Experts also have doubts regarding the application and scope of capital repatriation. Although the government did not provide specific details on this matter, in the 2014 reform there was a one-year period for taxpayers to declare assets or income held abroad, paying a special tax rate of 8%.
Read the full article in La Tercera – Pulso.
Tax experts were left with concerns after learning about the key aspects of the tax compliance bill presented by the Ministry of Finance. Among the most questioned issues are the creation of the anonymous whistleblower figure and the classification of the general anti-avoidance rule by the SII. There are also concerns regarding capital repatriation and the lifting of banking secrecy.
“If the general anti-avoidance rule remains under administrative application, the SII once again becomes both judge and party, something that had been avoided with the creation of tax courts,” states Claudio Bustos, tax attorney and partner at Bustos Tax & Legal.
A different view is presented by Gonzalo Ferraz de Andrade, tax attorney at Arteaga Gorziglia, who argues that “the problem with this mechanism is that the SII ends up being both judge and party, and the conditions and room for arbitrariness are not clear. The current rule ensures that the SII cannot indiscriminately apply the GAAR, forcing it to properly prepare its cases.”
The government expressed openness to modifying this proposal if Congress deems it necessary and highlighted the creation of a committee of experts to advise the SII, although its opinion will not be binding.
“Creating a committee of experts, in that scenario, could indeed help protect the aforementioned rights, but for this to be effective, it would make more sense for its opinion to be binding,” notes Jaime Preiss, Partner of Tax Legal Consulting at CCL Auditores Consultores.
In this regard, the expert adds that “if the committee’s opinion is binding and includes academics and specialists without conflicts of interest, it would make it more feasible for the legislative debate to favor the idea that classification is ultimately determined at the administrative level. This, along with subsequent judicial review available to taxpayers, would better ensure the protection of taxpayers’ rights.”
Regarding the anonymous whistleblower figure, Preiss emphasizes that “care must be taken with this type of measure, as it may affect the rights of taxpayers who should not have their rights exposed to others, especially in cases where complaints turn out to be false or are used for purposes unrelated to taxation.” For this reason, he stresses that “if this figure is incorporated into legislation, it is essential to include strong disincentives to prevent misuse in bad faith, such as significant fines.”
Capital repatriation: opportunities and challenges
In point six of the document presented by the government, the regularization of tax obligations is established. This pillar includes both permanent and temporary measures. Among the latter is a new window to repatriate capital. Although the Ministry of Finance was asked about the details of this measure, no answers were provided.
As a reference, this measure was previously implemented in the 2014 reform. That initiative granted a one-year period for taxpayers to declare assets or income held abroad, paying a special tax rate of 8%. Although the initial revenue expectation was US$128 million, the Internal Revenue Service reported collections of US$1.502 billion in 2015 from this measure.
According to the SII at that time, 7,832 declarations were received from taxpayers who opted into the voluntary and extraordinary system for declaring assets or income held abroad.
Experts hold differing views on the effectiveness of reopening this option. For Bustos, “it is a good measure, but it is short-term relief with long-term consequences, because many people will repatriate capital, pay the tax, which will increase fiscal revenue, but then those individuals will stop contributing in the future as they begin to consume and use already-taxed income.”
Meanwhile, Preiss states that “it is true that this mechanism was already used in 2015 and generated significantly more revenue than expected. Therefore, repeating the same mechanism could be seen as problematic, considering that opening these types of windows should be exceptional.”