Application of the general anti-avoidance rule in Chile

16 April, 2024

What Are Anti-avoidance Rules? 

Avoidance is the evasion of taxation by legal mechanisms, thus voiding regulations. Examples thereof are simulation or fraud against the law. 

In this regard, the Anti-avoidance Rules authorize the Tax Administration to analyze, neutralize, and verify taxpayers avoid taxes. These rules may be general when they prescribe general parameters to be complied with or specific when determining assumptions that directly qualify as evasion. 

The General Anti-avoidance Rule in Chile and its Application 

Law 20.780 established a new tax reform in Chile, which came into force in 2015. Among the changes incorporated by the reform, the General Anti-Avoidance Rule (GAAR) was implemented, which includes the authority of the SII (Servicio de Impuestos Internos – Internal Revenue Service) to reestablish the nature of the transactions with evasive purposes. Despite its effectiveness, the GAAR had only been applied in court up to that date.  

The Ruling of the Tax and Customs Court of the Ñuble and Biobio Regions 

On March 19, 2024, the first ruling of a Tax and Customs Court (TCC) applying the GAAR was issued, which affected the Chilean tax panorama due to the implementation of the aforementioned tax reform for the first time. 

This ruling presents the case of the Chilean company Forestal Aurora, which received a loan from Timber Finance LLC, incorporated in the United States. Due to the credit granted by a financial entity abroad from Chile, the interest was taxed at a 4% income tax rate when 35% would have been usually used. 

Conversely, the SII and the TCC noted that both Forestal Aurora and Timber Finance LLC were controlled by New Growth LLC, a U.S. company, relating the parties. Likewise, Timber Finance LLC was created shortly before effecting the loan as a single transaction at the time of the audit. On the other hand, the taxpayer mentioned that New Growth LLC was effectively created to make loans among its related parties due to tax mitigation. 

Therefore, the GAAR was applied to analyze and determine that the creation of Timber Finance LLC was for making the loan granted to Forestal Aurora at a reduced rate. Therefore, they qualified it as avoidance. 


Although the ruling is subject to a possible challenge by the taxpayer, the TCC may apply the GAAR. The TCC qualified the case as “simple” and unquestionable regarding the bad faith of the taxpayer’s procedures. 

The services available from a lawyer specializing in business and tax law are significantly essential in transactions a businessman performs abroad. Therefore, at VAG GLOBAL, we offer legal assessing services for your business with the necessary precision.