Article 28 - Limitation of Benefits - Chile

ARTICLE 28 LIMITATION OF BENEFITS 1. Except as otherwise provided in this Article, a resident of a Contracting State shall not be entitled to a benefit that would otherwise be accorded by this Agreement (other than a benefit under paragraph 3 of Article 4 or Article 23) unless such resident is a qualified person , as defined in paragraph 2, at the time that the benefit would be accorded. 2. A resident of a Contracting State shall be a qualified person at a time when a benefit would otherwise be accorded by the Agreement if, at that time, the resident is: a) an individual; b) that Contracting State, or a political subdivision or local authority thereof, or an agency or instrumentality of that State, political subdivision or local authority; c) a company or other entity, if the principal class of its shares is regularly traded on one or more recognised stock exchanges; d) a person, other than an individual, that is a non-profit organisation agreed upon by the competent authorities of the Contracting States; e) a person other than an individual if, at that time and on at least half of the days of a twelve-month period that includes that time, persons who are residents of that Contracting State and that are entitled to benefits of this Agreement under subparagraphs a) to d) own, directly or indirectly, at least 50 per cent of the shares of the person. 3.a) A resident of a Contracting State shall be entitled to benefits under this Agreement with respect to an item of income derived from the other Contracting State, regardless of whether the resident is a qualified person, if the resident is engaged in the active conduct of a business in the first-mentioned State and the income derived from the other State emanates from, or is incidental to, that business. For purposes of this Article, the term active conduct of a business shall not include the following activities or any combination thereof: (i) operating as a holding company; (ii) providing overall supervision or administration of a group of companies; (iii) providing group financing (including cash pooling); or (iv) making or managing investments, unless these activities are carried on by a bank or financial institutions agreed upon by the competent authorities of the Contracting States, insurance enterprise or registered securities dealer in the ordinary course of its business as such. b) If a resident of a Contracting State derives an item of income from a business activity conducted by that resident in the other Contracting State, or derives an item of income arising in the other State from a connected person, the conditions described in subparagraph a) shall be considered to be satisfied with respect to such item only if the business activity carried on by the resident in the first-mentioned State to which the item is related is substantial in relation to the same or complementary business activity carried on by the resident or such connected person in the other Contracting State. Whether a business activity is substantial for the purposes of this paragraph shall be determined based on all the facts and circumstances. c) For purposes of applying this paragraph, activities conducted by connected persons with respect to a resident of a Contracting State shall be deemed to be conducted by such resident. 4. A company that is a resident of a Contracting State shall also be entitled to a benefit that would otherwise be accorded under Article 10 if: a) at the time when the benefit otherwise would be accorded and on at least half of the days of any twelve-month period that includes that time, at least 95 per cent of the aggregate vote and value of its shares (and at least 50 per cent of the aggregate vote and value of any disproportionate class of shares) is owned, directly or indirectly, by seven or fewer persons that are equivalent beneficiaries, provided that in the case of indirect ownership, each intermediate owner is a qualifying intermediate owner, and b) less than 50 per cent of the person s gross income, and less than 50 per cent of the tested group s gross income, for the taxable period that includes that time, as determined in the person s Contracting State of residence, is paid or accrued, directly or indirectly, in the form of payments that are deductible for purposes of the taxes covered by this Agreement in the person s Contracting State of residence (but not including arm s length payments in the ordinary course of business for services or tangible property, and in the case of a tested group, not including intra-group transactions) to persons that are not equivalent beneficiaries. 5. If a resident of a Contracting State is neither a qualified person pursuant to the provisions of paragraph 2 of this Article, nor entitled to benefits under paragraph 3 or 4, the competent authority of the Contracting State in which benefits are denied under the previous provisions of this Article may, nevertheless, grant the benefits of this Agreement, or benefits with respect to a specific item of income, taking into account the object and purpose of this Agreement, but only if such resident demonstrates to the satisfaction of such competent authority that neither its establishment, acquisition or maintenance, nor the conduct of its operations, had as one of its principal purposes the obtaining of benefits under this Agreement. The competent authority of the Contracting State to which a request has been made, under this paragraph, by a resident of the other State, shall consult with the competent authority of that other State before either granting or denying the request. 