Taxpayer request

A taxpayer requested a ruling from the Chilean tax authorities on whether a branch of an entity resident in a third state should be considered a UK resident for the purpose of claiming the benefits provided under Article 7 of the Chile-UK double tax treaty.

The taxpayer explained that it was evaluating an investment through the purchase of shares abroad. In that context, to protect against future currency fluctuations, it had entered into a contract with a foreign entity resident in a third country (the United States) through its branch in the United Kingdom. According to the information provided by the taxpayer, the branch qualified as a permanent establishment in accordance with the US-UK double tax treaty and was subject to corporate tax in the United Kingdom on the income attributable to it.

In the taxpayer's opinion, its UK branch qualified as UK resident under the Chile-UK double tax treaty based on the broad concept of a 'person' and the fact that it is subject to full corporate taxation in the United Kingdom. Therefore, the taxpayer's interpretation agreed with the tax treaty's aim (ie, the elimination of double taxation), as the income in question would otherwise be taxed in both Chile and the United Kingdom.

Resident person

The tax department responded that in order to be entitled to the benefits of Chile's double tax treaties (which generally follow the Organisation for Economic Cooperation and Development (OECD) and UN model tax conventions), a taxpayer must be a resident person of one of the contracting states. Further, depending on the specific case, certain additional requirements (eg, qualifying as a beneficial owner or qualified person) must be met in order to benefit from the intended benefits. In this way, the treaty establishes a filter of ownership. This ensures that the benefits agreed on by contracting states are not indirectly used by persons resident in third countries, which given their bilateral nature, would be contrary to the treaties' aims.

Article 3 of the Chile-UK double tax treaty defines a 'person' as "an individual, a company and any other body of persons". Once it has been determined which party is invoking the benefits of a treaty, it must be determined where that person is resident. In order to be a 'resident' of a contracting state under Article 4 of the Chile-UK double tax treaty (and of any double tax treaty signed by Chile based on the OECD and UN models):

  • the person must be subject to worldwide taxation on income in the country in which it claims to be a resident. In this sense, an entity of a contracting state claiming the benefits of a tax treaty would not be fulfilling this requirement if it is subject only to a territorial tax regime in the contracting state (ie, its income from a foreign source is exempted); and
  • such general taxation must be based on a link between the person and the contracting state that taxes it, such as domicile or residence.

Permanent establishment

The taxpayer informed the tax authorities that its UK branch had been classified as a permanent establishment under the UK-US double tax treaty, so the tax department drew on the definition of a permanent establishment in Article 5 of Chile's double tax treaties (based on elements of the OECD and UN models). In the tax department's criterion, a 'permanent establishment' constitutes a simple threshold for measuring the degree of participation or involvement of a company resident in one state in the economic activity of another. In this sense, a permanent establishment is part of a company which carries out all or part of its activity through a fixed place of business in another state. The second paragraph of Article 5 provides examples of permanent establishment branches and offices.

In particular, according to previous analysis and the information provided by the applicant, the tax department considered that the branch did not qualify as a 'resident person' for the purposes of applying the Chile-UK double tax treaty as:

  • the person who had invoked the treaty's benefits was a financial institution resident in the United States, with which Chile has no tax treaty, since its branch in the United Kingdom was only an extension of the activities of the US person in the United Kingdom; and
  • income attributable to the branch was taxed only in the United Kingdom on the basis of the link between the United Kingdom and the activity carried out there by a US resident, because such activity had exceeded a certain threshold established in the applicable tax treaty. The branch was not subject to worldwide taxation by reason of domicile, residence or place of management.

A company which is a resident of a state with which Chile maintains a double tax treaty may invoke the benefits of said treaty, notwithstanding that the income in question is attributable to a permanent establishment that the company has in a third state, except in the case of the abuse or inappropriate use of tax treaties.

The tax department stated that this analysis was confirmed by the fact that the branch, as reported, had no certificate of residence issued by the competent UK authority.

Double taxation

Regarding the possibility of double taxation that the applicant raised, the tax department considered that this situation was an example of what can happen where countries that have no double tax treaties, as in the case of Chile and the United States. As the agreement signed between Chile and the United States is not in force, the elimination of double taxation depends on US domestic law or the UK-US double tax treaty.

The tax department underlined that, in order to be a resident of a contracting state for the purposes of the tax treaty invoked:

  • the person must be subject to general taxation on its worldwide income in the respective contracting state of which it claims to be a resident; and
  • such taxation must be based on domicile, residence, place of management or any other criterion of a similar nature with the contracting state, thereby excluding those cases in which income is taxed by virtue of being sourced in that state.


Based on the above considerations and Articles 1, 3, 4 and 5 of the Chile-UK double tax treaty, the tax department concluded that the person claiming benefits under the treaty was a resident of a third state and that its branch or permanent establishment in the United Kingdom did not meet the requirements to qualify as a UK resident under the treaty. As a result, it was not entitled to claim treaty benefits.(1)

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


(1) Ruling 287 dated February 8 2017.

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