Note on Convention and Protocol… US and Chile… Respect to Taxes on Income and Capital, Feb 4, 2010

The Department of State refers the Embassy of Chile to the Convention and
Protocol signed today between the Government
ofthe United States of America
and the Government
ofthe Republic of Chile for the Avoidance of Double
Taxation and the Prevention
ofFiscal Evasion with Respect to Taxes on Income
and Capital (the "Convention") and confirms on behalf
of the Government of the
United States the following understandings reached between our two
Governments:
1. With respect to subparagraph d) of paragraph 1 of Article 3 (General
Definitions), the term "person" includes an estate, trust or partnership.
2. With respect to subparagraphf) of paragraph 1 of Article 3 (General
Definitions), the terms "enterprise
of a Contracting State" and "enterprise ofthe
other Contracting State" include an enterprise carried on by a resident
of a
Contracting State through an entity that
is treated as fiscally transparent in that
Contracting State.
3. With respect to paragraph 1 of Article 4 (Residence), the term "resident of a
Contracting State" does not include a person who
is liable to tax in a Contracting
State only on profits attributable to a permanent establishment
in that State.
4. With respect to Article 10 (Dividends) and Article 13 (Capital Gains),
Chile has an integrated tax system pursuant to which it collects a total
35 percent
tax on business profits imposed at two levels as follows: companies resident in
Chile are subject to the First Category Tax at a rate
of 17 percent on business
profits, and non-resident shareholders are subject to the Additional Tax at a rate
of
35 percent with a credit for the First Category Tax paid. Furthermore, Chile has
retained its taxing right through the application
ofthe Additional Tax on
non-residents in all
of its bilateral tax treaties.
DIPLOMATIC NOTE

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The provisions of paragraphs 5 and 7 of Article 13 and subparagraph a) of
paragraph 12 of the Protocol (regarding Article 10) reflect the unique operation of
Chile's integrated tax system and are intended to prevent the avoidance of the
Additional Tax. Accordingly,
if in the future Chile's integrated tax system is
modified as described in either subparagraph b)
of paragraph 12 or in paragraph 16
of the Protocol, the provisions of paragraphs 5 and 7 of Article 13 or subparagraph
a)
of paragraph 12 of the Protocol (as the case may be) shall not apply, and the
right
of the source country to tax will be limited by subparagraph b) of paragraph
12 ofthe Protocol in the case of dividends, and paragraph 16 of the Protocol in the
case
of capital gains.
5. With respect to Article 14 (Independent Personal Services), the term
"performed in that other State" does not mean "received in that other State."
6. With respect to Article 26 (Mutual Agreement Procedure), the competent
authorities
of the Contracting States, through consultations, shall develop
appropriate bilateral procedures, conditions, methods, and techniques for the
implementation
of the mutual agreement procedure provided for in this Article.
Each competent authority may, in addition, develop unilateral procedures to
facilitate such bilateral implementation
ofthe mutual agreement procedure. For
guidance in developing such bilateral implementation, the competent authorities
will refer to the Best Practices identified in the
GECD Manual on Effective Mutual
Agreement Procedures.
7. The competent authority of a Contracting State shall be notified by the
competent authority
of the other Contracting State when that other Contracting
State has obtained the consent
of the persons to be interviewed by officials of that
other Contracting State or for such officials to examine books and records in the
possession or control
of such consenting persons. Following such interview or
examination
of books and records, the other Contracting State may make a request
under Article 27 (Exchange
of Information) for information or documents related
to such interview or examination.
If the above confirmation is acceptable to the Government of the Republic of
Chile, the Department of State proposes that this Note and the Embassy's Note in

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reply reflecting such acceptance shall constitute an agreement between the two
Governments that shall enter into force on the date
of entry into force of the
Convention and Protocol.
Department
of State,

Washington, February 4,2010.