Alexa Adriazola
Member of the Tax and International Trade team. Her professional practice focuses on developing tax-efficient financing structures, corporate tax matters, national and international tax planning, cross-border investments, wealth tax planning and tax procedures.
Tax and International Trade
Our Tax team understands how the businesses of our clients work to help them achieving their objectives, by means of the design of local and cross-border structures the principal focus of which is the solid and efficient management of taxes, through the following areas
PPU APPOINTS FIVE NEW PARTNERS AND TWO NEW DIRECTORS AT A REGIONAL LEVEL
We are proud to inform that, today, the General Meeting of Partners has appointed five new Partners at a regional level: Juan Sebastián Arias, Daniel Parodi, Milagros Pastor, Daniel Ramos, and Guillermo Vial. Likewise, starting January 1st, 2024, there shall be two newly appointed directors: Víctor Abad and Iván Páez. Martín Acero, Managing Partner at PPU stated, at the end of the meeting, and on behalf of all law firm members, that he was proud of this group of new partners and directors, who have the best of skills and abilities both professionally and personally. “We are hopeful and excited to have with us professionals that boast the strictest standards in terms of ethics, client service, and collaborative work, along with their profound understanding of markets, and who share with PPU its principles and core values, as well as the strongest of institutional commitments as one Law Firm at a regional level.” The following includes descriptive summaries for each of the new appointees: Juan Sebastián Arias – Partner; Dispute Resolution: His professional practice has focused on the representation of clients in international and domestic arbitrations, and on litigation before national courts of law. He has been part of international commercial arbitrations conducted under the rules of several arbitral institutions, such as the ICC, the LCIA, the CCB, the Madrid Chamber of Commerce, and investment arbitrations pursuant to the ruled of the ICSID and the UNCITRAL. Admitted to the Bar both in Colombia and the state of New York. Juan Sebastián is an arbitrator at the Arbitration and Conciliation Chamber of Bogota (“CCB” [from the Spanish Centro de Arbitraje y Conciliación de la Cámara de Comercio de Bogotá]). He has extensive experience in domestic arbitrations conducted under the regulations of the Conciliation and Arbitration Centre of the Bogotá Chamber of Commerce. He has participated in multiple litigations before national courts, including the Supreme Court of Justice of Colombia Juan Sebastián has been involved in multiple disputes related to the following industries: oil & gas, infrastructure, real estate, and telecommunications. Recognized in the Legal 500 ranking in the areas of Litigation and Arbitration. Daniel Parodi – Partner; Banking, Finance and Capital Markets: His professional practice focuses on advising national and foreign developers, debtors, and financiers in asset and project financing. Daniel conducts a significant part of his practice in aircraft and vessel financing. He also counsels Chilean companies and foreign underwriters in bond issuances by Chilean debtors in international markets, such as 144A and Reg. S bonds. He has been recognized as Associate-to-Watch: Banking & Finance in Chambers & Partners Latin America (2023 – 2024); as Rising Star: Banking & Finance (2022 – 2023 – 2024) and Capital Markets (2022 – 2023 – 2024), and Rising Star Associate of the Year 2024, in Legal 500. He has been recognized, as well, as Outstanding Lawyer – Sub-45 Category – Project Financing in Leading Lawyers (2022). Milagros Pastor – Partner; Tax and International Trade: Her professional practice focuses on tax consulting for various clients, with extensive experience in strategic planning, financing operations, capital markets, corporate reorganizations, and acquisitions. Experienced in tax audits, administrative contentious tax procedures, and customs taxation. Milagros has been recognised by Chambers and Partners as Associate to watch. Daniel Ramos – Partner; Criminal Law / Compliance: His professional practice focuses on the assessment, initiation, and monitoring of criminal investigations and proceedings. He provides counsel on the scope of an indictment and potential liabilities, to minimize potential criminal contingencies. Additionally, he implements tailored compliance programs for each company. Daniel has been recognized by Chambers and Partners as Up and Coming and Leaders League. Guillermo Vial – Partner; Corporate/M&A: His professional practice focuses on mergers and acquisitions, capital markets, financial law, infrastructure and projects, highly complex contracts, and corporate law in general, counselling both local and foreign clients. Additionally, he counsels startups and investors in Venture Capital matters, as well as local and foreign FinTechs dedicated to digital wealth management, payment systems, alternative transaction systems, investment platforms, among others. Víctor Abad – Director of Corporate/M&A: His professional practice focuses on Mergers & Acquisitions, Private Equity, and Financing. He has extensive local and international expertise in prestigious law firms in three different jurisdictions (Peru, Florida, and New York). Víctor has been consistently recognized, for seven consecutive years (2017 – 2023), by British publications Legal500 and International Financial Law Review, as one of the rising stars in the Peruvian market in Corporate, Mergers and Acquisitions matters. Iván Páez – Director of Environment and Sustainable Development: His professional practice focuses on environmental law in public and private field and environmental licensing processes advising companies in the infrastructure, energy, oil, mining, and agro-industry sectors. He has relevant experience designing legal strategies for litigation and environmental sanctioning processes, and in the judicial and administrative representation of national and international companies. He led for more than 8 years the group of litigation and environmental sanctioning processes of an important legal firm in Colombia.
