Chile adopts reciprocal tax treaty with U.S.


Chile’s Senate approved a reciprocal tax treaty with the U.S. on Nov. 15, clearing the path for ratification of the bilateral tax agreement, more than 13 years in the making.


The treaty was originally signed in 2010 but languished for years in the Senate. Momentum for passage began building last year due to Chile’s importance as a major producer of lithium and copper, key ingredients in electric vehicle batteries, solar cells and wind turbines. The Senate finally voted 95-2 on June 22 to approve a Chile tax treaty for ratification. The Senate resolution providing advice and consent added two reservations to account for legislative changes under the Tax Cuts and Jobs Act (TCJA) made since the treaty was originally negotiated, which required the Chilean Congress to re-ratify it.


Approval by the Chilean Congress clears the way for potential ratification, but it must also be approved by the Chilean president, which is expected soon. The treaty is not actually considered ratified until the countries exchange instruments of ratification.


The treaty generally aligns with the U.S. Model Treaty, but there are key differences in select areas around dividends, interest, royalties and capital gains on shares. The treaty’s permanent establishment language also deviates significantly from other similar types of agreements. You can find more in-depth analysis of the treaty from Grant Thornton here.


Grant Thornton insight:

By reducing barriers and creating a more favorable tax environment, the treaty promotes trade and investment, opening up new opportunities for economic growth. The addition of this new treaty jurisdiction in Latin America may also provide planning opportunities for businesses with operations in other Latin American countries. The only other countries in the Americas in a tax treaty with the U.S. are Canada, Mexico, Barbados, Jamaica, Trinidad and Venezuela, according to the latest IRS information. Overall, this treaty serves as a crucial framework to foster bilateral economic growth, encourage international business activities, and enhance the economic ties between the U.S. and Chile.



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