The Double Taxation Relief (Taxes on Income) (Chile) Order 2003

Your Excellency

London

12th July 2003

I have the honour to acknowledge receipt of Your Excellency’s Note of today which reads as follows:

“I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Republic of Chile for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains which has been signed today and to make on behalf of the Government of the Republic of Chile the following proposals:

In General

It is understood that the two Governments shall, through the competent authorities, consult together regarding the terms, operation and application of the Convention to ensure that it continues to serve the purposes of avoiding double taxation and preventing fiscal evasion and shall, where they consider it appropriate, conclude Protocols to amend the Convention.

Either Government may at any time request consultations, to be conducted by the competent authorities in an expeditious manner on matters relating to the terms, operation and application of the Convention which it considers require urgent resolution.

It is agreed that if, after the date on which the Convention enters into force, either Contracting State introduces a tax on capital under its domestic law, the Contracting States will enter into negotiations with a view to concluding a Protocol to amend the Convention by extending its scope to include any tax on capital so introduced.

With reference to paragraph (3) of Article 5 (Permanent Establishment)

For the purposes of preventing misuse of Articles 5 and 7, in determining the duration of activities under this paragraph, the period during which activities are carried on in a Contracting State by an enterprise associated with another enterprise (other than enterprises of that Contracting State) may be aggregated with the period during which activities are carried on by the enterprise with which it is associated if the first-mentioned activities are connected with the activities carried on in that State by the last-mentioned enterprise, provided that any period during which two or more associated enterprises are carrying on concurrent activities is counted only once. An enterprise shall be deemed to be associated with another enterprise if one is controlled directly or indirectly by the other, or if both are controlled directly or indirectly by a third person or persons.

With reference to paragraph (7) of Article 5 (Permanent Establishment)

It is understood that where the commercial or financial conditions made or imposed between the broker or agent and the enterprise differ from those which would be made between independent persons, such broker or agent will not be considered an agent of independent status within the meaning of paragraph (7) of Article 5.

With reference to Article 7 (Business Profits)

It is understood that the provisions of paragraph (3) of the Article shall apply only if the expenses can be attributed to the permanent establishment in accordance with the provisions of the tax legislation of the Contracting State in which the permanent establishment is situated.

With reference to paragraph (2) of Article 9 (Associated Enterprises)

It is understood that the provisions of paragraph (2) of Article 9 are not to be construed as requiring a Contracting State to make any adjustment to the amount of profits charged to tax in that State unless it is satisfied that the action taken by the other Contracting State under paragraph (1) of the Article is justified both in principle and as regards the amount of any adjustment to profits made by that other State.

With reference to paragraph (2) of Article 10 (Dividends)

It is agreed that, in relation to the application of the additional tax under the laws of Chile, should:

(i) the first category tax cease to be fully creditable in computing the amount of additional tax to be paid; or

(ii) the rate of additional tax imposed with respect to residents of the United Kingdom, as determined under the provisions of Article 4 of this Convention exceed 42 per cent.

the Contracting States shall consult with each other with a view to amending the Convention to re-establish the balance of benefits under the Convention.

With reference to paragraph (2) of Article 11 (Interest) and paragraph (2) of Article 12 (Royalties)

It is agreed that if any agreement or convention between Chile and a member state of the Organisation for Economic Co-operation and Development entering into force after the date of entry into force of the Convention provides that Chile shall exempt from tax interest or royalties (either generally or in respect of specific categories of interest or royalties) arising in Chile, or limit the tax charged in Chile on such interest or royalties (either generally or in respect of specific categories of interest or royalties) to a rate lower than that provided for in paragraph (2) of Article 11 or paragraph (2) of Article 12 of the Convention, such exemption or lower rate shall automatically apply to interest or royalties (either generally or in respect of those specific categories of interest or royalties) arising in Chile and beneficially owned by a resident of the United Kingdom and interest or royalties arising in the United Kingdom and beneficially owned by a resident of Chile under the same conditions as if such exemption or lower rate had been specified in those paragraphs. The competent authority of Chile shall inform the competent authority of the United Kingdom without delay that the conditions for the application of this paragraph have been met.

With reference to Article 12 (Royalties)

If the rights acquired in relation to the copyright of a non-customised software program (so-called “shrink-wrapped” software) are limited to those necessary to enable the user to operate the program, the payment received in connection with the transfer of those rights, shall be treated as business profits subject to Article 7.

With reference to paragraph (1) of Article 14 (Income from Employment) and paragraphs (1) and (2) of Article 18 (Government Service)

It is understood that the expression “salaries, wages and other similar remuneration” shall be interpreted to mean all types of remuneration derived by the resident, including benefits in kind received in respect of the employment.

With reference to paragraph (1) of Article 17 (Pensions, Maintenance Payments and Pension Contributions)

It is understood that the term “pensions” includes any payments made to a scheme member or beneficiary in accordance with the scheme’s rules by a pension scheme that is recognised for tax purposes by the Contracting State in which the pension arises.

If the foregoing proposals are acceptable to the Government of the United Kingdom, I have the honour to suggest that the present Note and Your Excellency’s reply to that effect should be regarded as constituting an agreement between the two Governments in this matter, which shall enter into force at the same time as the entry into force of the Convention.”

The foregoing proposals being acceptable to the Government of the United Kingdom, I have the honour to confirm that Your Excellency’s Note and this reply shall be regarded as constituting an agreement between the two Governments in this matter which shall enter into force at the same time as the entry into force of the Convention.

I take this opportunity to renew to Your Excellency the assurance of my highest consideration.