Chilean Income Tax Treaty Letter - December 2021

WPR Article on U.S.-Chile Treaty

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Letter to Majority Leader Schumer - August 2022

John G. Murphy John G. Murphy
Senior Vice President for International Policy

Published

September 08, 2022

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The dry topic of tax treaties rarely attracts much attention, but the long-pending U.S.-Chile income tax treaty may be an exception to the rule.  

Recently dozens of senators from both sides of the aisle, Treasury Secretary Janet Yellen, and the U.S. business community have been united in calling for its ratification. 

Known formally as the U.S.-Chile “Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and Capital,” it’s similar to tax treaties the United States has in place with more than 60 countries. Such treaties help minimize the double taxation of income earned by U.S. companies doing business abroad. They also provide procedures for taxpayers and taxing authorities to resolve international tax disputes. 

This particular treaty was signed in 2010, but recent expressions of support have been piling up: 

  • Treasury Secretary Janet Yellen urged Senate Majority Leader Charles Schumer and other senators to approve the U.S.-Chile income tax treaty in an August 22 letter. “The treaty enjoys bipartisan support from members of the Senate and is strongly endorsed by the business community,” she wrote.  
  • Eighteen Republican senators wrote the chairman and ranking member of the Senate Committee on Foreign Relations last December urging approval of the treaty. (Given broad Democratic support, the number of Republican signatories to the letter affirms that the treaty can satisfy the two-thirds supermajority requirement for Senate approval.) 
  • The Senate Committee on Foreign Relations approved the treaty by voice vote in March. 

Why has ratification become an urgent priority? As the U.S. Chamber recently wrote in a letter to the Senate Committee on Foreign Relations:

“Due to changes in Chilean tax legislation that went into effect in 2014, corporate tax rates in Chile have increased. Without a ratified treaty to avoid double taxation, taxes on U.S. companies with Chilean operations will climb as high as 44%. However, companies headquartered in the two dozen European, Asian, and Western Hemisphere countries with which Chile already has a tax treaty in force will benefit from a much lower tax rate and would thus secure a significant competitive advantage over their U.S. competitors. Senate action is required to spare U.S. workers and companies this unfair treatment.” 

There’s more, though. The energy transition depends on minerals and metals that Chile possesses in abundance, including copper, lithium, and many more. Among the technologies that depend on these resources are electric vehicles (EVs), solar cells, and wind turbines. It is estimated that global mining firms will have to raise the annual production of strategic minerals such as those Chile produces by 500% by 2030 to allow the energy transition to proceed.

Notably, Chile holds the world’s largest proven reserves of lithium, a key input for EV batteries. North Carolina-based Albemarle has the largest lithium mine in the world in Chile. 

These resources are drawing new attention in the wake of congressional approval of legislation expanding tax incentives for EV sales and mining in the United States and in U.S. free-trade agreement partner countries such as Chile.  

Tax rates may seem like a mundane matter, but the absence of a tax treaty with Chile doesn’t just put U.S. companies operating in Chile at a disadvantage to their global competition: It threatens to hobble the energy transition. 

Congress and the Administration have shown they understand the value of this treaty. Now it’s time to get it done — and secure the Senate’s advice and consent to ratification of the U.S.-Chile income tax treaty this fall. 

About the authors

John G. Murphy

John G. Murphy

Senior Vice President for International Policy

John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.

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