The Concise Tax Guide Overview on Taxes in Latin America

Transcription

1 The Concise Tax Guide Overview on Taxes in Latin America 2012

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3 Table of Contents Argentina... 1 Brazil... 9 Chile Colombia Mexico Venezuela... 41

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5 Argentina: Overview on Taxes Argentina Basic Taxation System Levels First level of taxation Second level of taxation Third level of taxation Principles enforced Transfer Pricing Rules Tax Treaty Network Tax-free Reorganizations Federal National, Provincial, Municipal National Taxes: Income Tax, Value-Added Tax, Tax on Debits and Credits on bank accounts and other financial transactions, Tax on Minimum Presumed Income, Personal Assets Tax, Excise Tax, and Tax on Liquid Fuels Provincial Taxes: Gross Receipts Tax, Stamp Tax, Real Estate Tax, and Tax on Estates and on the Gratuitous Transfer of Assets (the last tax only levied by the province of Buenos Aires) Municipal Taxes: Depending on each Municipality. In general, fees for Municipal Services Substance over form Arms -length transactions Economic reality Follows OECD Different models: OECD, United Nations, others Available, subject to certain requisites First Level Taxes on Profits Income Tax Source of Income Rules Individuals living in Argentina, Corporations, Limited Liability Companies ( LLC ), Branches and Permanent Establishments of foreign entities located in Argentina ( PEFE ) Global Source Foreign Beneficiaries Argentine Source Corporations, LLCs, Branches and other PEFEs Tax Rate Dividend, Revenues distributed by LLC, Branches or PEFEs 35%. Not subject to taxation, unless the dividends or revenues distributed exceed the taxable income of the paying entity. In such case, the Baker & McKenzie 1

6 amount paid exceeding such taxable income will be subject to a 35% withholding tax. Individuals Tax rate Progressive rate from 9% to 35% Foreign Beneficiaries Payments made to foreign beneficiaries are subject to the following income tax withholding applicable on the gross amounts paid, except as noted with an asterisk. Amounts paid to foreign shipping companies for noncontainerized transportation services Amounts paid to foreign shipping companies for containerized transportation services 3.5% 7% Amounts paid to foreign reinsurance companies 3.5% Contracts that comply with the requirements of the technology transfer law. 1) Amounts paid for technical assistance, engineering or consulting services not available in Argentina in the judgment of the Argentine Transfer of Technology Authority ( INPI ) 21% 2) Amounts paid for assignment of rights or licenses for use of patents or others not contemplated in 1) above. 28% Interest on foreign 2 Baker & McKenzie

7 Argentina: Overview on Taxes credits. a) The borrower is an Argentine financial entity. b) The borrower is an Argentine individual or legal entity and the lender is a banking or financial entity, subject to supervision by a specific banking supervising authority, which is not incorporated in a low-tax jurisdiction or is incorporated in a country which has executed a treaty to exchange information with Argentina. In addition, banking secrecy, exchange secrecy or the like should not be opposed to a request for information by the respective tax authorities. c) The borrower is an Argentine legal entity (excluding banking and financial entities) or individuals and the lender does not fulfill the requirements mentioned in b) above % 15.05% 35% Salaries, fees, other 24.5% Baker & McKenzie 3

8 compensations of expatriates transitory in Argentina for no more than six months in the taxable year. Lease of personal property by foreign lessor. Rent paid on Argentine real estate property.(*) Transfer for consideration of assets located or economically used in Argentina, belonging to entities registered or located abroad.(*) Any other payment of Argentine-source income made to a foreign beneficiary not contemplated above. 14% 21% % Depreciation Fixed assets may be depreciated on a straight-line basis. Buildings: 2% per annum. Other assets: expected useful life. Capital gains 1. The sale of shares in an Argentine corporation by a foreign corporate seller is not taxable if the seller is not registered in a low-tax jurisdiction. It is debatable whether the sale of shares in an Argentine corporation by a foreign corporate seller is taxable if the seller is registered in a low-tax jurisdiction. Even if it is taxable, the Income Tax Law has not established a mechanism to pay the corresponding tax if the buyer is not an Argentine party. The sale of shares in an Argentine corporation by a foreign individual seller is not taxable. 2. The sale of quotas of an Argentine LLC by a foreign corporate seller is taxable but the Income Tax Law has not established a mechanism to pay the corresponding tax if the buyer is not an Argentine party. * Taxpayers may opt to pay taxes based on actual net income, in which case, a 35% income tax withholding shall apply on such actual net income and not on the gross amount paid. 4 Baker & McKenzie

