Indirect Tax News - December 2019

Digital Tax - Chilean proposal

On 26 August 2018, the government of Chile presented a Tax Bill that proposed the ‘Digital Tax’.

The Digital Tax contemplates imposing VAT (19%) on services supplied through the so-called digital economy. The proposals, which have been revised since they were originally announced, came about as a result of a debate between the government and commercial organizations that were worried about the tax inequality between brick and mortar businesses and those in digital business.

Under the current proposals, the VAT would be applicable to four kinds of digital business activities:

  1. Digital intermediation services;
  2. The supply of digital entertainment;
  3. Software, storage, platforms, or IT infrastructure; and
  4. Advertisement.

For purposes of the Digital Tax, a service is used in Chile if, at the time the subject hires the services or makes the payments, either:

  1. The services are provided to an IP address in Chile, or
  2. The payment method is issued or registered in Chile.

For business-to-business (B2B) transactions, a reverse charge mechanism will apply, which means the tax must be reported and paid to the government by the beneficiary of the service.

For business-to-consumer (B2C) transactions, the Bill contains a simplified registration system that the Tax Administration will have to implement. The simplified registration system is meant to apply to foreign companies that provide digital services used in Chile. If the taxpayer does not comply with the simplified registration system, the Tax Administration can mandate that the issuer of the payment instrument (for example, a bank) shall withhold and pay the taxes.

Rodrigo Benitez

Belén Guiachetti