Following the inclusion of this situation in the catalog, tax attorneys analyze it and have differing views on its effectiveness.
Read the article in La Tercera-Pulso.
The Internal Revenue Service (SII) presented an update to the Tax Schemes Catalog, adding seven new items. One that drew attention is professional corporations. According to the SII, these entities may be created to pay less tax by reducing the overall tax burden of the Global Complementary Tax paid by each taxpayer.
The SII explains that the provision of professional services operates through a professional corporation in which the services are rendered by one of the partners, while the withdrawal of profits is carried out by all partners, thereby reducing the Global Complementary Tax that should be paid.
Following the inclusion of this situation in the catalog, tax experts analyze it and have differing views on its effectiveness.
One of them is Jaime Preiss, partner in Tax Legal Consulting at CCL Auditores Consultores, who states that “the inclusion in the catalog of professional corporations as a method to reduce the Global Complementary Tax of one of the partners makes sense given the rise this type of entity has experienced since the VAT exemption for services provided by this type of taxpayer was introduced.”
However, he adds that “the scheme explained by the SII may also occur in other types of companies, without these necessarily being professional corporations.”
In that regard, Preiss mentions that “following the logic of the Catalog, it seems to me that the inclusion of this case responds more to a general preventive purpose, considering the current context of professional corporations and the significant development they have experienced in recent times.”
Claudio Bustos, tax attorney and partner at Bustos Tax & Legal, comments that “it should always be kept in mind that the cases included in the Tax Avoidance Schemes catalog are generally borderline situations surrounded by particular circumstances that may make them constitute avoidance. Therefore, the fact that the catalog includes an operation does not mean that such operation is prohibited or that it automatically qualifies as avoidance, but rather that, under certain circumstances—generally borderline—it could constitute avoidance.”
Another perspective is provided by Gonzalo Ferraz de Andrade, tax attorney at the firm Arteaga Gorziglia, who states that “it is difficult to say that this is a common structure in Chile, but there are indeed cases that may generate tax harm, and it is good that the SII pays attention to the matter.” He also adds that “there will always be taxpayers who seek, through illegitimate means, to pay less tax, but I do not believe that this type of company is more or less prone than others to avoidance practices.”
Focus on inheritance
In this new version of the Tax Schemes Catalog, three cases related to asset dilution between parents and children have been included, which may seek to avoid the payment of Gift Tax, and three linked to corporate reorganizations, which may avoid the proper payment of Income Tax.
According to the SII, a recurring characteristic in cases of avoidance risk is the presence of specialized tax advisory, both in the design and implementation of these schemes.
On this point, Preiss warns of “a particular concern by the SII regarding intergenerational transfers that are not based on legitimate reasons, but merely tax-driven, and in this regard, it seems to be a response to the increased oversight recently observed in avoidance cases associated with Inheritance Tax.”
For this reason, he states that “the message is clear, and therefore when analyzing family restructurings that do not have purely tax purposes, it is important that such circumstances are clear and verifiable to avoid challenges from the tax authority.”