MAIN FEATURES OF THE US-CHILE TAX TREATY
I. STATUS AND ENTRY INTO FORCE 1.1. On December 19, 2023, the U.S. Department of Treasury announced the entry into force of the tax treaty between the United States and Chile, with the notification from the former to the latter that it had satisfied its applicable procedures for bringing the treaty into force. 1.2. Therefore, a) With respect to withholding taxes, the treaty will apply for all amounts paid or credited on or after February 1, 2024. b) With respect to other taxes, the treaty shall apply for taxable periods beginning on or after January 1, 2024. II. ELIMINATION OF DOUBLE TAXATION 2.1. Treaty provides for limitation of taxing rights at source, whether as an exemption or as a rate reduction. 2.2. Unlike what happens today and subject to the limits set forth by the treaty, all taxes applied at source on income that is covered by the treaty should be credited in the country of residence, regardless of whether such income is deemed to be of domestic or foreign source (particularly relevant for service fees and capital gains). III. CHANGES RELATED TO THE TAXATION OF SERVICES 3.1. Foreign residents are subject to Chilean withholding tax (0% – 35%) on service fees paid by a Chilean resident, regardless of where the service is provided (in Chile or abroad). Since the U.S. generally deems that services rendered by U.S. residents within its borders are domestic source income, double taxation would arise, since such country would probably not grant foreign tax credit for taxes withheld in Chile as those credits are limited to foreign source income. 3.2. Once the treaty has entered into force, fees qualifying as business profits derived from services rendered by U.S. residents within the U.S., may not be taxed in Chile. Such exemption is lost if the fees are attributable to a permanent establishment of such U.S. resident located in Chile (e.g., a Chilean branch, office, installations, site, project or mixed services rendered partially in Chile for a period or periods exceeding in the aggregate 183 days in any 12-month period, performed through one or more individuals who are present and performing such services Chile). 3.3. In general, salaries shall only be taxed at the residence of the employee, unless the services are rendered in the other state and the recipient exceeds a 183-days permanency threshold or the remuneration is paid by an employer residing or a permanent establishment located in that state. IV. DIVIDENDS, INTEREST AND ROYALTIES 4.1. Dividends may be taxed in the country of residence of the shareholder and the country of residence of the company paying such dividend. However, in the latter case withholding taxes would be limited to a) U.S. dividends, previously taxed at 30%, should be limited to 5% or 15% depending on whether the recipient directly owns at least 10% of the voting stock of the company paying the dividends. b) Chilean dividends will be entitled to full corporate tax credit unlike the situation of non-treaty jurisdictions and a total aggregate burden of 35% between withholding tax and corporate income tax. c) Chilean pension funds will be generally free off withholding taxes on dividends paid by companies of the other jurisdiction. U.S pension funds will be subject to dividends distributed by Chilean companies under letter b) above. 4.2. Interest may be taxed in the country where the payer is a resident, and withholding taxes imposed in the source country would be limited to 4% (in the case of banks, insurance companies and other financial institutions) or 10% in other cases (for 5 years, the 10% cap would be 15%), significantly reducing the 30% (U.S.) and 35% (Chile) existing withholding tax rates. 4.3. Royalties may be taxed in the country payer is a resident, limiting the taxation of the source country. In the cases of Chile and the U.S. it would reduce the generally applied 30% withholding tax to 10%. Please note that certain payments that under domestic law would have been royalties subject to such 30% withholding tax, would be classified as business profits under the treaty thus free of taxation as explained in 3.2. above. The treaty also imposes a maximum rate of 2% in the case of payments for the use of industrial, commercial, or scientific equipment. V. CAPITAL GAINS 5.1. Chile currently levies income arising from the sale or disposal of assets located in the country, at a general 35% withholding tax rate. If the U.S. taxes capital gains at the residence of the seller double taxation may arise since the U.S. would probably not grant any foreign tax credit as capital gains obtained by U.S. resident are usually considered domestic source income. 