The Ministry of Finance and a group of senators agreed this week on a protocol that modifies the governance of the service: an external council will be created to provide opinions on key matters, and limits will be placed on tenure in key positions. In exchange for what? Greater powers in bank secrecy, GAAR, and anonymous whistleblowers. The issue has generated discomfort within the institution.
It was around 11:20 a.m. on Wednesday when a three-page document reached the WhatsApp of several actors involved in the tax discussion. It was the protocol of agreement signed between the Ministry of Finance and the senators of the respective committee to unlock the processing of the bill that strengthens compliance with taxpayers’ tax obligations—the one with the highest revenue potential so far in the fiscal pact, at 1.5% of GDP in steady state.
Point two of the agreement raised several eyebrows: it introduced paradigm-shifting changes to the structure of the Internal Revenue Service (SII), which on paper reduce the director’s room for maneuver and seek to increase its independence from the government of the day, as well as to depersonalize its management. Tax specialists, service officials, and Ministry of Finance staff agree that this is the most significant modification to the functioning of the SII in at least the past 30 years.
The consensus among the parties is that the technical and independent nature of the agency will be strengthened with respect to the government in power and “particular interests,” both in its leadership and sub-leadership. Additionally, maximum tenure periods will be established for certain decision-making positions, which has generated internal concern.
The reason? It is common for career officials or those who have spent decades in the institution to take on strategic sub-director roles or assume leadership of regional offices, in some cases rotating between different areas.
This is not the case at the auditor level, where high turnover is one of the main concerns of acting director Javier Etcheberry.
At the SII, it is explained that there are areas where a certain level of specialization is required, making experience essential, while rotations in regional offices are intended to avoid conflicts of interest in interactions between regional offices and audited entities.
In this context, it is being considered that some sub-directorates or regional offices be subject to the Senior Public Management system (ADP), meaning a maximum of three years with two renewals, resulting in a total tenure of nine years.
The concern: the external council
However, perhaps the most radical change is the creation of an external council that will have a say on fundamental aspects of the SII’s operations: it will evaluate audit plans and have a binding opinion on the legality of circulars. In other words, it may oppose certain instructions issued by the agency. This has raised concerns within the SII for two reasons: questioning decision-making processes and the possibility that the council’s opinions could be biased due to conflicts of interest.
On the first point, sources within the service explain that decisions regarding circulars are already made collegially, with different areas participating in drafting instructions, leaving both digital and system records of those involved in their preparation. They also note that since 2014, circulars have been subject to public consultation before publication.
However, supporters of greater oversight recall two controversial decisions that the SII had to reverse: the recent circular that expanded the specific tax on sports drinks and nectars, and one from 2015 that sought to apply VAT to X-rays and other laboratory tests, colloquially known as the “bone tax.”
On the second point, officials fear that the council could be composed of advisors from companies or audit firms, potentially limiting the agency’s actions in favor of their clients.
In any case, this is not new: in 2008, then-director Ricardo Escobar created an advisory council composed of ten members, including five SII officials, three lawyers, and two public accountants or external auditors. The idea was to provide legal or economic expertise to the authority’s decisions, although its opinion was merely advisory and not binding. That council ceased functioning several years ago and has since been replaced by the Civil Society Council (Cosoc), which exists in all state agencies.
The internal front
The potential changes have generated discomfort and doubts internally, as they appear to confirm the view of external analysts that the institution bases its decisions on partial criteria without sufficient counterbalance.
For this reason, Etcheberry has spent recent hours addressing internal concerns and explaining that the protocol is a starting point for discussion, that two intense months of negotiations lie ahead, and that any counterbalance to the director’s authority will be compensated with new tools to combat evasion and avoidance, such as faster application of GAAR and the lifting of bank secrecy.
“This is just beginning; what lies ahead is detailed engineering work,” the engineer has communicated internally.
The president of the Association of SII Auditors (Afiich), Paola Tresoldi, acknowledges the “concern” over the contents of the protocol and anticipates that they will request meetings with Etcheberry and the Finance Committee senators to better understand the scope of the external council.
More or less teeth?
Cristián Vargas, former Legal Subdirector of the SII until 2015 and now partner at Tax & Legal at BDO, believes that, at the margin, the service will have greater powers to address informality, but that there will not be a substantial change regarding bank secrecy, as judicial authorization would remain, albeit with shorter timeframes than currently: “We must wait to see how these principles are translated into the bill’s provisions before reaching a definitive conclusion.”
Alejandro Burr, who served as SII director between 2013 and 2014, sees it as crucial to observe international experiences. “An interesting case is the Superintendency of Tax Administration (SAT) in Guatemala, which has a governance model similar to the one proposed. From that case, both positive and negative aspects of its operation can be drawn,” he noted.
Alberto Cuevas, former head of the Direct Taxes Department at the SII and now partner at Tax & Legal at KPMG, believes that the protocol seeks to balance two complex objectives: strengthening audit powers and establishing measures to prevent arbitrariness. However, he has doubts about the external council.
“What will happen with the other regulatory agencies in the country? Will similar external councils be proposed for each of them? For example, in the case of Sernac?” he questions.
Javier Jaque, currently lead partner at CCL Auditores Consultores and with nearly a decade of experience at the SII, emphasizes that the restructuring aims to strengthen the technical nature of the service, which, although “may be seen as a loss of authority for the institution, could in turn strengthen its role.”