Digital Platforms in Chile to Take on More Tax Responsibilities

After lengthy debate in the National Congress of Chile, the government of President Gabriel Boric scored its first substantial win in getting new tax compliance measures approved and turned into law on Oct. 24.

While some prominent amendments further enforce general anti-avoidance regulation and substantial transfer pricing changes, the newly established role of digital platforms—particularly intermediation platforms—may be the most far-reaching aspect.

Platforms as gatekeepers. First, the law obliges platforms to request proof that people operating through them are registered taxpayers. This measure is in line with the view that platforms have a role in addressing the “gray” or informal economy.

Platforms will also be required to perform a type of background check, where the taxpayer wishing to operate through a platform will have to prove they are in good standing with the Chilean tax administration. Congress didn’t define this, leaving Chile’s tax administration to decide what it means to be in good standing. Will a taxpayer be in good standing if they have missed a monthly filing? If a taxpayer is under audit, will they be able to demonstrate their documents are correct?

Platforms have to report annually to the Chilean tax administration all individuals and enterprises registered with them—and for those claiming not to need to register with the tax administration, all operations intermediated on their behalf and their value. Does this turn a platform into a whistleblower?

Platforms as taxpayers. While the administrative burden put on these platforms is already large, legislators thought platforms also should assume some of the tax liability of transactions going on through them.

As an example, the bill would set the value-added tax liability of a transaction within an intermediation platform at a flat 19% and assign it to the platform itself as deemed supplier, unless either of the parties operating within it is a VAT taxpayer.

But how will a platform verify if the parties operating through it are VAT taxpayers, and how is the platform supposed to assess its own liabilities? Will Chile’s tax administration propose the use of a web service and API, or will they just be content with a manual process? It is critical for the design not to set up platforms for failure.

The law seems to create additional complexity by establishing that if two platforms play a role in a transaction, only the platform that authorizes payment is liable for what goes on in the underlying transaction. The law also excludes platforms merely carrying out advertising or payment processing from being liable, which leads to the question of whether it discriminates against certain functions even when they are operating in the same economic sector.

Where a platform ensures payments are processed electronically through it—as opposed to one where payments are arranged directly between the underlying parties, for instance with cash—the law seems to place more responsibility on the former platform, even though its role furthers the functioning of a formal economy.

Platforms as withholding agents. To add to the responsibilities of platforms, a bill establishing a tourism levy at a rate of 1.25% on foreign tourists now puts the duty to collect and remit the levy onto the platform and not the accommodation industry, similar to what has been implemented in Mexico.

Platforms as enforcers. Digital platforms are also seen as enforcers of government instructions when individuals operating through them aren’t tax compliant, as the Chilean tax administration can order the platform to block such taxpayers from operating within the platform.

If taxpayers are to be blacklisted by Chile’s tax administration, it seems important to have a system in place both to automatically communicate such sanctions and to be cleared by the tax authority, while addressing the data privacy considerations of the users themselves.

Platforms responsible for independent workers. While the Labor Code of Chile does provide for certain regulations between platforms and independent workers that offer their services through them, the Chilean tax administration decided to go further—platforms are now required to issue tax documentation on behalf of those independent workers.

Future compliance issues. Chile and its National Congress apparently see platforms as a new way for the tax administration to outsource some of its basic audit and enforcement functions while absorbing some of the delegated tax burden from the financial industry.

What is concerning about this approach is whether the legal obligations placed on the relevant players in the digitalized economy are matched by their operational capabilities, with reasonable means for platforms to audit for tax the transactions flowing through them.

How will a service transaction be treated differently from a sale of goods? What government tools will be made available to platforms to verify the tax status of individuals operating through them? How will that affect the privacy of taxpayers?

The answer to these questions and more will shape future tax compliance and the role of online players within it.

The role of digital platforms has expanded significantly, from enabling peer-to-peer trades to easing business-to-consumer transactions, and even as delegated authorities to ensure that content shared through them doesn’t breach legislation. What happens if platforms don’t comply? The example of X having its assets frozen and its operation banned in Brazil is quite telling.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Ignacio Gepp is partner with Puente Sur in Chile.

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