Chilean Law No. 21,713, published on October 24, 2024, modifies tax assessment regulations, particularly regarding IRS powers in appraisals and tax-free reorganizations. Significant changes allow transaction price assessments with or without transfers and clarify the definition of market value. The requirements for tax-free reorganizations have been simplified, as formal accounting is no longer necessary. Uncertainties persist pending IRS clarification.
On October 24, 2024, Chilean Law No. 21,713 was published, introducing regulations to ensure tax compliance. This legislation replaced Article 64 of the Chilean Tax Code, which pertained to the tax assessment powers of the Internal Revenue Service (IRS) and tax-free reorganizations. However, a definitive circular letter elaborating on these changes is yet to be released, leaving some uncertainties in its application.
One notable change involves the assessment provision concerning transfers. The previous law defined a ‘transfer’ that required a monetary assessment for transactions. The revised wording permits the IRS to assess transaction prices even when no transfer occurs, such as in cases of capital increases or spin-offs.
Additionally, the new assessment regulations now allow the IRS to appraise prices when they deviate from market value, expanding beyond the previous rule which only applied when transaction prices were below market rates. The definition of market value has also been clarified, now identified as the price agreed upon by unrelated parties under comparable conditions.
The provisions concerning tax-free reorganizations have shifted, removing the need for formal accounting records. The previous rules specified conditions such as maintaining tax basis, triggering no cash flows, and ensuring the contributor’s continued existence. The new requirements for tax-free reorganizations require only a legitimate business purpose and preserved tax basis, allowing individuals to benefit without extensive accounting documentation.
Moreover, international reorganizations were not explicitly addressed in the earlier regulation. The new provision states that an international reorganization falls under safe harbor if it meets specific criteria, including a legitimate business purpose, preservation of tax basis, and that the recipient belongs to a jurisdiction identified under Article 41H or lacks an accounting record obligation.
In conclusion, the recent changes brought by the Chilean tax law are substantial, yet numerous questions remain regarding their practical application. Anticipation surrounds the forthcoming circular letter from the IRS, which is expected to clarify these ambiguities and provide further guidance.
The enactment of Chilean Law No. 21,713 introduces several critical changes to tax regulations, particularly pertaining to the IRS’s assessment and appraisal powers, as well as tax-free reorganizations. However, uncertainties linger, primarily due to the lack of a final circular letter from the IRS clarifying these new provisions. Stakeholders will need to remain vigilant for further guidance to navigate these changes effectively.
Original Source: www.internationaltaxreview.com
