PANDEMIC TAXES: CHALLENGES AND MEASURES

This year 2020 has been marked by great challenges in health, economic, social and political matters, which have forced us to rethink what we have known until now as normality.

By Soledad Diharasarri and Valentina Walker

In the context of the current Covid-19 pandemic, the economic and tax measures proposed by the government have taken enormous relevance to face the delicate economic outlook that is projected for the coming months. These mainly seek:

  • Deliver or anticipate resources to people: By means of the return of the withholding of taxes of January and February, for independent workers, in April; early refund of income tax for individuals, and project for the protection of independent workers, initially financed by contributions from the State and to protect falling income in this sector.
  • Give liquidity to companies: Through early income tax refunds for SMEs; postponement of the payment of income tax for SMEs until July 2020; PPM release in April, May and June: these are advances of income tax; deferral of payment of contributions for April to be paid together with the next 3 contribution installments, with a real interest rate of 0%, and the suspension of payment of VAT in April, May and June.
  • Decrease the cost of financing: Through the temporary reduction to 0% of the ITE (Stamp Tax) for operations carried out between April 1 and September 30, 2020, with respect to any new credit or modification that may be affected from a previous credit.
  • Ensure the continuity of services and facilitate tax compliance: By strengthening care and remote procedures; extension of deadlines to present DDJJ of the operation income 2020; forgiveness of interest and fines for out-of-court filing of DDJJ, and facilities to hold payment conventions.

It should be noted that, in addition to the measures announced in March of this year, including the employment protection law and the strengthening of the public health budget given the health crisis, the executive announced a second phase of the economic emergency plan, adding 3 additional measures that relate to:

  • Income protection plan: Emergency Family Income Bill, which considers resources of more than US$ 2 billion.
  • Income protection insurance for independent workers: It implies a new social protection institutional framework and an Initial Contribution of the Treasury for US $ 300 million.
  • Economic activity protection plan: Granting of credits with state guarantees. Capitalization of FOGAPE for $3 billion, expanding state guarantees, which would allow the Bank to grant loans of up to US $24 billion; Covid-19 line of credit for working capital, up to an amount equivalent to 3 months of sales in a normal period, for companies or individuals with annual sales of up to UF 1 million.

The economic emergency plan announced by the government in the framework of the pandemic that we are currently going through, is complemented by certain tax modifications that were incorporated into our legislation in February of this year, through the project called “tax modernization”, which revolved around 4 fundamental principles:

  1. Simplification of the System

The complexity regarding the determination of the tax regimes applicable to the different taxpayers is reduced, only making a distinction between large companies and SMEs (it stops distinguishing by type of legal entity, restrictions for owners, etc.).

  1. Incentives for investment in projects
  • Transitory depreciation regime in force until December 2021 (companies that acquire fixed assets may depreciate 50% instantaneously and in the same year carry half the cost of acquiring said asset at expense; and the remaining 50% may apply the general rules, thus reducing the tax base for investments made in the period until December 2021).
  • Decrease in the terms for the refund of VAT credit paid for the acquisition of fixed assets.
  • Incentive to reinvest profits for companies with a turnover of up to 100,000 UF.
  • Temporary extension until 2026 of the transitional rule that allows the restitution obligation of article 63 of the LIR not to be applied to taxpayers of Additional Tax who are residents in countries with which Chile has signed an agreement to avoid double taxation, even if they are not valid.
  • Exemption from VAT on the importation of capital goods in investment projects of more than US $ 5 million.
  1. Modernization
  • Updating of the tax expense standard deductible from taxable income.
  • Tax certainty.
  • International tax regulations.
  1. Digitization
  • Digital transformation of the tax administration.
  • Advance the digitization of tax documents.
  • Update the tax system for the digital transformation of the economy.

We will have to wait a few months to analyze if the economic and tax measures allow us to face the difficult economic moment that is projected for our country.