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TAX NEWS - DECEMber 2009 | |||||||||||||||||||||||||||||||||||||||
Latin America: 2009 tax developments in Chile, Colombia and PeruChile Several laws published in Chile's Official Gazette during 2009 introduced important changes to the tax legislation, some of which will significantly change the tax practice in the near future and others which create interesting tax benefits for taxpayers. Law No. 20,322 introduced a long-anticipated change to the tax system by creating specialized Tax and Customs Courts to resolve controversies between taxpayers and the Chilean tax authorities (IRS). Until now, when a taxpayer had a conflict with the IRS, the IRS would act as a judge, and the taxpayer only had recourse to an independent court of law after the IRS had issued its decision in the first instance. The new Tax and Customs Courts are functioning in several regions of the country, but the courts will not be implemented in Santiago until 2013. Law No. 20,343 improved access to foreign financing for companies and individuals. The law provides that the 4% reduced withholding tax rate on interest on loans granted by foreign or international banks or financial institutions (rather than the normal 35% rate) will apply to loans from foreign insurance companies and pension funds governed by article 18 bis of the Income Tax Law. Law No. 20,343 also introduced a new provision into the Income Tax Law that grants a tax benefit to taxpayers that acquire or sell publicly offered debt instruments on a local stock exchange, either through a broker or a securities dealer. According to article 104 of the Income Tax Law, capital gains derived from the sale of such instruments will not be considered income if certain requirements are met. These instruments must be initially placed at or above their face value or the issuer must pay a 17% tax on the difference. The uncertainty as to the actual placement price is generally considered to limit the appeal for this type of financing. Debt instruments issued by the Central Bank and the General Treasury are also eligible for the above tax benefit by meeting special requirements. Several changes were made to address the effects of the global economic downturn. Law No. 20,326 reduced the stamp tax on documented loans and loans from abroad granted during 2009 to 0% and reduced the tax to 50% of the normal rate for the first half of 2010. As from the second half of 2010, the stamp tax will revert to the normal rate of 0.1% per month or a fraction thereof between disbursement and maturity, up to a maximum of 1.2% for all loans regardless of their amount; loans payable on demand or that have no fixed maturity will be subject to a rate of 0.5%. Law No. 20,326 also reduced the rate of the monthly estimated tax payments for gross income received or accrued during 2009 for purposes of the First Category Income Tax. The payments are reduced by 15% for taxpayers that, in calendar year 2008, derived gross income that did not exceed 100,000 UF or 7% where the 2008 income exceeded that amount or the taxpayer commenced activities after 1 January 2008. However, the above reductions will not be considered when calculating the monthly estimated tax payments as from May 2010. An interesting tax benefit for construction companies granted by Law No. 20,365 allows such companies to deduct from their monthly estimated tax payments an amount equal to all or part of the cost of solar thermal systems they install in residential buildings and housing. The benefits granted to the free industrial zone of Tocopilla in the Region of Antofagasta have been extended until 2012. As a result, companies engaged in the manufacturing of inputs, accessories and parts and repairing mining capital goods can continue to enjoy the tax and customs benefits granted by this law. Certain changes to the labor legislation also have tax consequences. According to changes made to Chile's pension system in 2008, as from July 2009, companies with more than 100 employees are required to assume the cost of the disability and survivors' insurance premiums, which previously were paid by the employee. This change results in a small increase of approximately 1% in employees' net income. Companies that currently have less than 100 employees will have to assume this cost as from June 2011. Chile's new tax treaties with Ireland, Malaysia, Paraguay and Portugal became effective on 1 January 2009. Chile also is well on the way to being accepted as a full member of the OECD and is in the process of making several required legislative changes, the most important of which is a revision to the bank secrecy laws, which should help to facilitate tax treaty negotiations with countries such as Australia and the U.S. Another important change, which may be postponed until Chile becomes an OECD member state, is a significant upgrading of the transfer pricing legislation. Colombia In addition to the tax bill and developments on goodwill deductibility and stamp tax, cross-border investment may also be enhanced as Colombia continues to expand its treaty network. All of Colombia's tax treaties require a review of their constitutionality by the country's Constitutional Court. The Court recently declared the treaty with Chile constitutional and it is expected that the treaty will be in force in 2010. Review of the treaty with Switzerland is in progress following Congressional approval, while two remaining treaties (those with Canada and Mexico) still await both Congressional and judicial approval. Tax bill – The Colombian government introduced a tax reform bill on 21 July 2009 (expected to be approved by Congress by the end of 2009) to address the diminished revenue resulting from the global financial crisis – the revenue issue is expected to have the most severe impact in 2009 and 2010. The reform bill would extend the net equity tax and modify the "super deduction" for investments in productive fixed assets as follows: - The 2.1% net equity tax, which is due to expire at the end of 2010 according to