5.2. The treaty contains several rules on capital gains that will depend on the type of seller and the circumstances of the sale: a) Gains from the alienation of real estate (or shares, interest or rights from property-rich companies) and property from permanent establishments may be taxed in the state such property is situated. b) Gains from the sale of shares or other rights or interests representing the capital of a company may be taxed where such company resides, but it would be generally limited. The reduced rate would generally be a 16% of such gain for minority shareholdings, 0% for pension fund sellers, 0% for sales of shares in stock exchange provided certain requirements are met. Sales of subsidiaries or companies in which the seller holds a significant participation may still be subject to unlimited domestic taxation depending of the case. c) Other gains from the alienation of movable property may generally be taxed only where the transferor is a resident. VI. RESERVES The U.S. introduced two reservations to the treaty, regarding (a) the application of their Base Erosion Anti-Abuse Tax o “BEAT” for qualifying U.S. entities making base erosion payments to Chilean related parties, (b) replacing U.S. indirect foreign tax credit for a provision that allows ≥10% U.S. corporate shareholders of Chilean companies to deduct the amount of dividends received from the
Are the payments that the Colombian State must make to foreign investors by virtue of investment awards taxable?
The use of investor-State dispute settlement mechanisms contained in international investment protection treaties, including investment arbitration, is becoming increasingly frequent.With respect to Colombia, out of six cases concluded in arbitration, the State has only been condemned in one of them.Although in most cases the Colombian State has obtained a favorable resolution, this does not prevent future decisions from being adverse and the State may end up being condemned.For this reason, it is pertinent to ask about the tax treatment of the payments made by the State to foreign investors by virtue of investment awards. Nature of the amounts One of the positions is that the tax treatment will depend on the nature of the amounts paid.According to those who defend this position, the condemnations to be paid contained in investment awards are indemnifications, to which the typical treatment of payments of such nature applies.That is, the payment will have the condition of taxable or non-taxable to the extent that what is paid is for loss of profits or consequential damages, respectively.The Constitutional Courthas referred to this line of thoughtThe Constitutional Court, when studying a claim of unconstitutionality filed against Article 130 of Law 1955 of 2019, which established a special contribution for arbitration awards of economic content (not applicable to international arbitration awards), pointed out that there are different types of compensation (for example, consequential damages and loss of profits), the nature of which will determine whether what was paid corresponds to an income constituting profit or benefit that should have been received in due time and, therefore, subject to income tax, or whether they are not susceptible of constituting taxable income, under the terms and conditions provided by law (C. Const, Sentence C-161/22. M. P. Alejandro Linares Cantillo).In this sense, under this first position, the Colombian State should establish the underlying nature of the different amounts that make up the compensation, in order to determine their tax treatment.If the payments for such concept constitute income susceptible of producing a net increase in the investor’s equity at the time of its receipt and have not been expressly exempted, the payment in favor of the investor would be taxed and should be subject to withholding at the source.Otherwise, it would not be taxed and, consequently, would not be subject to withholding, under the terms of the applicable exception.In other words, compensation corresponding to consequential damages would not be taxed, while compensation for lost profits would be subject to income tax. In the last scenario, the withholding rate would depend on whether the foreign investor is an individual or a legal entity:(i) if the beneficiary of the payment is a non-resident individual, the withholding rate would be 35%, as provided in Article 401-2 of the Tax Statute (E. T.), but.(ii) if the beneficiary is a foreign legal entity domiciled abroad, the withholding at source for income tax purposes shall be 15%, pursuant to Article 415 of the E.T. Withholding at source However, it is worth asking whether an instrumental mechanism, such as withholding at source, is sufficient to hold that payments made by the Colombian State to foreign investors under investment awards are domestic source income in light of the legislation in force.The foregoing, to the extent that the beneficiary of the award would be a non-resident alien subject to income tax in Colombia only with respect to its income from national source.According to article 24 of the E. T., income from national source is considered to be that derived from(i) the exploitation of tangible and intangible goods within the country;(ii) the rendering of services within its territory, on a permanent or transitory basis, with or without its own establishment, and(iii) the alienation of tangible and