The Chilean tax authority (SII) has issued Circular No. 50 of 11 October 2018 concerning the activation of the MFN clauses with respect to interest and royalty income under Chile's tax treaties with Austria, China, Ecuador, and Spain as a result of Chile's 2016 tax treaty with Japan.
With respect to the 2012 tax treaty with Austria, the 1999 tax treaty with Ecuador, and the 2003 tax treaty with Spain, the Circular provides that the following withholding tax rates apply as from 1 January 2017 with respect to interest income:
With respect to interest income eligible for the 4% rate indicated above, if the interest is paid as part of an arrangement involving back-to-back loans or similar arrangements, the rate will instead be 5% if paid to a bank or insurance company or as part of a sale on credit of machinery or equipment, otherwise the rate is 10%.
Similar changes apply with respect to the 2015 tax treaty with China. Click the following for previous coverage of the changes.
With respect to royalty income, the following withholding tax rates apply as from 1 January 2017 with respect to the tax treaties with Austria and Spain:
No changes are made with respect to the tax treaty with China, because the MFN clause in that treaty does not cover withholding tax on royalties. With respect to the Ecuador tax treaty, the MFN clause in the treaty does cover withholding tax on royalties but prescribes a minimum withholding tax rate of 10%, which was already reached in an agreement between Chile and Ecuador as of 1 January 2004.
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