Law 1111 of 2006, would be extended until 2014 and the rate structure amended. A 0.6% net equity tax would be levied on taxpayers with net equity exceeding COP 3 billion, calculated as the taxpayer's gross wealth minus current liabilities on 1 January of each year. Net assets would be adjusted by subtracting the value of shares or contributions held in Colombian companies and the first COP 220 million of the value of a dwelling house or apartment; - The super deduction for certain productive fixed assets would be reduced from 40% to 30% of the value of the assets at the time the assets are acquired; and - Taxpayers located in free trade zones would not be entitled to benefit from the super deduction because they already receive a tax benefit in the form of a reduced 15% income tax rate rather than having to pay the general 33% rate. Deductibility of goodwill – In July, Colombia's Administrative Supreme Court resolved a contentious issue relating to the tax treatment of goodwill acquired on the acquisitions of shares and in so doing overruled the position of the National Tax Administration. An issue had arisen because the National Tax Administration issued several rulings in 2004 and 2005 in which it disallowed a deduction for such goodwill when the purchaser obtained a controlling interest in the company. The tax authorities took the position that, in a share purchase, the part of the purchase price that exceeded the fair market value is part of the cost of the shares and not goodwill that could be amortized as an intangible over a minimum five-year period. The court disagreed, overruling the tax authorities' position and opening the possibility for taxpayers to claim a deduction for amortization on the goodwill value on the acquisition of a controlling interest in the shares of a company for 2009 and going forward. It may also be possible for taxpayers to argue that tax returns relating to certain pre-2009 transactions in which goodwill has been recorded should be amended so they can claim amortization of goodwill. The decision has both legal and tax consequences that could impact the acquisition of companies in Colombia, the determination of the capital gains tax on the sale of shares, the establishment of deferred taxes and the disclosure of the risk relating to issues such as FIN 48. Stamp tax – Finally, the stamp tax levied on public and private documents (including securities) that are executed or that have effect in Colombia and that establish, modify or cancel obligations, as well as their renewal or assignment, in an amount exceeding 6,000 UVT (approximately USD 66,000) has been reduced. The stamp tax rate will be 0% as from 2010 (reduced from 0.5%). With this tax rate decrease, companies should be able to optimize expenses by reviewing all legal documents with related and unrelated parties. Peru Related party gains on shares – A bill submitted to the Congress on 19 March 2009, and which is expected to be passed before the end of 2009, would expand the scope of Peruvian-source income to include income derived by a nonresident from the indirect transfer of shares within 12 months before the transfer of a directly or indirectly related Peruvian entity. This provision aims to address the practical obstacles (e.g. impediments to information requests, audits and assessing nonresident taxpayers) faced by the tax authorities in collecting potential unpaid taxes connected with such transactions. If enacted, this provision would allow the tax authorities to assess tax on the Peruvian company in respect of any capital gains derived by a nonresident taxpayer. Exemptions – Although most of the existing exemptions from income tax have been extended until fiscal year 2011 (e.g. income derived by Peruvian nonprofit organizations and income derived by universities in certain cases), the following exemptions expire after 31 December 2009: - Gains derived from the transfer of securities by a resident or nonresident individual or legal entity on the Peruvian stock market; - Gains derived from the transfer of securities by a resident or nonresident individual, regardless of the exchange; and - Interest or other income derived from loans granted by the National Public Sector. These exemptions are not being extended in order to make the system more equitable and to improve the collection of tax. Given the potential effect of the abolition of the exemptions on the Peruvian economy, however, the income tax structure applicable to capital gains has been modified for 2010. To compensate for the elimination of the exemptions on capital gains and to provide an incentive for transactions on the Peruvian stock market, the tax treatment of income derived by nonresident individuals, particularly capital gains, will be modified as from 1 January 2010. Notably, gains derived by a nonresident from the alienation of securities issued by Peruvian entities will be subject to income tax at a rate of 5% if the transfer is carried out within the Peruvian territory; otherwise, the rate will be 30%. Regulations defining what will be considered as "transferred within the Peruvian territory" still must be issued. Depreciation – In response to the effect of the global economic crisis on Peru's construction and real estate sectors, new depreciation rules were introduced for certain building and construction projects. Beginning in tax year 2010, an annual 20% depreciation rate (increased from 3%) will be applicable to buildings and construction commencing after 1 January 2009 that will be at least 80% completed before 31 December 2010, or a building acquired during 2009 or 2010 that meets the preceding requirements. The depreciation rate applicable to buildings and construction projects not subject to the 20% rate is also increased from 3% to 5% per annum. Value added tax – The 19% VAT rate, introduced in 2003 as a temporary measure and due to expire on 31 December 2009, has been extended through 2010. The rate will then revert to 18%. | |||||||||||||||||||||||||||||||||||||||
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