6. For the purposes of this and the previous paragraphs of this Article: a) the term recognised stock exchange means: (i) any stock exchange established and regulated as such under the laws of either Contracting State; and (ii) any other stock exchange agreed upon by the competent authorities of the Contracting States; b) with respect to entities that are not companies, the term shares means interests that are comparable to shares; c) the term principal class of shares means the class or classes of shares of a company or entity which represents the majority of the aggregate vote and value of the company or entity; d) two persons shall be connected persons if one owns, directly or indirectly, at least 50 per cent of the beneficial interest in the other (or, in the case of a company, at least 50 per cent of the aggregate vote and value of the company's shares) or another person owns, directly or indirectly, at least 50 per cent of the beneficial interest (or, in the case of a company, at least 50 per cent of the aggregate vote and value of the company's shares) in each person. In any case, a person shall be connected to another if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same person or persons. e) the term equivalent beneficiary means any person who would be entitled to benefits with respect to an item of income accorded by a Contracting State under the domestic law of that Contracting State, this Agreement or any other international agreement which are equivalent to, or more favourable than, benefits to be accorded to that item of income under this Agreement. For the purposes of determining whether a person is an equivalent beneficiary with respect to dividends received by a company, the person shall be deemed to be a company and to hold the same capital of the company paying the dividends as such capital the company claiming the benefit with respect to the dividends holds; f) the term disproportionate class of shares means any class of shares of a company or entity resident in one of the Contracting States that entitles the shareholder to disproportionately higher participation, through dividends, redemption payments or otherwise, in the earnings generated in the other Contracting State by particular assets or activities of the company; g) the term qualifying intermediate owner means an intermediate owner that is either: (i) a resident of a State that has in effect with the Contracting State from which a benefit under this Agreement is being sought a comprehensive agreement for the avoidance of double taxation; or (ii) a resident of the same Contracting State as the company applying the test under paragraph 4 to determine whether it is eligible for benefits under the Agreement; h) the term tested group means the resident of a Contracting State that is applying the test under paragraph 4 to determine whether it is eligible for benefits under the Agreement (the tested resident ), and any company or permanent establishment that: (i) participates as a member with the tested resident in a tax consolidation, fiscal unity or similar regime that requires members of the group to share profits or losses; or (ii) shares losses with the tested resident pursuant to a group relief or other loss sharing regime in the relevant taxable period; i) the term gross income means gross receipts as determined in the person s Contracting State of residence for the taxable period that includes the time when the benefit would be accorded, except that where a person is engaged in a business that includes the manufacture, production or sale of goods, gross income means such gross receipts reduced by the cost of goods sold, and where a person is engaged in a business of providing non-financial services, gross income means such gross receipts reduced by the direct costs of generating such receipts, provided that: (i) except when relevant for determining benefits under Article 10 of this Agreement, gross income shall not include the portion of any dividends that are effectively exempt from tax in the person s Contracting State of residence, whether through deductions or otherwise; and (ii) except with respect to the portion of any dividend that is taxable, a tested group s gross income shall not take into account transactions between companies within the tested group. 7. The competent authorities of the Contracting States may by mutual agreement settle the mode of application of paragraphs 1 to 6 of this Article. 8. Where an enterprise of a Contracting State derives income from the other Contracting State and the income from the other Contracting State is attributable to a permanent establishment which that enterprise has in a third jurisdiction, the tax benefits that would otherwise apply under other provisions of the Agreement will not apply to that income if the combined tax that is actually paid with respect to such income in the first-mentioned State and in the third jurisdiction is less than 60 per cent of the tax that would be imposed in the first-mentioned State if the income were earned or received in that State by the enterprise and were not attributable to the permanent establishment in the third jurisdiction. Any income to which the provisions of this paragraph apply shall be subject to tax under the provisions of the domestic law of the other State, notwithstanding any other provision of the Agreement. 9. Notwithstanding the other provisions of this Agreement, a benefit under this Agreement shall not be granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of this Agreement. 10. The provisions of this Agreement shall in no case prevent a Contracting State from the application of the provisions of its domestic law and measures concerning tax avoidance or evasion. 11. Notwithstanding the provisions of this Agreement, a Contracting State shall maintain its right to tax in accordance with its domestic legislation an income arising in that State and derived by a resident of the other Contracting State where such income is not effectively subject to tax in that other Contracting State.