On April 5 2016 the Chilean Tax Authority issued Official Letter 869, which reported that, according to a communication from the Brazilian Embassy, Brazil had published an interpretative law establishing an exemption for social contribution tax on net profits in all double tax treaties to which Brazil is party, which applies retroactively.

The double tax treaty between Chile and Brazil – which was established to avoid double taxation and prevent income tax evasion – came into force on January 1 2004. Article 2(1) of the treaty states that it applies to taxes on income established by each contracting state. For the purposes of the convention, 'taxes on income' are defined as "all taxes that affect the whole income or any part thereof".

For the Chilean Tax Authority, social contribution tax on net profits should already have been treated as income tax under the terms of the double tax treaty, as it falls within the scope of Article 2 thereof. Therefore, the Brazilian Tax Authority's recent interpretation has helped to clarify this point further. The official letter has confirmed that Chilean residents conducting business in Brazil can use social contribution tax on net profits paid in Brazil as a credit against the payment of Chilean income tax in accordance with Article 22 of the convention.

For further information on this topic please contact Omar Morales at Montt y Cia SA by telephone (+56 22 233 8266) or email ([email protected]). The Montt y Cia SA website can be accessed at www.monttcia.cl.