FEM | Double taxation treaties to attract investment: Chile ahead of Peru, by how much? | IDC | International Agreements | economy

Although the Ministry of Economy and Finance (MEF) has already announced that it will start negotiations from August CDI China hopes to conclude a similar deal with Britain this year, Chile The country’s Senate recently approved the implementation of its treaty with the United States. If it goes into effect, Chile will have an agreement with 37 countries, including superpowers such as China, the UK and Spain.

To better understand the purpose of these CDISpoke with gestion.pe Alfredo Gildemeister Ruiz HuidobroProfessor of Law at the Universidad del Pacifico and expert in tax matters.

read more: Peru to start talks with China to eliminate double taxation

“The Peruvian government has always been afraid of treaties, I would say more out of ignorance than anything else. Double taxation agreements are international agreements that reduce the tax impact. This is a very good thing, because obviously an investor, instead of paying twice, pays income tax only once”. said the professor.

“A Spaniard who invests in Peru pays income tax only in one country, either Spain or Peru by treaty, instead of in his home country. That’s the idea for a matter of tax justice; Because of lower costs, an investor does not like to pay double taxes, which happens all over the world”, He explained that there are three models of CDI OECD (By Residence), The Andean Treaty (by source) and him (Halfway between the above two).

Alfredo Gildemeister He suggested that the MEF should have a permanent commission to negotiate these agreements, as well as an area to study and train officials on the matter. “This is not trivial because the investment depends on it, and as a lawyer I have seen many investors asking if there are double taxation treaties in Peru. If we are not with their countries they want to go to Argentina, Brazil or Chile”.

What is the benefit of FTA if we don’t have an agreement with US and China at the same time.

Alfredo Gildemeister

He added that these agreements are essential to provide legal protection for foreign investments in Peru. “No one with half a brain is going to come to a country that doesn’t even have a double taxation agreement, the rules change every day or week, or governments that change presidents like we change shirts or ministers like someone who changes their underwear. It’s pure common sense, it’s nothing legal. How am I going to invest 30-40 million dollars in mining in a country, for example if they change my mining minister every two weeks in a country”, said the teacher.

Guildmaster He also mentioned a CDI that Peru signed with Spain ten years ago, but it did not work because the congressmen of that time did not know about tax matters. “Peru signed a treaty with Spain. But these treaties must be approved and ratified by the Republican Congress. After the agreement went to the Congress, it went to the Economic Commission and after a while I asked what happened to the agreement and why it was not approved. I remembered. “Because they didn’t understand it, they archived it. Only in Peru, terrible. Now it’s time to negotiate anew, everything again “, lamented GuildmasterAdviser to Congress on some commissions.

read more: Chile has reached a landmark agreement with the United States that it has sought for a decade

“Good Times” Between Chile and America

Gestion.pe was able to communicate Ministry of Foreign Affairs of Chile After more than a decade of bilateral negotiations, to know the details of the agreement reached with the US.

“On June 22, and 13 years after signing, the United States Senate approved an agreement with Chile to avoid double taxation, and to improve channels of information among tax authorities and prevent tax evasion, promote and facilitate trade and investment. With this, Chile becomes the third country in the region to sign this type of agreement with the United States, a clear sign of the good times that bilateral relations are passing through”. Ministry of External Affairs said.

For the Chilean Ministry of Foreign Affairs, this agreement is very relevant as it will promote investment in innovation, capital, export and import between the two countries. US investors have stakes in Chile in sectors as diverse as technology services, insurance, banking, energy, industry and transportation.Sectors that will undoubtedly benefit from this deal”, said the Chilean Ministry of Foreign Affairs.

When asked how long it took to complete this CDIThe agreement represents more than ten years of negotiations, the foreign ministry said“Because changes had to be made in line with the US tax reform approved in 2017.”

For its part, the US State Department shared their excitement after the Senate approved ratification of a ‘bilateral tax treaty’, as they call it, with Chile. “The agreement received broad bipartisan support in Congress. Companies and industry associations from the United States and Chile have advocated for the deal”, they explained in response to questions from gestioni.pe.

“The agreement will level the playing field and increase investment, trade and innovation between the United States and Chile. The deal was initially approved by the Chilean Congress in 2010 and has been awaiting US Senate approval ever since. It includes two amendments (known as ‘reserves’ in US legislative parlance) to align the treaty with the US tax reform bill passed in 2017.“, he emphasized.

Contracts integrate us financially with the world.

Alfredo Gildemeister

Information

1. “Mummy Juanita”. The first double taxation treaty was signed by Peru with Sweden in 1966, before Juan Velasco’s coup d’état. Although it is not practical, Professor Gildemeister considers it the “Juanita Mummy” of CDIs and demonstrates the power of Swedish companies such as Volvo at the time.
2. Actual weight. When King Felipe VI of Spain was Prince of Asturias, he visited Peru with his wife Letizia to discuss a treaty signed between the two countries. Former President Alan García, who received the royal couple, noted more than once the relevance of the CDI with Spain as the main foreign investor in Peru. That deal never materialized.
3. “Picho Raro”. Regarding the Double Taxation Agreement within the Andean Community (CAN), Gildemeister Decision 40 of 1971 and Resolution 578 of 2004 avoid double taxation based on sources and not on residence. “The Andean Agreement is a strange one, because it is based on only one source in the world, that is, registered in the country of origin of the income. Not in the case of the residence of the investor, which the OECD does. There are 3 agreements with Ecuador, Bolivia and Colombia, which are based on the source, where the origin of the income is”.
4. Very tricky. Finally, the professor highlighted the work of the late tax official Armando Solezzi in the CDI negotiations with Chile, a member of the Organization for Economic Co-operation and Development (OECD) since 1993. He is very cunning. “He negotiated it very well and he knew how to mix commissions with a lot of mischief, so that we reached an interesting agreement with Chile that remains in force today,” he emphasized.