intangible assets, under any title, that are within the country at the time of their alienation.However, the compensation to be paid by the State would not fall within any of the aforementioned cases nor within the list included in the aforementioned article 24.In this respect, the taxation of the indemnity could be sustained, considering that(i) that the local vehicle in charge of developing the business activity in Colombia would have been taxed with respect to the income it had obtained in its ordinary activity, as domestic source, as well as its foreign parent company would have done when dividends were distributed to it, and(ii) that the indemnification, despite having a different origin, has a supplementary character in relation to the amounts not received by the investor due to the action, omission or acquiescence of the State and, consequently, it would have to be included in one of the income from a national source.However, it is not evident that the foreign investor has obtained income from a national source as a consequence of an investment award, to the extent that, by virtue of the principle of legality, the assumptions of the generating event of article 24 of the E.T. do not correspond to the concepts that support the payment of compensation for an investment award.Rather, it could be argued that the amount to be recognized under the compensation should be adjusted in the award, calculating the taxes that the foreign investor would have had to pay if it had been able to exercise the economic activity that the State with its action, omission or acquiescence prevented. Therefore, it would not seem reasonable to subject to withholding tax the amounts included in the condemnation of investment awards.The case To date, the only public case of condemnation of the Colombian State is that of Glencore International A. G. (Glencore) and C. I. Prodeco S. A., in which the arbitration tribunal of the International Centre for Arbitration of Investment Disputes (ICSID) ordered Colombia to reimburse C. I. Prodeco S. A. an amount equivalent to the value of a sanction imposed on the company by the Comptroller General of the Republic, and to recognize interest, defense costs and expenses related to the arbitration proceedings.Since it is clearly a reimbursement for a value paid by the plaintiff, such payment did not
Kevin Fernández
Associate in the Tax and International Trade team. He specializes in tax consulting, tax planning, mergers and acquisitions, tax audits and proceedings before SUNAT and the Tax Court.
María del Pilar Olea
Member of the Tax and International Trade team. His professional practice focuses mainly on corporate planning, national and international tax consulting, mergers and acquisitions, taxation in corporate reorganization and foreign investment.
Leonardo Cote
Principal Associate member of the Tax and International Trade team. His professional practice focuses on tax consulting and tax planning for domestic and foreign clients, as well as tax litigation at the national and local level.
Isidora Coll
Partner of the tax team of Philippi Prietocarrizosa Ferrero DU & Uría. His professional practice focuses on the resolution of tax controversies, both in administrative and judicial proceedings. He has been recognized for 4 consecutive years in the category of Rising Stars in Tax by The Legal 500. He has more than 10 years of experience and has participated and successfully led different types of proceedings before the Internal Revenue Service and highly complex tax litigation before the Tax and Customs Courts and Superior Courts of Justice in matters of national and international taxation and transfer pricing. He also provides advice and representation before the General Treasury of the Republic, before Municipalities in matters of municipal patents and performs tax consulting on various issues related to national and international taxation. Before joining Philippi Prietocarrizosa Ferrero DU & Uría, he worked in the Tax Litigation Office of the Legal Sub-Directorate of the Internal Revenue Service. In the academic field, he is Professor of the Master’s Degree in Tax Law and of the Diplomas in Tax Modernization and Tax Legislation, all at the Law School of the Universidad de Chile. He is Professor of the Diplomas in Taxation and Business Taxation at the School of Economics and Business of the Universidad de Chile and Professor of the Master in Tax Law at the Universidad Diego Portales. He is Director of the Tax Law Yearbook of Universidad Diego Portales, member of the Chilean Institute of Tax Law, associate of the International Fiscal Association, author of several academic articles and frequently participates in conferences, seminars and lectures on the subject. Arturo Selman – Philippi Prietocarrizosa Ferrero DU & Uría
Ana María Díaz
Member of the Tax and International Trade team. His professional practice focuses on advising national and international clients on matters related to tax structuring, estate and corporate planning, and compliance with formal tax obligations.
