Ruling under Chile-UK double tax treaty on permanent establishment and entitlement to treaty benefits
Source: by Montt y Cia SA via International Law Office 7 April 2017
“A taxpayer requested a ruling from the Chilean tax authorities on whether a branch of an entity resident in a third state should be considered a UK resident for the purpose of claiming the benefits provided under Article 7 of the Chile-UK double tax treaty.
The taxpayer explained that it was evaluating an investment through the purchase of shares abroad. In that context, to protect against future currency fluctuations, it had entered into a contract with a foreign entity resident in a third country (the United States) through its branch in the United Kingdom. According to the information provided by the taxpayer, the branch qualified as a permanent establishment in accordance with the US-UK double tax treaty and was subject to corporate tax in the United Kingdom on the income attributable to it.
However, the Chilean tax department considered that the branch did not qualify as a ‘resident person’ for the purposes of applying the Chile-UK double tax treaty as:
- the person who had invoked the treaty’s benefits was a financial institution resident in the United States, with which Chile has no tax treaty, since its branch in the United Kingdom was only an extension of the activities of the US person in the United Kingdom; and
- income attributable to the branch was taxed only in the United Kingdom on the basis of the link between the United Kingdom and the activity carried out there by a US resident, because such activity had exceeded a certain threshold established in the applicable tax treaty. The branch was not subject to worldwide taxation by reason of domicile, residence or place of management.”