Statement:

The Internal Revenue Service of Chile has maintained a permanent policy involving the intensive use of information technologies. Thus, it has been able to implement significant innovations and simplifications for promoting tax compliance and strengthening tax intelligence, as well as the necessary actions for reducing the tax noncompliance gaps and risks.

Background:

• In the late 90’s, income returns began to be filed in electronic media via Internet. Already in 2001, the first pre-filled individual income tax return was proposed. Currently, 99.7% of corporate and individual income returns are filed at a distance and two thirds of them are based on the pre-filled form offered by the SII. Approximately 95% of those who request income refund obtain it within a 30-day term and also remotely.
• In 2001 as well, the export VAT refund platform also began operating so that the companies could obtain their VAT refunds within 5 working days. One hundred per cent of requests are received, revised, solved and paid via Internet.
• The SII launched the electronic invoicing project in 2003. It included a free portal for small businesses. Undoubtedly this is the direct predecessor of the pre-filled VAT proposal.
• Already in 2016, the pre-filled proposal began to be offered so that independent professionals and workers who issue electronic receipts could comply with their income tax advance payments which are known in Chile as provisional payments.

The present:

In this context, the first pre-filled proposal of form 29, which is used to declare VAT and different income tax advance payments was rendered operational. It is based on the information originating from some 40 million electronic invoices issued monthly, thereby setting a milestone in the at-a-distance relationship with the taxpayers.

VAT characteristics in Chile:

It must be recalled that Chile uses a debit and credit earned base system, of a transactional nature and monthly settlement, whereby tax credits are shown separately in the respective document and should correspond to an invoice authorized by the SII. The VAT system in Chile is broad-based with few exemptions, mainly in health and education and with a 19% proportional rate. It operates on the basis of taxation in the country where the respective goods or services are consumed or used.

In this context, VAT in Chile represents almost 50% of tax revenues.

Administrative obligations prior to the VAT pre-filled proposal:

Until the entry into force of the proposal, taxpayers had to keep manual or electronic records of their purchases and sales and on a biannual basis send their purchase and sales electronic records, running the risk of significant fines in case of noncompliance. Likewise, sending the information on a biannual basis involved a corrective or ex post control approach that gave way to numerous reviews due to errors or ignorance, with the resulting fines and interests.  About 50% of taxpayers who had to keep or send these records showed gaps or errors which, without any doubt, substantially affected the tax process.

Guidelines for the new project: 

Different administrative regulations provided for the use of the electronic invoice information as the official information for tax purposes. Thus, the SII had to develop an electronic purchase and sales registry to replace the records kept by the taxpayers, which may in fact be complemented by the companies with information that may contribute to the return’s accuracy.

The logic behind is quite simple: the SII already has the information on purchases, sales, imports and exports, for which reason it is no longer necessary to continue requesting periodic records and reports, with the company having to complement or set apart certain purchases.

A key aspect of this approach is that the electronic invoice has executive value as of the eighth day of its issuance, for which reason, following the expiration of said term without there being any claim or annulment of said invoice, it continues to be valid for tax as well as commercial purposes, such as, for example, being discounted in factoring businesses. This 8-day term allows for formulating the proposal as completely as possible, with the interested party ensuring that the relevant invoices with a right to tax credit may have been duly issued and acknowledgement of receipt, as required by law, may have been given prior to those 8 days if he wishes to use the credit in the month of their issuance.

Some data through December 2017: 

After 4 months of operation (August through November), the following tax performance indicators are worth mentioning:

1. An average of 1.2 million returns were filed.
2. Of these, 61.1% used the F29 proposal.
3. 95% of the main users are the PYMIPE businesses.
4. Of the total filing taxpayers, 78% declared VAT debits or credits and of the latter, 78% used the pre-filled proposal.
5. Total VAT declared amounted to $1.1 trillion. Around 84% was declared through the proposal.

For comparative purposes, through November 2017 and considering only taxpayers who began activities prior to 01.01.2016.

1. The total amount of VAT declared was 11.3% greater than the previous month and 2.5% greater than in the same month of the previous year (in nominal Pesos).
2. The VAT amount declared by those using the proposal is 11.5% greater than the previous month.

It is inferred from the foregoing that the pre-filled form 29 is being intensively used by the majority of taxpayers and without significantly affecting the declared amounts.

Participation of relevant players:

Undoubtedly one of the main challenges was the interrelationship with the tax intermediaries (accountants and advisers) who initially expressed certain apprehensions regarding the operational implications of the new project, especially with those transactions that are billed with time differences due to month changes and which could have an impact on the assessment of the VAT tax credit which may be deducted from the debits of a particular month. We have been working with them simultaneously in order to clarify those concerns. Likewise, internal instructions were issued in order not to generate examinations on time differences resulting from the introduction of the proposal. Thus, no action is indeed excessive for strengthening the use of this important simplification tool.

Next steps:

Undoubtedly, these months in which the pre-filled VAT proposal has become operational, have been useful for reviewing the VAT strategic guidelines, overcoming gaps observed in the processes and support systems, aligning certain instructions that were conceived in a paper world and specifying criteria for focusing control on those taxpayers who have deliberately decided not to comply with their tax obligations, considering to this end, that the taxpayer should be in the inner part of management.  These lessons have already been included for consideration in the 2018 strategic plan.

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