A taxpayer recently requested a ruling on whether a certain type of tax treatment was available following the merger and consolidation of a group.


An individual Chilean resident and his wife had participated in a limited liability company (LLC) since 2010. The LLC owned 1% of five joint stock companies (SpAs), in which the remaining shareholders and owners were also individuals resident in Chile. Through this structure, the group maintained its investments in the operating companies and adopted the so-called attributed income tax regime of Article 14(A) of the Income Tax Act.

For this purpose, it was proposed to merge the SpAs with their common shareholder, the LLC. The LLC would also be transformed into an SpA, which would be the legal successor and continuing company. Following the merger, the owners of the LLC would continue to be exclusively individuals resident in Chile.

The taxpayer stated that, in accordance with Article 3 of Law 20,780, as amended by Law 20,899, a transitional and optional regime had been established for the declaration and payment of a substitute tax for the income accumulated on the fund of taxable profits by December 31 2015 and 2016, with a general rate of 32% or a variable rate in case of the need to meet certain requirements established by law.(1)

One of the requirements to qualify for the variable tax rate is that a company must be comprised exclusively of individuals who have paid the Chilean personal resident tax (the so-called 'global supplementary' tax) before December 1 2015 and throughout the entire period leading up to the application to exercise the variable tax rate.

The taxpayer highlighted that the regulations made it impossible to apply the variable tax rate in the determination and payment of the substitute tax, under which some or all of the taxpayer's rights, quotas or shares which were subject to corporate income tax had been transferred for free or for consideration after December 1 2015. As a result, only the general tax rate of 32% could apply.

In the taxpayer's view, the merger between the LLC and the SpAs did not imply:

  • a transfer of shares or rights of the absorbed companies or the absorbing company; or
  • the withdrawal of any of its partners or shareholders that could affect the application of the variable tax rate.

The taxpayer concluded that the merger of the SpAs with the LLC would only correspond to an assignment of assets for pre-existing owners and thus the reorganisation through a merger in such circumstances would not affect the right of the individuals involved to use the variable tax rate by forcing them to use the 32% fixed tax rate.

In light of the above, the taxpayer requested confirmation of whether the LLC would be entitled to use the variable tax rate with respect to its original fund of taxable profits and the fund of taxable profits obtained from the companies absorbed during 2016 if all of the requirements established by law to apply the substitute tax at the variable rate were met – in particular, if there was no transfer of shares or rights for free or for consideration.


The tax department agreed with the taxpayer stating that, in the above situation, the individuals who owned shares in the resultant entity – following the merger between the LLC and the SpAs and the transformation of the LLC into an SpA – were entitled to use the variable tax rate rather than the 32% fixed tax rate for the fund of taxable profits generated before and during 2016.(2) This is because there is no transfer of property in a merger process, but rather an assignment of property to a person who already has a legal interest therein.

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

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(1) A fund of taxable profits is an account in which a taxpayer records the corporate income tax that he or she has already paid on profits. The funds accumulated have a credit for the amount of corporate income tax actually paid which, before the September 2014 tax reform under Law 20,780, as amended by Law 20,899, could be used by the individual shareholders against their personal taxes. The tax reform changed this rule and created transitional provisions to deal with the so-called 'historic fund of taxable profits' (ie, the funds accumulated in the fund of taxable profits before the tax reform's enactment) and the fund of taxable profits accumulated during 2016.

(2) Ruling 872 of April 24 2017.