Press Releases
Signing of Tax Convention with Republic of Chile
January 22, 2016
1 On January 22 (on January 21 local time), the Convention between Japan and the Republic of Chile for the Elimination of Double Taxation with respect to Taxes on Income and the Prevention of Tax Evasion and Avoidance was signed in Santiago, Chile, between Mr. Naoto Nikai, Ambassador of Japan to the Republic of Chile and Mr. Alejandro Micco, Undersecretary, Ministry of Finance. This Convention is to be concluded between Japan and the Republic of Chile based on the recognition of an increasingly close economic relationship between the two countries.
2 For the purpose of adjusting international double taxation, the Convention clarifies the taxable scope in the two countries. In addition, the Convention will enable the tax authorities of the two countries to consult together on taxation issues arising in the two countries and to exchange information regarding tax matters effectively. It is expected to promote further mutual investments and economic exchanges between the two countries while avoiding double taxation and preventing international tax evasion and tax avoidance.
3 The following are key points of the Convention.
(1)Taxation on Profits from Business Activities
Where an enterprise has in a partner country a permanent establishment (such as a branch, including the furnishing of services by an enterprise through personnel over a certain period of time) through which the enterprise carries on business, only the profits attributable to the permanent establishment may be taxed in the partner country.
(2) Taxation on Investment Income and Capital Gains in the Source Country
(a) Investment income (dividends, interest and royalties) is taxed in the source country as follows:
(b) Gains from the alienation of shares representing 20 per cent or more of the capital of a company and other shares may be taxed in the source country (in the case of other shares, the tax so charged shall not exceed 16 per cent of the amount of the gains). Gains derived by pension funds are exempt.
(3) The Provision for Prevention of Abuse of the Convention
From the perspective of prevention of tax treaty abuse, a benefit under the Convention shall not be granted if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any transaction, or if an income is attributable to the permanent establishment in a third jurisdiction under certain conditions.
(4) Dispute Resolution between the Tax Authorities
Taxation not in accordance with the provisions of the Convention may be resolved by mutual agreement between the tax authorities of the two countries. Where the issue has not been resolved by the consultation between the tax authorities within two years, the unresolved issues shall be submitted to arbitration and resolved by the decision of an arbitration panel composed of third parties provided that the tax authorities agree to do so.
(5) Exchange of Information
The Convention enables the tax authorities to exchange information concerning all national and local taxes of the two countries.
4 After the completion of the necessary domestic procedures in each of the two countries (in the case of Japan, approval by the Diet), diplomatic notes indicating such completion are to be exchanged. The Convention shall enter into force on the date of exchange of such diplomatic notes and shall have effect:
(a) in Japan:
(i) with respect to taxes levied on the basis of a taxable year, for taxes for any taxable years beginning on or after the first day of January in the calendar year next following that in which the Convention enters into force; and
(ii) with respect to taxes not levied on the basis of a taxable year, for taxes levied on or after the first day of January in the calendar year next following that in which the Convention enters into force; and
(b) in Chile:
with respect to taxes on income obtained and amounts paid, credited to an account, put at the disposal or accounted as an expense, on or after the first day of January in the calendar year next following that in which the Convention enters into force.
2 For the purpose of adjusting international double taxation, the Convention clarifies the taxable scope in the two countries. In addition, the Convention will enable the tax authorities of the two countries to consult together on taxation issues arising in the two countries and to exchange information regarding tax matters effectively. It is expected to promote further mutual investments and economic exchanges between the two countries while avoiding double taxation and preventing international tax evasion and tax avoidance.
3 The following are key points of the Convention.
(1)Taxation on Profits from Business Activities
Where an enterprise has in a partner country a permanent establishment (such as a branch, including the furnishing of services by an enterprise through personnel over a certain period of time) through which the enterprise carries on business, only the profits attributable to the permanent establishment may be taxed in the partner country.
(2) Taxation on Investment Income and Capital Gains in the Source Country
(a) Investment income (dividends, interest and royalties) is taxed in the source country as follows:
| Dividends | Interest | Royalties | |||||
| Between parent and subsidiary companies (shareholding requirement) |
Received by pension funds | Others | Received by banks, etc | Others | Equipment | Others | |
| Tax Rate |
5% （at least 25%） |
Exempted | 15% | 4% | 10% | 2% | 10% |
| Note | Dividends paid in Chile is taxed based on the domestic laws of Chile | For two years from the date of entry into force,15% shall apply for ‘‘Others’’ instead of 10% | |||||
| If Chile concludes another convention which provides more favorable treatment with a state other than Japan, Japan and Chile shall, at the request of Japan, consult on amending this Convention. | |||||||
(b) Gains from the alienation of shares representing 20 per cent or more of the capital of a company and other shares may be taxed in the source country (in the case of other shares, the tax so charged shall not exceed 16 per cent of the amount of the gains). Gains derived by pension funds are exempt.
(3) The Provision for Prevention of Abuse of the Convention
From the perspective of prevention of tax treaty abuse, a benefit under the Convention shall not be granted if it is reasonable to conclude that obtaining that benefit was one of the principal purposes of any transaction, or if an income is attributable to the permanent establishment in a third jurisdiction under certain conditions.
(4) Dispute Resolution between the Tax Authorities
Taxation not in accordance with the provisions of the Convention may be resolved by mutual agreement between the tax authorities of the two countries. Where the issue has not been resolved by the consultation between the tax authorities within two years, the unresolved issues shall be submitted to arbitration and resolved by the decision of an arbitration panel composed of third parties provided that the tax authorities agree to do so.
(5) Exchange of Information
The Convention enables the tax authorities to exchange information concerning all national and local taxes of the two countries.
4 After the completion of the necessary domestic procedures in each of the two countries (in the case of Japan, approval by the Diet), diplomatic notes indicating such completion are to be exchanged. The Convention shall enter into force on the date of exchange of such diplomatic notes and shall have effect:
(a) in Japan:
(i) with respect to taxes levied on the basis of a taxable year, for taxes for any taxable years beginning on or after the first day of January in the calendar year next following that in which the Convention enters into force; and
(ii) with respect to taxes not levied on the basis of a taxable year, for taxes levied on or after the first day of January in the calendar year next following that in which the Convention enters into force; and
(b) in Chile:
with respect to taxes on income obtained and amounts paid, credited to an account, put at the disposal or accounted as an expense, on or after the first day of January in the calendar year next following that in which the Convention enters into force.
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