Chile – Netherlands treaty

The Chile-Netherlands double taxation treaty was signed on January 25, 2021 and is effective since January 1, 2023. The treaty will be interpreted in accordance with the OECD Model (2014) and the UN Model (2017).

The maximum tax rates of withholding are:

–         15% on dividends, but 5% if the beneficial owner is a company that directly owns at least 25% of the capital of the company paying the dividends throughout a 365-day period including the day of payment of the dividend and 0% for recognized pension funds. Notwithstanding the above, the treaty contains the “Chile clause”, according to which Chile will be entitled to withhold the full 35% rate of its local withholding tax on dividends, to the extent that Chilean law recognizes a tax credit consisting of the total corporate income tax, paid by the distributing entity; 

–         10% on interest, but 4% on interest received by a bank or insurance company, an enterprise substantially deriving its gross income from the active and regular conduct of lending and finance business involving transactions with unrelated parties and interest paid on the sale on credit of machinery of equipment; and 

–         10% on royalties, but 2% for royalties paid for the use or right to use of industrial or scientific equipment.

–        16% on capital gains, as a general rule (with some exceptions).

The treaty also contains a most-favored-nation clause for interest, royalties, and capital gains.
Deviations from the OECD Model include the following:

–         the determination of the residence of companies includes the principle of incorporation;

–         a building site, a construction, assembly, installation, or any supervisory activity related to such site or project constitutes a PE if it lasts for more than 6 months; 

–         the provision of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for that purpose constitute a PE, but only if activities of that nature continue within a contracting state for a period or periods totaling more than 183 days in any twelve-month period beginning or ending in the fiscal year in question; 

–         the PE article contains a provision on offshore activities, which are considered as a PEs unless the activities last less than 30 days in a 12-month period; 

–         article 7 (business profits) is based on the OECD Model (2008); 

–         a 5% source tax applies to insurance premiums and a 2% tax to reinsurance premiums;

–         no adjustment can be made under article 9 after a period of 6 years; 

–         income from (partial) liquidation and purchase of own shares will be treated as dividends;

–         a provision related to exit taxation whereby dividends paid by a company which, under the law of a contracting state, is a resident of that state, to an individual who is a resident of the other contracting state and who at the time of emigration is subject of taxation in the source state, but only to the extent that the liquidation of the capital gains is still outstanding; 

–         the definition of interest includes income from money lent;

–         the term royalties include films, tapes and other means of image or sound reproduction, as well as the use of or the right to use, industrial, commercial or scientific equipment; 

–         royalties borne by a permanent establishment or fixed base will be considered as arising in the state in which the permanent establishment or fixed base is located; 

–         gains derived by a resident of a contracting state from the alienation of shares or other rights in a company that is a resident of the other contracting state, may be taxed in that other contracting state if the resident of the first-mentioned contracting state owned, at any time within the 365-days preceding the alienation, 20% or more of the capital of that company; 

–         an exit provision for shares, profit sharing certificates, call options and usufruct on shares and profit sharing certificates in a company and debt-claims on a company allowing the departure state after emigration to tax capital gains realized during the period of residence in that state; 

–         a provision on independent personal services;

–         pensions, retirement annuities, social security payments and lump-sum payments may, under the pension article, be taxed in the source state; 

–         alimony is taxable in the state of residence, but taxed in source state if the payments are not deductible; and

–         any income not covered by another treaty article may be taxed in the source state.
Both Chile and the Netherlands apply the credit and exemption on a graduated basis to avoid double taxation.

The treaty contains a limitation on benefits (LOB) provision under which treaty benefits are granted to qualified persons (including recognized pension funds) and residents who derive business income from the active conduct of a business. Mere holding activities without substance, group financing (including cash pooling), making or managing investments, unless these activities are carried out by a bank, insurance company or registered securities dealer in the ordinary course of its business and holding or managing intangible property without substance, are not considered active business activities. Treaty benefits will not be granted if obtaining such benefits was one of the principal purposes of any agreement or transaction. Otherwise, benefits may also be granted to non-qualified persons. Benefits which by the state were an enterprise is established, allocates to a PE of a third country will only be entitled to treaty benefits if the tax rate in the third country is at least 60% of the tax that would apply on those profits in the state where the enterprise is established. Such profits may be taxed in the source state, but for interest and royalties, the rate may not exceed 25%. 

Rights for exploration and exploitation of natural resources will be considered as immovable property located in the contracting state (including its seabed and subsoil) to which these rights apply. 
Information will also be exchanged for the application of the income-related regulations (toeslagen) in the Netherlands.