Effective between January 1, 2017, and December 31, 2018, the withholding rate described in paragraph 2 of Article 11 of the Canada-Chile Tax Convention (Convention) has been lowered from 15 percent to 10 percent on certain interest amounts.

In particular, paragraph 2 of Article 11 of the Convention now reads as follows with respect to interest paid or credited between January 1, 2017, and December 31, 2018:

• 2. However, interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed:
  
  • a) 10 per cent of the gross amount of interest derived from:
    
    • i) loans granted by banks and insurance companies;
    • ii) bonds or securities that are regularly and substantially traded on a recognized securities market;
    • iii) a sale on credit paid by the purchaser of machinery and equipment to a beneficial owner that is the seller of the machinery and equipment;
  • b) 10 per cent of the gross amount of the interest if the beneficial owner of the interest is either:
    
    • i) an enterprise substantially deriving its gross income from the active and regular conduct of a lending or finance business involving transaction with unrelated persons, where the enterprise is unrelated to the payer of the interest. For the purposes of this clause, the term “lending or finance business” includes the business of issuing letters of credit, providing guarantees or providing credit card services;
    • ii) any other enterprise, provided that in the three taxable years preceding the taxable year in which the interest is paid, the enterprise derives more than 50 per cent of its liabilities from the issuance of bonds in the financial markets or from taking deposits at interest, and more than 50 per cent of the assets of the enterprise consist of debt-claims against unrelated persons;
  • c) 15 per cent of the gross amount of the interest in all other cases.
  • For the purposes of subparagraph b), an enterprise is unrelated to a person if the enterprise does not have with the person a relationship described in subparagraphs a) or b) of paragraph 1 of Article 9.

As of January 1, 2019, paragraph 2 of Article 11 now reads as follows:

• 2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

These changes occur as a result of the "Most Favoured Nation" provision in the Protocol to the Convention and have been confirmed by Chile.

In circumstances where, between January 1, 2017, and December 31, 2018, tax was withheld at a rate of 15% and not the 10% rate which should have been applied:

• A Chilean resident taxpayer can complete form NR7-R Application for Refund Part XIII Tax Withheld to apply for a refund. The application must be made within two years from the end of the calendar year in which the amount was paid. Please send the application to: Non-Resident Withholding Section, Canada Revenue Agency, P.O. Box 20000, Station A, Sudbury ON, P3A 5C1, CANADA.
• A Canadian resident taxpayer can request a refund by filing or amending their general Chilean tax return. They may also request assistance in obtaining a refund from Chile by requesting Mutual Agreement Procedure (MAP) assistance from the Canada Revenue Agency. More information on MAP is available in the document “Guidance on Competent Authority Assistance under Canada’s Tax Conventions”.