Written by Camila Weinstein, Tax Associate
Introduction
In a time where fiscal responsibility and economic growth are paramount, the Chilean government has introduced the “Tax Obligations Compliance Bill” (Bulletin 16621-05), a pivotal step in ensuring a more robust and transparent tax system. Unveiled on January 29, 2024, this bill is designed to address the challenges of tax evasion, aggressive tax planning, and informal trade, while simultaneously bolstering the integrity of tax institutions. As Chile aligns its tax administration with international standards set by organizations such as the OECD and the Global Forum on Transparency, this legislation represents a crucial milestone in the country’s ongoing efforts to enhance tax revenue and fund essential public services. In this blog, we will explore the key aspects of this bill, focusing on the significant changes related to banking secrecy and the introduction of the anonymous whistle-blower provision, and discuss the implications these measures may have on taxpayers and the broader economic landscape.
Context
On January 29, 2024, the “Tax Obligations Compliance Bill” (Bulletin 16621-05) was presented in Chile. This bill aims to increase tax revenue by 1.5% of GDP, which will help fund public spending needs and priorities, including improving retirement pensions and investing in public safety. This bill is part of the “Pact for Economic Growth, Social Progress, and Fiscal Responsibility.”
The main focuses of this bill, hereinafter referred to as the “Project,” include:
- Modernising tax administration and tax and customs courts.
- Controlling informal trade.
- Addressing tax crimes such as tax evasion and avoidance.
- Tackling aggressive tax planning.
- Regularising tax obligations.
- Strengthening institutions and integrity.
- Giving more authority to the Taxpayer’s Advocate (a public body responsible for defending taxpayers who cannot afford to hire an expert lawyer).
What the bill aims to address
Ensuring compliance with tax obligations, especially those involving tax payments, is one of the main challenges for tax administrations worldwide. It is no coincidence that major actions promoted by international organisations align with this objective. For example, the BEPS (Base Erosion and Profit Shifting) action plan, conducted under the auspices of the Organisation for Economic Cooperation and Development (OECD) and the G20, involves 138 jurisdictions worldwide. Through its inclusive framework, this initiative supports international cooperation and the implementation of anti-abuse tools as essential to combat aggressive tax planning.
Chile is part of the OECD and the Global Forum on Transparency and Exchange of Information for Tax Purposes, which includes more than 160 jurisdictions seeking to implement an international standard in tax transparency and cooperation, such as banking information and automatic exchange of information between jurisdictions.
The changes aimed at combating international aggressive tax planning included in the Tax Obligations Compliance Bill align with the latest BEPS action plans and the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes.
Taking the above into consideration, on April 10 of this year, and after the Government’s recommendations, the bill was approved by the Chamber of Deputies and moved forward in its first legislative process. Specifically, by 120 votes in favour, 18 against, and three abstentions, the initiative was approved in general and continued to its particular voting. Following this, it moved to its second legislative process in the Senate. However, although the bill advanced, some important aspects were rejected. The Executive will have to discuss these issues again in the Senate, for which it should present a new package of recommendations.
The incoming changes
Among the matters approved in line with international standards are Banking Secrecy and Anonymous Whistle-blower, both modifications intended to be incorporated into our current Tax Code.
1.- Banking Secrecy: Although this matter was already regulated in the Tax Code, the bill introduced modifications to the procedure, shifting the burden to the taxpayer if they wish to oppose the lifting of banking secrecy. Additionally, a new tool is created that requires banks and financial institutions to report when a person receives a series of transfers from different individuals within certain timeframes. According to the recommendations presented, it is established as a general rule to require judicial authorisation for lifting banking secrecy, except in certain exceptional cases (such as transfer pricing audits, excess indebtedness, etc.), where special judicial authorisation will be required without the taxpayer being able to oppose it. Furthermore, the penalty for officials who breach confidentiality is increased, and it is required to delete information that does not lead to an audit or collection. Lastly, the special procedure for the taxpayer to oppose the lifting of banking secrecy was rejected. Therefore, given the inconsistencies in the current and approved articles, the Government should present recommendations to clarify this.
2.- Anonymous Whistle-blower: The bill introduces the concept of substantial collaboration and defines the anonymous whistle-blower. Among the matters approved by the Chamber of Deputies, the reward for these anonymous whistle-blowers is maintained, as its elimination was not approved by the Commission. Penalties for maliciously false reports are maintained. Lastly, a limitation is introduced that prevents lawyers who provided their services within the three years prior to the report from being considered anonymous whistle-blowers.
Discussion around the bill
While the introduction of the anonymous whistle-blower has been favourable and well-received, incorporating this previously non-existent figure in Chile and promoting the regularisation of tax offenses, the issue of banking secrecy has not been without debate. On one hand, the provision of banking information is often criticised as this information is considered protected by the constitutional guarantee of the “right to privacy” of individuals.
On the other hand, since the Internal Revenue Service (tax authority) exercises criminal action in tax matters through a report, this tool of providing banking information by banks allows this body to have more background information to investigate if these tax crimes exist. A third point of debate is the fact that even some experts do not consider privacy to be a protected legal right, since if it is not an offense, it will not reflect anything serious. The problem arises when offenses are committed, as that is when people do not want to grant access to information and are not inclined to lift banking secrecy. For example, regarding the issue of irregular political financing, it is those same politicians involved in committing the offenses who want to be protected. The law should regulate this, and thus, from their point of view, no fundamental guarantee would be affected.
Nevertheless, the incorporation and approval of these two tools have been of great relevance in continuing to position Chile within the mentioned international standards of tax compliance, which is undoubtedly a significant advance.
We will have to wait to see how the bill progresses in the Senate and eventually its approval and final text.
Conclusion
The “Tax Obligations Compliance Bill” marks a significant advancement in Chile’s commitment to fiscal transparency and international cooperation. By introducing measures such as modifications to banking secrecy regulations and the establishment of an anonymous whistle-blower mechanism, Chile is taking bold steps to strengthen its tax system and combat financial malpractices. While these changes have sparked debate, particularly concerning the balance between privacy rights and the need for greater scrutiny, the overall direction of the bill underscores the nation’s dedication to upholding global tax standards. As the bill continues its journey through the legislative process, its eventual implementation will be a critical test of Chile’s ability to navigate the complexities of tax reform in an increasingly interconnected world. The outcomes of this process will undoubtedly shape the future of tax compliance in Chile, setting a precedent for other nations facing similar challenges.
