In January, the Chilean Internal Revenue Service (SII, for its initials in Spanish) added seven new potentially evasive schemes to the Tax Scheme Catalog. This document aims to enhance compliance with the General Anti-Avoidance Rule (NGA, for its initials in Spanish). The new cases include:
Case 86: (Professional company)
A professional company is organized, but in practice, services are almost exclusively provided by one partner. The others have no active role within the company yet receive profit distributions, improperly reducing the Complementary Global Tax burden for the partner who actually performs the services.
Case 87: (Free transfer of profits from parents to children)
In a family-owned business where the parents hold shares with economic privileges and the children hold ordinary shares, a resolution at an extraordinary shareholders’ meeting eliminates the economic privilege of the parents’ shares. This results in a transfer of profits to the children without paying the proper Donation Tax.
Case 88: (Transfer of bare ownership)
Parents sell the bare ownership of their social rights in Company A to companies owned by their children. However, the parents do not exercise their rights as usufructuaries in A, and the children’s companies withdraw profits as if they had full ownership. The profits are used to pay for the bare ownership rights, effectively transferring social rights while avoiding the Donation Tax.
Case 89: (Corporate reorganization)
A company owned by individuals is divided, with one entity retaining the bare ownership of real estate and the other holding the usufruct rights. The bare ownership entity dissolves, transferring the property to the partners. The partners sell the bare ownership and the usufruct rights to the same buyer. The bare ownership sale benefits from non-taxable capital gains up to 8,000 UF and a 10% substitute tax, while the usufruct sale incurs a 27% corporate tax. This structure reduces the overall tax burden compared to selling the assets before the division.
Case 90: (Corporate reorganization)
An LLC (SRL in Spanish) primarily owned by parents is transformed into a SpA and issues preferential and ordinary shares, with the latter representing a greater ownership percentage. The children acquire the ordinary shares, while the parents retain the preferential shares, which are never exercised. Later, the company is reconverted to an LLC, and ownership percentages are recalculated based on share numbers rather than preferences. This transfers ownership to the children free of charge, avoiding the Donation Tax.
Case 91: (Passive income)
A Chilean company (A) controls a foreign company (B). The owners of A establish a company (C) in B’s jurisdiction, which increases B’s capital and acquires 51% ownership in B under Article 41 G of the Income Tax Law. This eliminates A’s control over B, deferring income tax on B’s passive income without materially changing the ownership of B.
Case 92: (Division and dissolution of company)
A company is divided, assigning real estate as the only asset to the new entity. The new entity dissolves, completing its business cessation process, and the property is distributed to the partners. This allows the partners to own the property by paying a business cessation tax, which is lower than the Complementary Global Tax that would have applied if the asset had been withdrawn from the original company.
