Under domestic CFC rules, taxpayers resident of Chile are subject to tax on passive income derived by controlled foreign companies, whether such controlled is direct or indirect, and includes a legal, economic and the facto control tests.

Passive income includes:

• Interests, unless the CFC is a bank or financial entity regulated as such by the CFC jurisdiction, provided such country does not have a preferential tax regime;

• Dividends, unless profits perceived by the CFC are distributed from another entity that it is: controlled by the CFC; and carries on an active business;

• Royalties;

• Rents from immovable property, unless the CFC carries on a business of exploiting immovable property in the CFC jurisdiction;

• Capital gains from the disposition of assets or immovable property that produced passive income:

• Transactions between the CFC and taxpayers resident of Chile, provided they are related parties and payments are: deductible from the tax base in Chile; and subject to tax in Chile with a rate lower than 35%.

Net passive income is accrued by the parent company and it is calculated by reference to domestic legislation. Underlying and withholding taxes are eligible to be used as FTC against business income tax payable by the parent company.

CFC rules would not apply where the following thresholds are reached:

• Passive income is subject to tax of 30% in the CFC jurisdiction;

• Passive income represents less than 10% of the CFC income;

• Assets that may produce passive income are less than 20% of the CFC assets.