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

Explanatory Note

(This note is not part of the Order)

A Convention dealing with the avoidance of double taxation and fiscal evasion between the United Kingdom and Chile (“the Convention”) is set out in Part I of the Schedule to this Order.

Article 1 of the Order provides for its citation.

Article 2 makes a declaration as to the effect and content of the arrangements set out in the Convention contained in Part I of the Schedule to the Order and in the Exchange of Notes constituting an Agreement set out in Part II of that Schedule, and that it is expedient that those arrangements should have effect.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property and gains derived from the alienation of such property may be taxed in the country in which the property is situated (Articles 6 and 13).

Profits and gains from international shipping and air transport are generally to be taxed only in the residence state of the enterprise (operator) (Articles 8 and 13).

The Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 9).

The rate of tax imposed in the country of source on dividends derived and beneficially owned by a resident of the other country shall not, in general, exceed 15 per cent. of the gross amount of the dividends. If the beneficial owner is a company which owns at least 20 per cent. of the voting power in the company paying the dividends, the rate of tax imposed in the country of source shall not exceed 5 per cent. of the gross amount of the dividends (Article 10).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is not to exceed 15 per cent. of the gross amount flowing to the other country provided the recipient is the beneficial owner of the interest. In the case of certain categories of interest the rate of tax imposed in the country of source shall not exceed 5 per cent. of the gross amount of interest (Article 11).

The rate of tax imposed in the country of source on royalties is limited to 5 per cent. of the gross amount in respect of the use of or right to use industrial, commercial or scientific equipment and 10 per cent. of the gross amount in all other cases, where, in either case, the recipient is the beneficial owner of the royalties (Article 12).

Subject to certain specified exceptions, each country may generally tax capital gains in accordance with its domestic law (Article 13).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Article 14). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in that other country (Article 15). Income derived from the activities of entertainers and sportsmen may be taxed in the country in which those activities are performed (Article 16).

Pensions are to be taxed only in the country of source. Contributions paid in respect of employment or self-employment by, or on behalf of, an individual who is a resident of one country, or who is temporarily present there, to an approved pension plan in the other country shall, subject to certain conditions, be treated for tax purposes in the same way and subject to the same conditions and limitations as contributions paid to an approved pension plan in the country of residence (Article 17).

Government service remuneration is normally to be taxed only by the paying Government (Article 18). There are separate provisions for diplomatic or consular officials (Article 25). Certain payments made to visiting students and business apprentices are generally exempt from tax in the country visited (Article 19).

Other income not specified in the Convention will generally be taxed only by the country of which the beneficial owner is a resident. However, if such income arises in the other country, it may also be taxed in that country (Article 20).

In general, where income continues to be taxable in both countries, credit is to be given by the country of the taxpayer’s residence for tax imposed by the other country (Article 21).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 22).

There are also provisions for consultation to resolve difficulties in the application or interpretation of the Convention (Article 23) and for exchanges of information between the taxation authorities of the two countries (Article 24).

The Exchange of Notes comprising Part II of the Schedule clarifies the intended interpretation of certain parts of the Convention.

The Convention will enter into force on the date of the later of the notifications by each country of the completion of its legislative procedures. It will take effect in the United Kingdom in respect of corporation tax from 1st April in the following calendar year; and from 6th April of that year for income tax and capital gains tax. It will take effect in Chile on or after 1st January in the calendar year next following the date on which the Convention enters into force (Article 28). The date of entry into force will, in due course, be published in the London, Edinburgh and Belfast Gazettes.