An international business group has a Chilean subsidiary (99.9% ownership) held by a company domiciled in an Organisation for Economic Cooperation and Development country, which directly controls 100% of an entity domiciled in a country included on the list of low-tax jurisdictions provided for in Article 41D of the Income Tax Law. This entity in turn owns 99.9% of the shares in another entity incorporated in Chile.

The business group is examining the possibility of merging the first Chilean subsidiary with the company resident in the low-tax jurisdiction, with the former company absorbing the latter.

Following this merger, the subsidiary residing in the low-tax jurisdiction would be dissolved and its assets and liabilities, including its shares in the Chilean subsidiary held by the entity resident in the low tax jurisdiction, would be transferred to the absorbing entity.

According to Paragraph 4 of Article 64 of the Tax Code, the Internal Revenue Service cannot exercise its assessment powers in mergers by creation or incorporation where the new or subsisting company retains the investments registered at the same value as they were in the contributing company (in this case, the contributing company is the company being absorbed).

The business group argued that:

  • as regards mergers, the Tax Code and the Corporations Act do not limit their applicability to Chilean entities; and
  • the Internal Revenue Service has previously dealt with situations concerning foreign entities.

Therefore, the business group requested an advance ruling confirming that the transaction was feasible under Chilean law and that the Internal Revenue Service would not exercise its assessment authority.

Internal Revenue Service position

The Internal Revenue Service took the position that pursuant to Article 64 of the Tax Code, and considering the criteria that it had used previously, said provision does not apply where:

  • it has been effectively proven that the legal effects of the merger or division in the other country will be carried out in accordance with Chilean legislation; and
  • the operation will be carried out under the terms of tax neutrality (ie, there are no gains or losses resulting from the respective operations).

The Internal Revenue Service also confirmed that because the law makes no distinction regarding the domicile of companies involved in such a merger, the merger of a foreign and a local company is permitted, provided that the legal requirements are met in each specific case.


The Internal Revenue Service concluded that its assessment authority will not be exercised in the case of a merger where:

  • the foreign entity will be dissolved following the merger and its assets and liabilities, including the shares that the foreign entity held in its Chilean subsidiary, will be transferred to the acquiring company (ie, the entity that is legally incorporated in Chile);
  • through the application of Article 64(4) of the Tax Code, the transfer of shares held in the Chilean subsidiary of the entity being absorbed into the Chilean entity will have no tax consequences in Chile; and
  • the value of the assets being transferred to the Chilean entity will be the same as the value of those held in the dissolved entity.

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

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