IRS reinterprets article 59 of the Law on Income Tax

Nov 22, 2017Docs, Featured, Tax Advisory and Litigation

The new interpretation of the Internal Revenue Service regarding subsection 2 of article 59 of the Law on Income Tax, will allow greater tax equity.

On October 13th, the IRS took a step forward in terms of tax equity, having corrected a wrong criterion, which was maintained for years even with the permission of the Supreme Court .

Article 59 of the Law on Income Tax, as a general rule has a rate of 30% taxes paid by non-residents for the use, enjoyment or exploitation of trademarks, patents, formulas and other similar benefits, whether they consist in royalties or any form of remuneration, excluding the amounts that correspond to payment of tangible goods interned in the country up to a generally accepted amount.
The second insert now establishes a lower rate, of 20%, for the rents paid to non-resident producers or distributors for materials that are destined to the exhibition through film or television projections.

Well, the IRS, until October 2017 restricted the application of this norm, of a less burdensome rate to the income to be paid for the distribution of physical materials for its exhibition, such as tapes, rolls, discs, etcetera; excluding all those forms of distribution of intangible materials with which the cinema and television world has been operating for many years, such as reproductions of satellite signals or other similar ones.

With this reinterpretation, the Internal Revenue Service finally changes the criteria so many times argued by the taxpayers, recognizing that the term «materials» used in the second insert of article 59 of the Income Law -according to its natural and obvious meaning- attends to its content, this is what is acquired to be exhibited through cinema and television.

Consequently, in accordance with this new criterion, in order to verify the taxable event contained in the aforesaid provision by taxing the reduced rate of 20%, three copulative conditions must be accomplished :

1. The payment must be made as consideration for the authorization to use a work or creation of the intellect of an audiovisual nature, destined to be exhibited in the cinema or on television;
2. The payment must be made to a producer or distributor without domicile or residence in Chile, who lacks any kind of permanent establishment in the country;
3. The work of an audiovisual nature must be disseminated in Chile, through its exhibition in the cinema or its broadcast or viewing on television.

By Francisca Villamán, attorney at Baraona Marshall & Cia..

[1] SUPREME COURT – 20.03.2006 – CASACION RESOURCE IN THE FORM AND IN THE FUND – CABLE MAGICO S.A. C / SII – ROL 5145-05 – MINISTERS DOMINGO YURAC – MARIA ANTONIA MORALES – ADALIS OYARZUN – LAWYERS MEMBERS MANUEL DANIEL – JOSE FERNANDEZ
[1] Before, 35%.
[1] N. 2227 and 2228 of 13.10.2017.

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