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Chile Clarifies Treatment of Software Distribution Rights under Tax Treaty with France — Orbitax Tax News & Alerts

Chile has published Ruling No. 2622 of 16 October 2019, which clarifies the tax treatment of software distribution rights under the 2004 tax treaty with France. The ruling concerns a Chilean company acting as a commercial intermediary under an agreement with a French company for the resale of software in Chile. Under the agreement, the Chilean company acquires the software at a set price for resale to end users and is not granted any other rights in relation to the software IP, which are kept exclusively by the French company.

In the Chilean company's view, income remitted to France in relation to the software resale would be covered by Article 7 (Business Profits), which would not be taxable in Chile unless attributed to a permanent establishment. However, the Chilean tax authority provides in the ruling that it must first be checked whether the income is covered by other Articles of the treaty, such as Articles 10 (Dividends), 11 (Interest), or 12 (Royalties).

In this case, it is determined that the distribution rights fall under Article 12 (Royalties). As such, the income remitted to France would be subject to the discounted withholding tax rate provided for under Article 12 of the treaty as long as the French company is the beneficial owner.