Navigating Chile’s shifting tax landscape

Chile has been in tax reform mode since 2014, when a major overhaul was introduced.

This has created challenges for companies in terms of navigating the compliance landscape.

Today, tax reform is still on the table and is a key pillar of the current administration’s legislative agenda.

To explore the topic, BNamericas conducted an email interview with David Huala, a public accountant and auditor. Huala recently joined local consultancy Tax Advisors as partner, the first auditor to hold that title at the Santiago-based company since it opened its doors in 1992.

BNamericas: You say that companies need a tax compliance officer because in Chile we have experienced continuous tax reforms. When did this need begin to increase – and why?

Huala: In our country, the so-called FUT (taxable profits fund) operated for 30 years, a taxation system with full integration between the tax paid by the company and the tax paid by its owners. Essentially, the tax paid by the company operated entirely as a credit against the owners’ global complementary tax and additional tax. This system came to an end with the 2014 reform, arguing that the FUT register was used as a tax planning tool, allowing owners to indefinitely defer their taxes (tax avoidance).

As a result, the aforementioned reform introduced a general anti-avoidance rule, or NGA, into our legislation, which brought about a paradigm shift. Until then, whenever a gap in the regulations (a loophole) was identified, lawmakers had to create a special rule to address that specific case.

We must consider that we transitioned from a system with 30 years of history, with extensive administrative and judicial jurisprudence, to constant tax reforms according to each government's agenda.

BNamericas: Are we talking about SMEs, large companies, or both?

Huala: These changes affect all types of companies, but large companies have specialized departments in tax matters and the support of specialized external advisors, thus they are clearly better positioned to face these regulatory changes. 

On the other hand, medium-sized and small family-owned businesses typically have only an accounting department that lacks specialization in tax matters, making it more complex for them to understand the constant reforms. It is precisely in this group where an external tax compliance officer could provide fundamental support to maintain adequate tax compliance.

BNamericas: What aspects of compliance are the most complex for companies in Chile today?

Huala: In our view, rather than specific aspects, the complexity lies in the constant tax reforms, which often have unintended side effects.

For example, with the inclusion of professional services as subject to VAT, professional services provided from abroad that were previously not subject to additional tax due to double taxation treaties are now subject to VAT. This resulted in an increased tax burden of 19%.

Another example is the VAT exemption for professional societies. Initially, administrative jurisprudence stated that a sole trader could not be a partner in such a society, a criterion that was later changed by the tax administration without a change in the law. This creates confusion among taxpayers.

BNamericas: What do companies value most in terms of taxes (stability, attractive rates, for example)?

Huala: The FUT tax system, which provided stability over 30 years, instilled confidence in investors. Undoubtedly, stability and clear rules represent a fundamental aspect when making long-term investments. Conversely, constant reforms create a disincentive for investment, as they lack clear rules and tax stability.

BNamericas: For our readers abroad, could you give a brief summary of the local scenario regarding tax reform? For example, what are the current government’s legislative priorities in this area, and based on previous reform processes, do you expect to see bills enacted before the end of its term, in 2026?

Huala: Currently, the tax reform (tax hikes) bill is frozen, and in the current scenario, it is unlikely that implementation will be achieved under the current government. 

On the other hand, the tax compliance bill currently being discussed in the senate, which includes measures to combat tax avoidance and evasion, is likely to be approved before the end of the year. This bill aims to introduce, among other areas, unified audits of business groups; multi-jurisdiction [concerning powers of tax officials to audit beyond their corresponding jurisdiction], and limitations on corporate restructuring processes, granting greater discretionary powers to the tax administration.

If approved, this will undoubtedly generate more disputes with the tax authority, necessitating the addition of a litigator to the tax compliance team to collaborate with the tax auditor in defense strategies and to file necessary appeals to safeguard taxpayers' interests.

BNamericas: Finally, are there any trends expected regarding demand for your services in the coming years?

Huala: We believe that [internal revenue service] SII will continue to incorporate technological tools and execute new data cross-checks. This will be reinforced with the increased resources from the tax compliance bill for the modernization of the tax triumvirate (SII, the national customs service and the treasury). 

This will undoubtedly provide significant support to the auditing entity but will also generate greater complexity and demand for tax compliance services (tax returns and declarations) and in the audit processes.

Therefore, it has been determined that the tax audit partner will work closely with litigation lawyers in the compliance area, jointly establishing administrative defense strategies to ensure that audit processes are conducted timely and appropriately, respecting taxpayers’ rights.