Lower house greenlights tax on OTT services

28 Aug 2019

Chile’s lower house has approved plans to include digital platforms in tax reforms which, if written into law, would oblige international over-the-top (OTT) providers to pay VAT on services offered in Chile. Local news portal Cooperativa writes that the 19% levy would be applied to ‘digital services provided by persons or entities domiciled or residing abroad, regardless of where the server or technological platform that supports them [is located], and to the extent that said services are used in Chile by natural persons’. Amongst the list of services covered by the tax are the provision of digital content such as movies, videos, music and games, and cloud storage or computing and other forms of software as a service (SaaS). The text also looks to close any potential loopholes by noting that the tax would be applied independently of the device used to connect to the internet, the access technology, or any intervening application or platform. It was not made clear whether digital communications services, such as messaging and calling applications, would be covered by the new taxation.

Senior lawmaker Patricio Melero explained the need for the reform saying: ‘It is not fair that some digital services from abroad such as Netflix or Spotify do not pay VAT and all those who serve in Chile do pay it.’ The official went on to note that such external entities can generate revenue in Chile and impact the competitive environments of various sectors but make no tax contribution.

Some details of the plan remain to be settled, however: the tax collection agent is still to be determined and there is a lack of clarity on areas of potential double-taxation. Food delivery services were one area expected to be affected by the latter, as customers would be charged VAT on the food, as well as the digital platform used to make the order.