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Double taxation treaty with US

Francisca Perez, Morales Besa & Abogados

After several years of negotiations, last February 4 the governments of the US and Chile signed a double taxation treaty with respect to taxes on income and capital. This convention will integrate the Chilean treaty network of over 20 agreements as of this date.

The treaty follows the OECD model, but has especially agreed provisions, such as a definition of business profits, reference to back-to-back financing operations and regulation of the limitation of benefits. A long-awaited limitation of taxes on dividends and capital gains for Chilean pension funds' investments in the US has been agreed, although dividends distributed by Chilean companies will not be subject to limited rates. This exception is not contained in Article 10 (dividends) but in the protocol to the treaty, and is due to the integrated, two-level income tax on business profits that Chile has, whereby income taxes paid by a company are creditable against withholding taxes affecting remittances to foreign owners.

The protocol also contains special provisions on real property, software and capital gains. The treaty is expected to become effective during 2010, after Chilean Congress approval.

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