Column by our Director, Carlos Peña, published in The Legal Industry Reviews.

One of the purposes of the Fiscal Pact promoted by the Chilean Government is to introduce rules aimed at reducing the gaps of non-compliance with tax obligations, and in that line it has been proposed the incorporation of numeral 18 to Article 8 of the Tax Code, which defines tax sustainability (“TS”) as “the set of measures that a taxpayer implements in order to promote mutual cooperation and transparency in the compliance with its tax obligations”, and then states that taxpayers may obtain an annual certification indicating that their operations and tax strategies comply with the TS.

This concept has not been mostly analyzed by the Internal Revenue Service (“SII”) and only some academics and advisors have been dedicated to its study. The reason for this may be due to the fact that it is not known, nor is there any certainty as to what actually implies being a sustainable tax company, its positive or negative consequences, nor what is the role that the SII should have within this environment of cooperation and transparency.

In effect, the definition of TS points to the implementation of measures to change the paradigm that currently exists between the Tax Administration and the Taxpayer, moving from a coercive relationship in the event of non-compliance (voluntary or not) to a relationship based on good faith, transparency, trust and mutual cooperation.

If TS parameters are implemented, the Treasury obtains an obvious advantage, since the tax strategies followed by taxpayers will be transparent and this will allow it to have more information at the time of auditing.

However, what is the other side of the coin? There is still no clarity as to the role that the SII will play in complying with the TS and how mutual cooperation will be exercised. There is also no certainty about the advantages that the taxpayer would obtain in case the TS is implemented, which is particularly important, since in tax law there is an obvious cost-benefit analysis in the adoption of decisions, and even more so when the counterpart is the Treasury.

As possible advantages (“the carrot” in the language of cooperative compliance), should be considered, for example, a reduction in the interest and amount of fines for taxes that are paid late; criminal mitigating factors in tax offenses applicable to companies; and naturally a more cooperative role of the SII in the needs of the taxpayer, such as providing a response in a short time regarding consultations on the interpretation of tax laws or tax returns. All this would help to achieve greater certainty in relation to the cooperative role that should exist in the implementation of measures aimed at the TS.

However, none of the above is in the bill under consideration, and its implementation will require a regulatory framework to provide certainty and materiality to mutual cooperation, without which the TS is left without one of its fundamental pillars.

In conclusion, although the incorporation of the TS is a step forward, there is concern that the role of the SII and the consequences that will derive from its implementation are not regulated in more detail. If this is not solved, its implementation runs the risk of remaining a good intention, with no evident results in the framework of the cooperative relationship between the Treasury and the taxpayer.

SEE THE COLUMN PUBLISHED HERE