9 Argentina: Overview on Taxes The sale of quotas of an Argentine LLC by a foreign corporate seller is taxable if the buyer is an Argentine party. It is debatable whether the sale of quotas of an Argentine LLC is taxable when the seller is a foreign individual. 3. The sale of shares in an Argentine corporation or quotas of an Argentine LLC by an Argentine corporate seller is taxable. The sale of shares in an Argentine corporation or quotas of an Argentine LLC by an Argentine individual seller that is not habitually engaged in this kind of trade is not taxable. The sale of shares in an Argentine non-listed corporation or quotas of an Argentine LLC by an Argentine individual seller that is habitually engaged in this kind of trade is taxable. It is debatable whether the sale of shares in an Argentine listed corporation is taxable when the seller is habitually engaged in this kind of trade. Consolidation of balance sheets for tax purposes Not available for corporations and LLCs Carry Forward and Carry Back Carry Forward: 5 years Carry Back: Not available Taxes on assets Personal Assets Tax Taxation rules Individuals and estates with domicile in Argentina Taxable assets located in Argentina and abroad Individuals and estates with no domicile in Argentina Certain taxable assets located in Argentina Domicile criteria for tax purposes Tax rates Expatriates are considered with domicile in Argentina inter-alia, if they have resided in Argentina for more than five years General 0.5%/ 0.75% / 1% / 1.25% For certain specific cases 2.5% In case of corporate vehicles organized in Argentina, nonresident equity holders (individuals, estates and legal entities) and resident equity holders (individuals and estates) are subject to a 0.5% Personal Assets Tax on the proportional net worth value of their equity. This tax should be determined and paid by the Argentine corporate vehicle. Similar rules apply for an Argentine nonfinancial trust. Baker & McKenzie 5

10 Tax on Minimum Presumed Income Taxation rules Tax basis Legal entities, enterprises, certain individuals, certain trusts, certain common investment funds and PEFEs in all cases incorporated or located in Argentina. General Assets located in Argentina and abroad. Reduced Banking, financial entities and Insurance Companies incorporated in Argentina will only compute 20% of their assets as taxable basis. Certain consignees of agricultural products will only compute 40% of their assets as taxable basis. Tax exemptions Tax credit The cost of assets subject to depreciation (excluding automobiles) in the fiscal year of their acquisition and in the following one. The cost of construction of civil works and their improvements, in the fiscal year of their construction and in the following one. Income tax paid in a given fiscal year will be credited against the tax liability arising from this tax for the same fiscal year. If there is no income tax to pay, the tax payment arising from this tax may be carried forward against the income tax liability corresponding to the following 10 fiscal years. Taxes on consumption Tax rate 1% Value-Added Tax ( VAT ) (i) Excise Tax (ii) Tax on Liquid Fuels Taxation rules Tax rate Taxation rules Offset rules Tax rates Tax debit and credit levied on the sale of goods located within the country or placed within the country; the rendering of most services, leases or works within the country; the rendering of most services or works outside Argentina, when such services are economically used in Argentina; and imports of goods. 21% on the net price of goods, services or works. In certain cases, the tax rate is reduced from 21% to 10.5% and in others it is increased to 27%. Levied on the first transfer of certain taxable goods. Also applies on the import of such taxable goods. Tax paid at the time of the import can be offset with the tax payable upon the subsequent first transfer of such goods in Argentina. Depending on the goods. 6 Baker & McKenzie

11 Argentina: Overview on Taxes Tax on debits and credits on bank accounts and other Taxation rules This tax applies to (i) all credits and debits made in any bank account, (ii) certain transactions carried out through financial entities, and (iii) flow of funds under certain conditions. transactions Tax rates The general tax rate is 0.6% for credits and 0.6% for debits. In some cases the tax rate is 1.2%. There are special tax rates for certain transactions. Second Level Gross Receipts Tax Stamp Tax Real Estate Tax Tax on Estates and on the Gratuitous Transfer of Assets (levied only by the province of Buenos Aires) Third Level Municipal Fees Taxation rules Tax rates Taxation rules Tax rates Taxation rules Tax rates Taxation rules Tax rates Taxation rules Tax rates Tax debit and credit levied on the sale of goods located within the country or placed within the country; the rendering of most services, leases or works within the country; the rendering of most services or works outside Argentina, when such services are economically used in Argentina; and imports of goods. Depending on each activity and jurisdiction, ranging, in general, between 1 % and 6%. Applies on the value of taxable documents implementing the creation, amendment and/or extinction of rights and/or obligations. Depending on each document and jurisdiction, ranging in general, between 1 % and 4%. Applies to the fiscal value of the real estate Depending on each jurisdiction Applies on any wealth increase obtained as a consequence of any gratuitous transfer, comprising or affecting goods/properties located in the province of Buenos Aires and/or for the benefits of individuals or corporations domiciled therein. Depending on the degree of the family relationship and the amount transferred, ranging from 4% to %. Applies on the provision of Municipal services and activities conducted by tax payers. Depending on each activity and jurisdiction. Baker & McKenzie 7

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13 Brazil: Overview on Taxes Brazil 1 Basic Taxation System Entities responsible for the enforceability of Tax Law Decentralized on three levels: The Federal Government, States and Municipalities have different levels of jurisdiction. Federal, State and Municipal Governments Main Taxes Federal Taxes Import Duty - II; Export Tax - IE; Individual and Corporate Income Tax IRPF and IRPJ; Federal Excise Tax - IPI; Financial Transactions Tax - IOF; Rural Land Tax - ITR; Social Contribution on Net Income - CSLL; Social Contribution on Gross Revenues - PIS and COFINS; Social Contribution on Imports PIS-Import and COFINS-Import; Social Security Contribution; Contribution for Interventions in the Economic Domain CIDE State Taxes Tax on Transfer of Assets by Donation or Causa-Mortis - ITCMD; State Value-Added Tax - ICMS; Vehicle Tax IPVA Municipal Taxes Municipal Real Estate Property Tax - IPTU; Real Estate Transfer Tax - ITBI; Services Tax ISS; Municipal fees for public services in general. Federal Taxes Foreign Trade Taxes Import Duty (II) Taxation rules Tax rate Tax is levied at customs clearance on imported goods and applied on the CIF value. Depending on the products tariff classification, under the Harmonized System of Classification of Goods as adopted under Brazilian legislation; 2 as a rule, an ad valorem rate shall apply. Export Tax (IE) Taxation rules Tax is levied on the exportation of certain goods and generally applied on FOB value to a limited list of products (e.g., tobacco products, leather). 1 This is intended for general information purposes only and may not be used in lieu of specific legal advice. This summarizes the most significant taxes that affect businesses in Brazil. 2 The International Convention on Harmonized System of Goods Designation and Codification was introduced into the Brazilian Legal System through Decree No. 97,409/88. As of 1 January 2007, Resolution of the Foreign Trade Chamber ( CAMEX ) No. 43/06 amended the tariff classification applicable to certain products. Baker & McKenzie 9

14 Tax rate Depends on the tax classification code under the Harmonized System of Classification of Goods. Currently, the export tax applies to a very limited category of products as the government adopts a policy of fomenting exportation from Brazil. The maximum rate may be increased up to 150%. 3 Federal Excise Tax (IPI) IPI Taxation rules Offset rules Tax rate Tax is levied at each production stage of manufactured products and on the importation of manufactured products. Tax is generally applied on the transaction value and does not apply to products to be exported. Tax paid upon the acquisition or importation of raw materials and intermediary products, parts, components and packing materials can be offset on subsequent transactions. The net effect is a tax on the value-added at each stage of production. Tax rates vary according to the essentiality of the product. Luxury goods have a higher rate (e.g., for perfumes, the current maximum rate is 42%). Products are classified in accordance with the Harmonized System of Classification of Goods. Tax on Financial Transactions IOF (Financial Transaction Tax) General rules This tax applies to specific transactions related to credit, exchange, insurance, securities, and transactions with gold when considered by law as a financial asset or exchange instrument (gold destined to the Financial Market). This tax is utilized as an instrument of financial policy. Tax on Credit Transactions (IOF-Credit) IOF-Credit Taxation rules Tax rate The tax is levied on credit transactions performed by financial institutions and on cash loans between non-financial companies, or a non-financial company and individuals. The tax rates vary according to the credit transaction. The tax rate for loan transactions per day is % for loans granted to legal entities and to individuals. Moreover, the legislation introduced an additional rate of 0.38% levied over the principal amount of the loan regardless of the term for repayment. 3 Law No. 9,716/98 authorizes the Executive Branch to increase or reduce the rate of the export tax. Nonetheless, the increase cannot exceed five times the 30% rate established in the mentioned legislation (i.e., 150%). 10 Baker & McKenzie

15 Brazil: Overview on Taxes Tax on Exchange Transactions (IOF-Exchange) IOF-Exchange Taxation rules The tax can be levied on the exchange transaction value. This can be imposed on exchange transactions effected to remit payments abroad for services, including technical assistance fees and royalties for the use of trademarks and patents. Tax rate The rate can be settled by the government up to 25%. Nonetheless, the tax rate of the IOF levied on exchange transactions is reduced to 0.38% in most cases, but few exceptions may apply (as provided by Decree No. 7,412 of Dec. 30, 2010), for example: (i) payment of dividends and interest on equity to foreign investors is subject to a 0% rate; (ii) the investment made by nonresidents in the Brazilian financial and capital markets is subject to a general rate of 6% (some specific transactions performed after Dec. 1 st, 2011 are subject to a zero rate); (iii) exchange transactions made by credit card companies in order to cover expenses made by their clients abroad are subject to the IOF at a tax rate of 6.38%; (iv) foreign loans contracted with a term for repayment of up to 720 days are subject to a 6% rate. Tax on Insurance Transactions (IOF-Insurance) Some exemptions also apply, as in relation to the import of goods into Brazil. IOF-Insurance Taxation rules Tax rate Insurance transactions subject to this tax include life insurance, personal and labor accident insurance, properties insurance and other non-specified insurances. Tax is levied on the premium amount. Tax rates vary according to the type of insurance, and they cannot be higher than 25%. Life insurance transactions are subject to a 0.38% rate. The IOF Regulation lists several types of insurance transactions that are subject to a zero rate, such as the export credit transactions and international transport of goods. Other non-specified insurance premiums are subject to a 7.38% rate. Tax on Securities Transactions (IOF-Securities) IOF-Securities Taxation rules Tax is levied on transactions with securities (acquisition, assignment, renegotiations or payment for the liquidation of the securities). 4 However, tax is effectively due on a few securities transactions because there are tax exemptions or the rate is reduced to zero. 4 The Financial Transactions Tax charged in connection with credit operations shall exclude the taxation due to securities operations (and vice versa) when both are related to the same transaction. Baker & McKenzie 11

16 Tax rate The maximum tax rate applicable is 1.5% per day on the amount of the transaction with securities. Tax on Transactions with Gold Financial Asset or Exchange Instrument IOF (Financial Transaction Tax) Taxes on Income Taxation rules Tax rate The tax is levied on the first transaction performed by a financial institution. 1% on the value of the gold transaction. Source of Income Rules Individual Resident individuals or corporations, and any other kind of entity or de facto entity, foreign subsidiaries of Brazilian corporations, branches and other permanent offices of foreign entities Foreign beneficiaries Generally due on worldwide income. 5 Any income and capital gains received from a Brazilian source. Taxation rules are different for residents and nonresidents. 6 Income Tax Individual Income Tax (IRPF) Residents Taxation rules The tax is based on income received during the calendar year. Withholding taxes apply to certain income received during the year, i.e., salaries, rentals, etc. An annual tax return is due by April of each year. Tax rate Progressive rates from zero to 27.5%, which vary depending on the specific bracket of the individual s net overall taxable income. Income Tax nonresidents Taxation rules This is levied on income received by a nonresident from a resident source, such as capital gains and work remuneration, service fees, payments for interest, copyrights, royalties, rentals, etc. It is noteworthy to mention that a new legislation 5 There are two different taxes that apply to adjusted net income of entities: the Corporate Income Tax and the Social Contribution on Net Income. Both are calculated on worldwide income. 6 In general, a Brazilian national is automatically a resident while domiciled in Brazil or, if not, upon his or her election to be treated as a resident for tax purposes. A non-brazilian national, on the other hand, is considered a resident depending on the type of visa held. Foreign individuals under temporary visas and without employment relations will be deemed residents for tax purposes after spending 183 days in Brazil, within any 12-month period from the time of entry. However, foreigners who enter into Brazil with authorization to work are treated as residents for tax purposes from the time of entry, even if under temporary visa. The same is applicable to foreigners holding permanent visas that are also treated as residents for tax purposes upon arrival. 12 Baker & McKenzie

17 Brazil: Overview on Taxes has introduced the possibility of taxing the capital gain derived from the disposition of assets located in Brazil even if it was carried out between two nonresident parties. The tax should be withheld when the income is paid, credited, and used on behalf of or effectively remitted to a nonresident, whichever occurs first. The tax is generally based on gross payments (i.e., without any deductions) and is due when the funds are credited, made available, used on behalf of, or effectively remitted to the nonresident, whichever occurs first. Tax rate When specific tax reductions 7 or tax treaties do not apply, the withholding income tax varies from zero to 27.5% for Brazilian-source income (e.g., salaries, wages, services, etc.) while capital gains are subject to the 15% withholding income tax rate. Dividends earned after 1 January 1996 are not subject to the withholding income tax when distributed. Upon distribution, profits and dividends prior to 1996 are subject to the withholding income tax at the rates effective in the year the profits had been generated. As of 1 January 1999, most payments made to a nonresident beneficiary domiciled in low tax jurisdictions (countries listed on Normative Ruling No. 1,037/2010 issued by the Federal Revenue Services) are subject to a 25% withholding tax. Corporate Income Tax 8 Corporate Income Tax (IRPJ) (Brazilian branch offices, agencies or representative offices of companies domiciled abroad) Taxation rules Tax rates Surtax Payment methods The tax is due on an adjusted book income. 9 The adjustments are generally related to timing and permanent differences, such as eliminating equity adjustments for investments in affiliates, profits and dividends from investments valued by the cost method, adjustments for current and previous years nondeductible provisions, etc. Basic rate: 15% on taxable income Surtax of 10% on the annual income in excess of R$240,000 Since 1996, taxpayers may opt to calculate the IRPJ on a quarterly or annual basis. If it is calculated quarterly, the payment must be made by the last day of the following month of the quarter and will be considered definite. Therefore, the payment in April, for the tax calculated on the first quarter, indicates an irreversible option valid for the whole calendar year. If the IRPJ is calculated annually, taxpayers must perform monthly anticipations, and the option for the annual method is made through payment until the end of February. The option is exercised through an advance payment to be repeated every month thereafter. Advance payments are calculated either on an estimated basis (percentage of gross revenues 7 There are a few transactions subject to zero withholding tax, e.g., certain freight and rental of foreign vessels and airplanes, interests and expenses related to certain export financing mechanisms. 8 See Social Contribution on net Income. Corporate Income Tax and Social Contribution Tax are currently charged on profits at a combined rate of 34%. 9 Entities with annual revenue below certain limits (currently approximately US $26 million R$ 48 million) may opt to pay these taxes based on a presumed amount of profit. Baker & McKenzie 13

18 of previous month) or on the actual accumulated profits. For most companies, the monthly estimated income corresponds to 8% of the total monthly gross revenues. When the annual method of calculation is adopted at the end of the tax year, entities must either pay or request reimbursement for the difference between the amount paid monthly and the amount calculated on the annual income. Offset rules Tax losses generated in a given tax period can offset the income tax due in subsequent periods. Tax losses carried forward can offset up to 30% of taxable income of a given tax period (i.e., for each R$1.00 of taxable income, R$0.70 must be subject to taxation, regardless of the existing amount of NOLs). Those carried forward losses do not expire. Social Contribution on Net Income Social Contribution on Net Income (CSLL) Taxation rules Tax rates Deduction and offset rules Payment methods The tax is levied on the adjusted book income before taxes. For instance, adjustments related to timing and permanent differences by eliminating equity adjustments for investments in affiliates, profits and dividends from investments valued by the cost method, and adjustments on current and previous years nondeductible provisions, etc. This tax is a true corporate income tax surcharge at 9% since it is levied separately from the corporate income tax as it is paid to the Social Security System, and not to the Federal Administration. From 1 May 2008, financial institutions 10 and private insurance companies will be subject to the incidence of the CSLL at an increased tax rate of 15%, as provided by Law No. 11,727/08. The CSLL used to be deductible from its own tax basis and for corporate income tax purposes. However, it is no longer deductible as of Tax losses may be carried forward indefinitely, but can offset only up to 30% of the tax liabilities in subsequent tax periods. Similar to the IRPJ, taxpayers may opt to calculate the CSLL on a quarterly or annual basis (provided that the CSLL should be paid together with the IRPJ on the same basis). Foreign Tax Relief A foreign tax credit system is available to companies domiciled in Brazil for foreign taxes paid on income earned abroad. The amount of the credit is the lower limit of the total amount of Brazilian Corporate Income Tax and Social Contribution Tax paid on the same income and the actual foreign tax paid. 10 Legal entities defined as financial institutions subject to CSLL at a rate of 15% are listed on Complementary Law No. 105/ Baker & McKenzie

19 Brazil: Overview on Taxes Contribution to Development of Technology Contribution to Development of Technology (CIDE) Tax rules Tax rate This is a contribution 11 due by Brazilian companies which acquire administrative services, licenses for the use of rights, acquire technological knowledge (know-how), or are parties to agreements which imply the transfer of technology, executed with nonresidents. The contribution is owed only when the other contracting party is a nonresident. Currently, the CIDE is also levied on technical and administrative services (and similar) that do not involve transfer of technology. 10% of the amount paid, credited, delivered, used or remitted to the nonresident beneficiary. Provisional Tax on Banking Transfers Provisional Tax on Banking Transfers (CPMF) Taxation rules Tax rate Since 1 January 2008, CPMF is no longer in force. N/A Social Contributions on Gross Revenues and on Importation of Goods and Services (PIS/COFINS and PIS/COFINS-Import) COFINS Taxation rules The tax is levied on gross revenues of most entities. It is due monthly on virtually all revenues, though there are a few exceptions (e.g., sales of fixed assets, export revenues). As of February 2004, the non-cumulative system was introduced which entitled the taxpayer to register corresponding credits on certain transactions such as: (i) acquisition of goods for resale; and (ii) acquisition of raw materials, machinery, and equipment to be used in the manufacturing process or in the rendering of services, among others Tax rate 7.6% on gross revenues. PIS Taxation rules The tax is levied on gross revenues of most entities and is due monthly on virtually all revenues, save for a few exceptions (e.g., sales of fixed assets, export revenues). As of December 2002, the non-cumulative system was introduced which entitled the taxpayer to register corresponding credits on certain transactions such as: (i) acquisition of goods for resale; and (ii) acquisition of raw materials, machinery, and equipment to be used in the manufacturing process or in the rendering of services, among others. 11 This contribution is effective as of 1 January As of 1 February 2004, the COFINS rate was increased from 3% to 7.6% and the non-cumulative system was implemented to avoid the accumulation of this contribution through the supply chain. 13 The new system and the 7.6% do not apply to (i) taxpayers that are already subject to the one-time COFINS levy, such as the pharmaceutical and automotive industries; (ii) immune legal entities; (iii) legal entities subject to the income tax based on the presumed or arbitrated profit; and (iv) financial institutions, health plan operators, private pension entities and security companies, among others. To the legal entities subject to the income tax based on the presumed or arbitrated profit, the rate, for instance, is 3%. Baker & McKenzie 15

20 14 15 Tax rate 1.65% on gross revenues. PIS/COFINS Import Rural Land Tax Rural Land Tax (ITR) State Taxes Taxation rules Tax rates Taxation rules Tax rates Since May 2004, PIS/COFINS have been levied on imported products and services. The contributions are due upon the entry of foreign goods into Brazil, and in the payment, crediting, delivery, use or remittance of amounts to foreign residents or domiciled abroad as payment for services supplied. According to the noncumulative system, the importer may register PIS/COFINS credits as long as they are provided under the applicable legislation. Such taxes will be calculated on the CIF value, plus ICMS and PIS/COFINS Import themselves. Generally 1.65% for PIS-Import and 7.6% for COFINS-Import. The tax is levied on real estate properties in rural zones. Progressive rates from 0.03% to 20% on the value of the land. Progressive rates are based on the size and economic use of the land. Tax on Transfer of Assets by Donation or Causa-Mortis - ITCMD 16 Taxation rules Tax rate 17 Tax is levied on the transfer of movable assets and real estate by donation or descent ( causa-mortis ). Rates and tax benefits may vary from state to state. Currently, in the States of São Paulo and Rio de Janeiro, the ITCMD levies a 4% rate on the appraised value of the movable asset, real estate or transmitted rights. Vehicle Tax IPVA Taxation rules The tax is levied on the property of vehicles. 14 As of 1 December 2002, the PIS tax rate was increased from 0.65% to 1.65% and the non-cumulative system was implemented in order to avoid the accumulation of this contribution through the supply chain. 15 The new system and the 1.65% do not apply to (i) taxpayers that are already subject to the one-time PIS levy, such as pharmaceutical and automotive industries; (ii) immune legal entities; (iii) legal entities subject to the income tax based on the presumed or arbitrated profit, and (iv) financial institutions, health plan operators, private pension entities and security companies, among others. To the legal entities subject to the income tax based on the presumed or arbitrated profit, the rate, for instance, is 0.65%. 16 According to the Brazilian Federal Constitution, States have jurisdiction to establish that the Tax on Transfer of Personal Properties ( ITCMD ) can be levied on the transfer of movable assets and real estate by donation or descent ( causamortis ). 17 Rates and tax benefits may vary from State to State. 16 Baker & McKenzie

21 Brazil: Overview on Taxes Tax rates 18 Depends on the type and legal classification of the vehicles. The tax basis is the vehicle value. Tax on Consumption of Goods and Services State Value- Added Tax (ICMS) Taxation rules Offset rules Tax rate Tax is levied on the importation of goods into Brazil, on any sale or transfer of goods within Brazil, and on certain communication and transportation services, even if the importation or transfer of goods or rendering of services is initiated abroad. It does not apply to transactions with products or services destined to exportation. Tax paid on import, sale or transfer of goods or rendering of services shall be offset at the subsequent transfer of goods or rendering of services. Rates vary depending on the kind of goods or services, and on the State where the transaction takes place. In most Brazilian states, the ICMS rate is 17%. In São Paulo, the current ordinary rate applicable is 18% for transactions with products or services, 12% for transportation services, and 25% for communications services. Municipal Taxes Municipal Services Tax Services Tax (ISS) Taxation rules Tax rate 19 Tax is levied on the rendering of services specifically listed, and services are not subject to the State value-added tax. Tax is also levied on the importation of services. May vary from 2% to 5%, depending on the kind of service, and the Municipality in which the party rendering the services is located. Municipal Tax on Urban Real Estate Property 20 Municipal Tax on Real Estate Property (IPTU) Taxation rules Tax rate 21 Annual tax levied on the appraised value of the urban real estate. In São Paulo, the IPTU is levied progressively based on the fair market amount of the real estate property. Tax on Transfers of Real Estate Properties ITBI Taxation rules Tax is levied on the onerous transfer of real estate properties and interest rights. This does not apply to real estate transfers pursuant to corporate mergers and certain contributions. 18 Rates and tax benefits may vary from state to state. 19 Rates and tax benefits may vary from municipality to municipality. 20 Rates and tax benefits may vary from municipality to municipality. 21 The rate of Municipal Real Estate Property Tax may be progressive, according to the Brazilian Federal Constitution. Baker & McKenzie 17

22 Tax rate Tax rate may vary according to the actual value of the transaction or the appraised value of the property. In the Municipality of São Paulo, as a general rule, a fixed rate of 2% applies. Tax authorities also are allowed to update the appraised value of the real estate through market researches. 18 Baker & McKenzie

23 Chile: Overview on Taxes Chile Basic National Taxation System, Excepting Municipal Taxes National Taxes Municipal Tax Income Taxes, Value-Added Tax, Stamp Tax, Estate and Donation Tax, Real Estate Tax, Mining Royalty Tax. Municipal Taxes National Taxes Income Taxes. Integrated System: General. The Chilean Income Tax Law (CITL) combines two principles. Individuals and juridical entities resident or domiciled in Chile are subject to taxation on their worldwide income regardless of whether the income comes from a Chilean or foreign source. On the other hand, individuals and juridical entities, neither resident nor domiciled in Chile, are subject to taxation in Chile only on Chilean-source income. However, foreign resident individuals pay taxes solely on their Chileansource income during the first three years after entering the country. The Regional Director of the Internal Revenue Service (IRS) may extend said term on an exceptional basis. The Chilean income taxation is progressive and integrated. Chile contains an imputation system. To promote savings and investment, business income taxation is divided into two levels: First, at the business entity or corporate level and in the year in which the income is generated, a 18,5% yearly tax rate is assessed on the entity s net taxable income determined on an accrual basis in accordance with the Income Tax Law and full accounting records (except for limited cases in which taxation is based on presumed income, and accordingly, no accounting records are needed to evidence the taxable base) 22. The 18,5% Corporate Tax is creditable against the amount due based on second level taxation. Second, taxation at the second level takes place only when business profits are distributed to the ultimate business owners (resident individuals who are partners or shareholders of the business entity, are subject to Surtax, whereas nonresident individuals or foreign juridical entities that are partners or shareholders are subject to Withholding Tax). The effective rate payable on profits remitted abroad to a nonresident partner or shareholder, as the case may be, is normally 35% (of which 18,5% is payable at the time profits accrued at the corporate level with the balance [35%, less 18,5% credit] due on the payment, remittance or profits overseas). According to this structure, in addition to the 18,5% Corporate Tax, there are no other income taxes applicable to undistributed business profits as well as to business profit distributions made by a business entity to another business entity which does not qualify as the ultimate business owner, thus avoiding an internal double taxation. Further, under some circumstances, the ultimate business owner may be entitled to a tax deferral on profit remittances that are reinvested in another business entity within 20 days. Consistent with this structure, non-deductible expenses and amounts that are deemed a covert profit distribution to the ultimate business owners are penalized with second-level taxation or subjected to a special 35% tax in the case of Chilean corporations. In addition, mining operations are subject to Mining Royalty payments, as of 1 January Pursuant to Article 64 bis of the CITL as amended by Act No.20,026 of 2005 and by Act No of Pursuant to Law N 20,455 of 2010, the First Category Tax rate of 17% was increased to 20% for year 2011; 18,5% for year 2012 and should return to the normal 17% rate as from January Baker & McKenzie 19

24 First Category or Corporate Tax: Levied on income generated by real estate, securities and business activities in general (industry, trade, etc.) and on income of any origin, nature or denomination not expressly levied under other categories or otherwise tax-exempt. Activities performed primarily through physical or intellectual effort rather than through capital are excluded from this Corporate Tax and subject to the Second Category Tax. In other words, the First Category Income Tax affects business income arising mainly from capital, whereas the Second Category Income Tax affects income arising mainly from personal services rendered by a resident or domiciled individual, such as an employee, technician, independent worker, Board Director or advisor. The applicable rate of the First Category Tax is 18,5%24. As mentioned above, Chile has a fully integrated tax system allowing this corporate tax to be credited against the Surtax, a personal income tax payable by resident investors when business profits are withdrawn or to be credited against the Withholding Tax, in the case of foreign investors when profits are remitted overseas. First Category Taxpayers need to be enrolled before the IRS, to keep full accounting records, to substantiate the operations with duly stamped invoices and to comply with their tax obligations. Principles Enforced The strict test for deducting expenses the use of stamped documents to sustain operations pertaining to arm s-length transactions. Transfer Pricing Rules Follows the OECD model. Tax Treaty Network Follows the OECD model but in some matters, it follows the UN model. Treaty with Argentina based on Decision 40 of the Andean Pact. 24 Tax-Free Reorganizations Available, subject to certain requisites. Payroll Tax or Second Category Tax: Levied on resident employees wages with a progressive rate ranging from 0% to 40% to be withheld by the employer. Personal Income Tax or Surtax: Levied exclusively on Chilean residents aggregate yearly income from Chilean and/or foreign sources. Levied with a progressive rate ranging from 0% to 40% identical to that of the Second 24 Chile has Double Tax Treaties (DTTs) currently in force with Argentina, Belgium, Brazil, Canada, Colombia, Croatia, Denmark, Ecuador, France, Ireland, Malaysia, Mexico, New Zealand, Norway, Paraguay, Peru, Poland, Portugal, South Korea, Spain, Sweden, Switzerland, Thailand and United Kingdom,. Chile has also signed TTs with Australia, Russia, and the United States, which have not been submitted to Congress approval. Finally, Chile is currently negotiating DTTs with Austria, China, Cuba, Czech Republic, Finland, Hungary, India, Italy, Kuwait, the Netherlands, South Africa, Switzerland, Uruguay and Venezuela. 20 Baker & McKenzie

25 Chile: Overview on Taxes Category Tax. As a result of the Integrated Chilean Tax System, in case Corporate Tax is paid on the income distributions subject to this tax, the 18,5% paid on such profit at the corporate level is credited against the Surtax. Withholding Tax: General. Withholding Tax of 35% is payable by nonresident individuals and entities, on Chileansource business income withdrawn from Chile, paid from Chile, made available for or remitted abroad. This tax is withheld by the payer entity. The 18,5% Corporate Tax effectively paid is credited against the Withholding Tax due. As a result, the effective rate payable on foreign investment profits remitted abroad is normally 35%, with 18,5% payable at the time profits are earned (at the corporate level) and the balance due upon payment overseas. Particular. Withholding Tax (normally at the rate of 35%) is assessed on most payments made abroad. The most relevant rates are the following: 35% with respect to profit or dividend withdrawals from companies and other permanent establishments existing in Chile. In case Corporate Tax is paid on the above income, this amount is credited to the Withholding Tax payable. However, the rate is 42% for foreign investors who previously opted for the tax invariability alternative under Decree Law % on the gross amounts paid for the use of trademarks, formulas, know-how and similar items, without any deduction. A reduced 15% rate applies to patents; utility models; industrial drawings and designs; layout-design (topographies) of integrated circuits; new vegetal varieties; and computer programs or software. However, if the payment is to a related party or to beneficiaries either domiciled or residing in a tax haven, the applicable rate is 30%. 35% of interest payments made abroad. The rate goes down to 4% in the case of credits extended abroad by international banks or financial corporation balances on the price for imported goods, bonds or debentures. However, when the debtor of foreign credits is a financial corporation incorporated in Chile who uses these funds to extend credits abroad, no tax is applied to the interest payments made to the foreign lender. Recently some thin capitalization rules were enacted for the purpose of restricting the application of the 4% rate in cases of excess related indebtedness. 35% of service fees paid abroad. There are some exceptions. 1.75% of lease payments made by lessees under certain capital asset leases of imported goods. 15% on engineering and technical work as well as professional and technical services rendered in Chile or abroad. However, if the payment is to a related party or to beneficiaries either domiciled or residing in a tax haven, the applicable rate is 20%. 20% on compensation paid to foreign individuals performing scientific, cultural or sportive activities in Chile. Section 21 (1) Nondeductible Expenses: (2) Tax Penalty: A sole tax of 35% is paid by stock corporations on non-deductible expenses. Disbursements made by other entities that are deemed a non-deductible expense at the corporate level are added to the tax base of the corporate tax and deemed a covert profit distribution affecting the partner s Surtax or Withholding Tax, as the case may be. Baker & McKenzie 21

26 Value-Added Tax: Value-added tax (VAT), currently at a 19% 25 rate, applies on the sale of movable goods made on a customary basis, certain types of real estate and some services, regardless of whether it performed on a customary basis or not, including industrial, commercial and construction services as well as most local leasing and licensing arrangements. The tax extends to the import of goods. Importing capital goods that form part of an investment under the Foreign Investment Statute are exempt if they are included in a list contained in a Supreme Decree of the Ministry of Economy. The export (of goods and some services) is entitled to the zero rate mechanism when exports are exempt, but remains entitled to recover amounts paid with respect to acquisitions and services deemed as exports. VAT paid on the purchase of goods and services used to produce goods and services which are subject to VAT (inputs) may be credited against VAT due on subsequent sales or services subject to VAT (outputs). VAT credit can be carried forward indefinitely until completely absorbed by future debits. Excess VAT credit accumulated over a period of six consecutive months or more may be reimbursed by the Treasury, provided such excess pertains to the acquisition of fixed assets. Stamp Tax: Levied on documents evidencing a cash credit transaction (i.e., that in which one party delivers cash and the other becomes obliged to deliver it back on another occasion), bills of exchange, promissory notes, import credit documents and others. After a tax cut enacted during 2010, the general rate now is 0.05% per month or a fraction thereof between the date of the document and the expiry date. The aggregate rate may not exceed 0.6%. Negotiable instruments payable on demand are subject to a sole rate of 0.25%. Estate and Donation Tax: Levied on decedents estates and donations. Levied at a progressive rate ranging from 1% to 25%. A 20% tax surcharge is applied when the beneficiary and the decedent or donor are not immediately related by blood. If they are distant relatives or are not related at all, the tax surcharge is 40%. Real Estate Tax: Levied on farming and non-farming real estate, at an annual rate of 20 per 1,000, payable in four quarterly installments. The rate is applied on the fiscal valuation determined by the Chilean IRS. 26 This rate is subject to certain changes, depending on the location of the real estate and some exemptions exist. Chilean Platform Company Act No. 19,840: Act No. 19,840 created a special tax regime under which foreign investors incorporating a Chilean corporation (the Vehicle) may use Chile as a platform to invest in the region. The Vehicle is deemed a nonresident, non-domiciled entity. The foreign source income, accrued by the Vehicle non-profit distributions, is not subject to Chilean Taxation. The Vehicle is deemed a nonresident entity and subject to Chilean taxes only on Chilean source income. Therefore, profits generated abroad and distributions of foreign source income to the foreign shareholders are not subject to any Chilean tax 25 Please note that Act No. 20,120 has made the VAT rate increase permanent. 26 In 2006, a valuation process took place. 22 Baker & McKenzie

27 Chile: Overview on Taxes other than the Municipal Tax. The Vehicle must keep full accounting records in the foreign currency of its capital, and obtain registration with the Chilean IRS, which in turn requires broad and periodic disclosure of information. The investments must be made in companies incorporated and formally existing abroad in a country that is not listed as a low-tax jurisdiction. The Vehicle s bank accounts are not entitled to the banking secret. The Vehicle is subject to the Municipal Tax. Mining Royalty Tax The Mining Royalty Tax (called Impuesto Específico a la Actividad Minera ) is levied on the annual operational income derived from a metal mining activity obtained by a mining operator. This tax applies as a function of the size and profitability of the mining operator. The law of 2010 introduced a new Mining Royalty. Old Mining Royalty: Mining operators with annual sales below the equivalent of 12,000 metric tons of fine copper are not required to pay this tax. Mining operators whose annual sales have an equivalent value between 12,000 and 50,000 metric tons of fine copper pay the tax at progressive rates from 0.5% and 4.5%. Mining operators with annual sales exceeding the equivalent value of 50,000 metric tons of fine copper (large mining operators) will be subject to a progressive mining tax rate between 5% and 14% of the taxable operational income. The specific applicable rate in these cases will be determined by reference to a profitability test called mining operational margin. Large mining operators with a mining operational margin of 85% or more will be subject to a 14% mining royalty tax rate; operators with a mining operational margin of 35% or less will be subject to a 5% mining royalty tax rate; and those with a margin of between 35% and 85% will be subject to a mining royalty tax rate between 5 and 14%. The value of a metric ton of fine copper is calculated according to the average value at the London Metal Exchange. The Old Mining Royalty Tax regime applies since 01/Jan/2006 and will continue to apply to mining operators under the following situations: (a) mining operators in production stage with existing DL 600 contracts, albeit with a 3-year transitional period under a special regime; (b) mining operators in pre-operational stage with existing DL 600 contracts with a mining royalty stability election; and (c) mining operators in pre-operational stage with a DL 600 application filed up until 31/Aug/2010. New Mining Royalty: it is substantially based on the old regime (rate and taxable basis are similar). For example, the old Mining Royalty Tax regime contemplated rules allowing the accelerated writeoff of certain exploration expenditures, which the new Mining Royalty Tax regime has not amended. Therefore, exploration costs incurred after the deposit discovery are treated as start-up or development costs, i.e. deductible in full or deferred over a period not exceeding 6 years, at the election of the taxpayer. The period is counted from the year in which the costs are incurred or that of commencement of production. The new Mining Royalty Tax regime establishes that in the case of large mining operators (i.e. Mining Operators whose annual sales exceed the equivalent of the value of 50,000 metric tons of fine copper), their applicable rate will be a progressive rate between 5% and 14% of the taxable mining operational income. The applicable rate in these cases will be set as a function of a profitability test called mining operational margin. In particular, large mining operators with a mining operational margin of 85% or more will be subject to a 14% mining royalty tax rate; large mining operators with a mining operational margin of 35% or less will be subject to a 5% mining royalty tax rate; and large mining operators with a mining operational margin of between 35% and 85% will be subject to a mining royalty tax rate between 5 and 14%. Mining operators with annual sales below the equivalent of 12,000 metric tons of fine copper are exempt. Baker & McKenzie 23