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Tax treatment of cloud computing services in Chile
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As is often the case, the reality and development of technological advances is faster than the legislation, particularly tax law.
The digitalisation of the economy has been a key focus of tax debates in recent years. Political debates have focused on the differences between taxing physical business operations and virtual operations.
A tax reform was discussed and approved in Chile in 2020, which was published through Law 21,210 on tax modernisation. In the middle of the tax reform discussion, the idea of an indirect and single tax was raised, which finally resulted in a VAT that is applicable to certain digital services.
Foreign digital service suppliers that provide services to Chile must apply, collect and remit 19% VAT on certain digital services (since June 1 2020).
According to Article 8 letter n) the following services performed by providers domiciled or resident abroad are subject to VAT:
- The intermediation of services rendered in Chile, whatever their nature, or of sales made in Chile or abroad provided that the latter give rise to an import;
- The supply or delivery of digital entertainment content, such as videos, music, games or other analogues, through downloading, streaming or other technology, including for these purposes, texts, magazines, newspapers and books;
- The provision of software, storage, platforms or computer infrastructure; and
- Advertising, regardless of the means through which it is delivered, materialised or executed.
Thus, one of the digital services to which this new taxable event is applicable is ‘cloud computing services’.
Cloud computing provided as a service is typically divided into three service models:
- Infrastructure-as-a-Service (IaaS);
- Platform as-a-Service (PaaS); and
- Software-as-a-Service (SaaS).
Even though the solutions offered under each of the three service models may vary significantly, the essential difference is the user’s authority and control.
Cloud services are services available through a remote cloud computing server...