Chile: Royalties In Chile – Back To The Basics!

Last Updated: 31 May 2018
Article by Harris Gomez

Trademarks, trade names, brand names, copyright rights, technical know-how, patents, and industrial designs, to name a few, are all valuable intangible properties that are frequently transferred (or licensed) from one related entity to another related entity. This is particularly important for foreign companies who are operating in Chile since their intellectual property in most cases is what distinguishes their product, services, or company from the competition.

Understanding how to utilize the tax benefits of your IP is crucial to ensure your company is tax efficient. It will often be one of many strategies you may put in place between the parent and subsidiary companies to assist with your tax planning. A part of that process is understanding the double taxation agreements that are currently in place.

As of this date, Chile has more than 30 treaties in force with different countries. Using the treaty between Chile and Australia as an example, we will analyze royalties, one of the concepts that may generate some doubts in its application.

The term royalty is not defined in Chilean internal income tax law, however, different operations or activities are considered as royalties. In general, we can point out that a royalty is a payment for the use or enjoyment of some type of intellectual or industrial property, and even for certain consultancies or services. Unlike national legislation, the concept of royalty has been included in treaties to avoid international double taxation in which the cases we will analyze.

Under Chilean domestic law, a remittance made from Chile to abroad for royalties, regardless if the foreigner is a natural person or a legal entity, the following rates of withholding taxes are applied:

  • The amounts or payments for the use, enjoyment, or exploitation of trademarks, patents, formulas, and other similar services, whether they consist of royalties or any other form of remuneration, are subject to a 30% withholding rate for additional tax.
  • Payments for the use, enjoyment or exploitation of patents, utility models, industrial designs and designs, layout-designs or topographies of integrated circuits and new plant varieties, in accordance with the definitions and specifications contained in the Industrial Property Law and the Law Regulating the Rights of Breeders of New Varieties of Plants, as the case may be, shall be subject to a 15% withholding tax as an additional tax.
  • Payments for the use, enjoyment, or exploitation of computer programs, understood as the set of instructions to be used directly or indirectly in a computer or processor, in order to make or obtain a certain process or result, contained in cassette, floppy disk, disk, magnetic tape, or other material or medium, in accordance with the definition or specifications contemplated in the Law on Intellectual Property, are subject to a withholding rate of 15% as an additional tax. However, payments for standard software are exempt from additional tax.
  • The amounts paid for the use of publishing or copyright rights will be subject to a 15% withholding rate for additional tax.

However, under the application of the Double Taxation Agreement Treaty with Australia, we may consider as a royalty the following transactions for which the withholding rate may be different from that provided under domestic law.

Article 12 of the Treaty states that the term "royalties" means payments or credits, whether periodic or not, and however described or computed, to the extent to which they are made as consideration for the following transactions:

  1. the use of, or the right to use, any copyright, including motion picture films; and the use of, or the right to use, in connection with television, radio or other broadcasting, films or audio or video tapes or disks, or any other means of image or sound reproduction or transmission;
  2. the use of, or the right to use any patent, trademark, design or model, plan, secret formula or process or other like property or right;
  3. the use of, or the right to use, industrial, commercial or scientific equipment;
  4. the supply of information concerning technical, industrial, commercial or scientific experience;
  5. the supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling the application or enjoyment of, any such property or right as is mentioned in letters a), b) or c) mentioned before.

Under the Treaty, royalties may be taxed in Chile or Australia, depending on the state from which they are derived. In any event, the withholding tax retention rate may not exceed:

  • 5% of the gross amount of the royalties for the use of, or the right to use, any industrial, commercial or scientific equipment; and,
  • 10% of the gross amount of the royalties in all other cases.

The same article provides that royalties are from a Contracting State when the debtor is a resident of that State. Generally, the remittance of a royalty by the debtor of a Contracting State shall be subject to withholding at the rates set out above.

We can see that when there is a treaty to avoid double taxation, the rates are more beneficial for those belonging to a treaty country, than for those that do not have a treaty in place. However, the type of royalty involved must be analyzed on a case-by-case basis to determine the applicable withholding rate.

It should be noted that when a cross-border transaction is carried out between related parties, the prices to be fixed must be considered an arm's length transaction, otherwise, you could be faced with a transfer pricing case in which the tax authority of each country will determine the real reason or price of the royalty.

Finally, it is important to consider that, for the application of the treaty, the certificate of residence of the company receiving the royalty payment issued by the tax authority of its country must be obtained.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions