Finance Minister Paul Martin today announced that a Convention between Canada and the Republic of Chile for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital was signed on 21 January 1998, at Santiago. The Convention was signed on behalf of Canada by the Minister for International Trade, Sergio Marchi, and on behalf of the Republic of Chile by the Minister of Finance, Eduardo Aninat Ureta.

The Convention is patterned to a large extent on the model double taxation convention prepared by the Organization for Economic Cooperation and Development. Under the Convention, a general rate of withholding tax of 10 per cent will apply to dividends paid to a company that controls at least 25 per cent of the voting power in the company paying the dividends and a rate of 15 per cent in all other cases. The rate of the branch tax will be reduced to 10 per cent. However, the Chilean "additional tax" is not considered to be a withholding tax nor a tax on branch profits for the purposes of the Convention.

The Convention also provides that a reduced rate of withholding tax of 15 per cent will apply to interest and to royalties. However, in the event that Chile concludes a tax convention with another OECD member country providing for lower rates, such lower rates, within certain limits, will automatically apply to Canada.

The Convention will enter into force after Canada and the Republic of Chile have notified each other of the completion of the procedures required for its coming into force and its provisions will have effect from the first day of January of the year following the entry into force.

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.

For further information contact Anthony Cook, Deloitte & Touche, Santiago, Chile on Tel: +56 2 638 4186, Fax: +56 2 639 1522.

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