Trademarks, trade names, brand names, copyright rights, technical know-how, patents, and industrial designs, to name a few, are all valuable intangible properties that are frequently transferred (or licensed) from one related entity to another related entity. This is particularly important for foreign companies who are operating in Chile since their intellectual property in most cases is what distinguishes their product, services, or company from the competition.
Understanding how to utilize the tax benefits of your IP is crucial to ensure your company is tax efficient. It will often be one of many strategies you may put in place between the parent and subsidiary companies to assist with your tax planning. A part of that process is understanding the double taxation agreements that are currently in place.
As of this date, Chile has more than 30 treaties in force with different countries. Using the treaty between Chile and Australia as an example, we will analyze royalties, one of the concepts that may generate some doubts in its application.
The term royalty is not defined in Chilean internal income tax law, however, different operations or activities are considered as royalties. In general, we can point out that a royalty is a payment for the use or enjoyment of some type of intellectual or industrial property, and even for certain consultancies or services. Unlike national legislation, the concept of royalty has been included in treaties to avoid international double taxation in which the cases we will analyze.
Under Chilean domestic law, a remittance made from Chile to abroad for royalties, regardless if the foreigner is a natural person or a legal entity, the following rates of withholding taxes are applied:
The amounts or payments for the use, enjoyment, or exploitation of trademarks, patents, formulas, and other similar services, whether they consist of royalties or any other form of remuneration, are subject to a 30% withholding rate for additional tax. Payments for the use, enjoyment or exploitation of patents, utility models, industrial designs and designs, layout-designs or topographies of integrated circuits and new plant varieties, in accordance with the definitions and specifications contained in the Industrial Property Law and the Law Regulating the Rights of Breeders of New Varieties of Plants, as the case may be, shall be subject to a 15% withholding tax as an additional tax. Payments for the use, enjoyment, or...