reference to paragraph 2 of Article 10 (Dividends)

Subparagraph a) of paragraph 2 of Article 10 shall not apply in the case of dividends paid by a Regulated Investment Company (RIC) or a Real Estate Investment Trust (REIT). In the case of dividends paid by a RIC, subparagraph b) of paragraph 2 shall apply. In the case of dividends paid by a REIT, subparagraph b) of paragraph 2 shall only apply if:

  1. a) the beneficial owner of the dividends is an individual holding an interest of not more than 10 percent of the REIT; or
  2. b) the dividends are paid with respect to a class of stock that is publicly traded and the beneficial owner of the dividends is a person holding an interest of not more than 5 percent of any class of the REIT’s stock; or
  3. c) the beneficial owner of the dividends is a person holding an interest of not more than 10 percent of the REIT and the REIT is diversified.

For purposes of this paragraph, a REIT shall be “diversified” if the value of no single interest in real property exceeds 10 percent of its total interests in real property. For the purposes of this rule, foreclosure property shall not be considered an interest in real property. Where a REIT holds an interest in a partnership, it shall be treated as owning directly a proportion of the partnership’s interests in real property corresponding to its interest in the partnership.

  1. With reference to Paragraph 3 of Article 12 (Royalties)

In order to establish if payments as consideration for computer software should be classified as royalty payments under Article 12, paragraphs of the Commentary to Article 12 of the OECD Model Tax Convention on Income and on Capital of 2008 addressing specifically computer software (paragraphs 12 to 14.4 and paragraphs 17 to 17.4) shall apply.

  1. With reference to Article 13 (Capital Gains)

The rate of Additional Tax imposed by Chile under the provisions of paragraph 7 of Article 13 shall not exceed 35 percent. In addition, if under the domestic law of Chile the First Category Tax exceeds 30 percent, paragraphs 5 and 7 of Article 13 shall not apply.

  1. With reference to Article 13 (Capital Gains)

For purposes of subparagraph b) of paragraph 6 of Article 13, the terms “mutual fund” and “institutional investor” shall not include an investor of a Contracting State which directly or indirectly owns 10 percent or more of the shares or other rights representing the capital or of the profits in a company of the other Contracting State.

  1. With reference to paragraph 3 of Article 18 (Pensions, Social Security, Alimony and Child Support)

In the case of Chile, the social security system referred to in paragraph 3 of Article 18 is any pension scheme or fund administered by the Instituto de Prevision Social (formerly Instituto de Normalización Previsional) and the social security system created by Decree Law 3500 (DL 3500). In the case of the United States, the phrase “similar legislation” is intended to refer to tier 1 Railroad Retirement benefits.

  1. With reference to paragraph 5 of Article 18 (Pensions, Social Security, Alimony and Child Support)

For purposes of paragraph 5 of Article 18, pension plans in each Contracting State that generally correspond to pension plans that are recognized for tax purposes by the other Contracting State shall include the following and any identical or substantially similar plan that is established pursuant to legislation introduced after the date of signature of the Protocol:

  1. a) In the case of Chile, any pension scheme or fund administered by the Instituto de Prevision Social(formerly Instituto de Normalización Previsional) and the social security system created by Decree Law 3500 (DL 3500); and
  2. b) In the case of the United States, qualified plans under section 401(a) of the Internal Revenue Code (including section 401(k) arrangements), individual retirement plans (including individual retirement plans that are part of a simplified employee pension plan that satisfies section 408(k), individual retirement accounts, and section 408(p) simple retirement accounts), section 403(a) qualified annuity plans, section 403(b) plans, section 457(g) trusts providing benefits under section 457(b) plans, and the Thrift Savings Fund (section 7701(j)).
  3. With reference to Article 27 (Exchange of Information)

Notwithstanding paragraph 3 of Article 29 (Entry Into Force), information covered by paragraph 5 of Article 27, to the extent that such information is covered by Article 1 of DFL No. 707 and Article 154 of DFL No. 3 of Chile, shall be available with respect to bank information corresponding to taxable periods or events commencing as of January 1, 2010 and thereafter. Other bank information like signature cards and other account opening documents may be exchanged without regard to the time they were created.

  1. General Provision

With respect to pooled investment accounts or funds (as for instance the existing Foreign Capital Investment Fund, Law No. 18.657, as it may be amended from time to time without changing the general principles thereof) that are subject to a remittance tax and are required to be administered by a resident of Chile, the provisions of this Convention shall not be interpreted to restrict imposition by Chile of the tax on remittances (currently at 10 percent) from such accounts or funds in respect of the investment in assets situated in Chile.

  1. General Provision

The Contracting States shall consult regarding the terms, operation and application of the Convention to ensure that it continues to serve the purposes of avoiding double taxation and preventing fiscal evasion and shall, where they consider it appropriate, conclude protocols to amend the Convention. Either Contracting State may at any time request that consultations be conducted in an expeditious manner on matters relating to the terms, operation and application of the Convention which it considers require urgent resolution. The Contracting States shall in any event consult to assess the terms, operation and application of the Convention within five years of the date of entry-into-force of the Convention. If Chile concludes an income tax treaty with another state that imposes a limit on rates of withholding on payments of interest and royalties lower than the limits imposed under paragraph 2 of Article 11 (Interest) and paragraph 2 of Article 12 (Royalties) or that contains terms that further limit the right of the source country to tax capital gains under Article 13 (Capital Gains), the Contracting States shall, at the request of the United States, consult to reassess the balance of benefits of this Convention with a view to concluding a protocol to incorporate such lower rates or limiting terms into this Convention.

This Protocol shall enter into force on the date of entry into force of the Convention and shall form an integral part of the Convention.

IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their respective Governments, have signed this Protocol.

DONE at Washington in duplicate, in the English and Spanish languages, both texts being equally authentic, this fourth day of February, 2010.