WORLD TRADE G/SCM/N/25/CHL
26September 1997
ORGANIZATION(97-3997)
Original: Spanish Committee onSubsidies and
Countervailing Measures
SUBSIDIES
Updating Notifications Pursuant toArticle XVI.1 oftheGATT 1994 and
Article 25oftheAgreement onSubsidies and
Countervailing Measures
CHILE
Thefollowing communication, dated 5September 1997, hasbeenreceived fromthePermanent
Mission ofChile.
_______________
Thepresent document contains the1997updating ofthesubsidies maintained byChile under
Article XVI.1 oftheGATT 1994 andArticle 25oftheAgreement onSubsidies andCountervailing
Measures, inaccordance withSecretariat document G/SCM/N/25.
Chile wishes topoint outthat,inkeeping withArticle 25.7oftheAgreement onSubsidies
andCountervailing Measures, notification ofaprogramme ormeasure doesnotprejudge either its
legalstatus under theGATT 1994 ortheAgreement, theeffects under theAgreement orthenature
oftheprogramme ormeasure; indeed, notification ofaprogramme ormeasure doesnotprejudge
itsactionable ornon-actionable nature.G/SCM/N/25/CHL
Page2
CONTENTS
Page
I. TAX CREDIT FOR INVESTMENT INTHE PROVINCES OFARICA
AND PARINACOTA (REGION I).............................. 3
II. EXEMPTION FROM FIRST-CATEGORY TAX UNDER THE INCOME
TAX LAW ONEARNINGS INTHE FINANCIAL YEARS OFMANAGEMENT
COMPANIES AND USERS INTHE FREE ZONES INTHE CITIES OF
IQUIQUE (REGION I)AND PUNTA ARENAS (REGION XII) ........... 4
III. SUPPORT PROGRAMME FOR THE MANAGEMENT OFEXPORT
FIRMS (PREMEX) ........................................ 5
IV. SIMPLIFIED SYSTEM OFREFUNDS FOR MINOR EXPORTS .......... 6
V. SYSTEM OFDEFERRED PAYMENT OFCUSTOMS DUTIES, TAX
CREDIT AND OTHER TAX BENEFITS ......................... 8
VI. MOTOR VEHICLE STATUTE ................................ 9G/SCM/N/25/CHL
Page3
PROGRAMME I
1. Title
TaxCredit forInvestment intheProvinces ofArica andParinacota (Region I).
2. Period
June1997.
3. Objectives
Toreverse thedeclining economy oftheprovinces ofArica andParinacota, making useboth
oftheiradvantageous geographical position fortradepurposes andtheirtourist attractions, strengthening
entrepreneurship andconsolidating Arica asaninter-ocean corridor.
4. Background andauthority
Background: Arica andParinacota, asoutlying provinces, areatadisadvantage inrelation
tothedevelopment oftherestofthecountry.
Authority: LawNo.19,420, published intheOfficial Journal of23October 1995, andLaw
No.19,478 which amends it,published intheOfficial Journal of24October 1996.
5. Form ofthesubsidy
Taxcredit intheform ofataxallowance.
6. Towhom andhowthesubsidy isprovided
Taxpayers withinvestment projects amounting tomore thanUTM 2,000 (equivalent of
US$114,441 atJune1997 rates) forprojects intheprovince ofArica andmore thanUTM 1,000
(equivalent ofUS$57,220 atJune1997 rates) forprojects intheprovince ofParinacota.
They areeligible forataxcredit of20percentofthevalue ofcertain non-convertible assets,
namely, buildings, machinery andequipment, including immovable property intended exclusively for
commercial exploitation fortourist purposes, directly tiedinwiththeproduction ofgoods orthesupply
ofservices ofthetaxpayer 'sbusiness oractivity, purchased neworfinished inthefinancial year.
Taxpayers arealsoeligible forthecredit iftheyinvest intheconstruction ofbuildings foruse
asoffices ordwellings, whether ornottheyinclude commercial premises, parking orstorage space,
consisting ofmore thanfiveunits, intheplaces specified intheLaw, withabuiltareaofnotlessthan
1,000 square metres, completed orbuiltduring thefinancial year.
Thetaxes areforgiven bydeducting thecredit fromthefirst-category taxpayable asfromthe
trading yearofthepurchase orconstruction oftheproperty.
7. Amount ofthesubsidy
Theamount ofthesubsidy isnotavailable, inviewoftherecent implementation ofthisLaw.G/SCM/N/25/CHL
Page4
8. Duration
Thisincentivebecameeffective,retroactively,asfrom1January1995.Theperiodforeligibility
forthisbenefit isupto31December 1998andmaybeextended to31December 1999andsubsequently
to31December 2000, provided theextension isordered bythePresident oftheRepublic.
Thebenefit willapply onlyinregard toassets incorporated intheinvestment project onany
oftheabove-mentioned datesonwhich thebenefit isstilleffective, although thecredit mayberecovered
uptotheyear2020.
9. Statistical data
Aspointed outinitem7ofthisnotification, nodataareavailable.
PROGRAMME II
1. Title
Exemption fromFirst-Category Taxunder theIncome TaxLawonEarnings intheFinancial
Years ofManagement Companies andUsers intheFreeZones intheCities ofIquique (Region I)and
Punta Arenas (Region XII).
2. Period
June1997.
3. Objectives
Tostimulate theeconomic development ofRegion IandRegion XIIsoastoformanattractive
areaforinvestment, economic activity, settlement, growth andsovereignty.
4. Background andauthority
Background: These areas, because oftheir location andgeographical features, areata
disadvantage inrelation tothedevelopment oftherestofthecountry.
Authority: Decree LawNo.1055of1975andDecree LawNo.1611of1976, which together
withotherlegislationregulatingthefree-zonesystem,wererecastinMinistryofFinanceDecreeNo.341,
published inOfficial Journal No.29,775 of8June1977.
5. Form ofthesubsidy
Thesubsidy takes theform ofataxexemption.
6. Towhom andhowthesubsidy isprovided
Thisincentive isformanagement companies andusers (alllegalpersons) inthefreezones.
TheymustmeettherequirementsestablishedbytheMinistryofFinanceandbytheMinistryofEconomic
Affairs, Development andReconstruction, under contracts containing conditions freely agreed onwith
theinterested party.G/SCM/N/25/CHL
Page5
These benefits alsoapply tomanufacturing companies which areaalready established orwhich
setupinArica.
Beneficiaries areexempt fromthefirst-category taxoftheincome taxlawonearnings intheir
financial years.
7. Amount ofthesubsidy
There arenoofficial calculations oflowtaxrevenue.
8. Duration
Thisincentive tookeffect on25June1975 under Decree LawNo.1055 (Iquique andPunta
Arenas) andon10December 1976under Decree LawNo.1611(Arica). Bothofthemlastindefinitely.
9. Statistical data
Nostatistical calculation hasbeenmade toassess thetrade effects ofthesubsidy.
PROGRAMME III
1. Title
Support Programme fortheManagement ofExport Firms (PREMEX).
2. Period
June1997.
3. Objectives
Tosupporteffortstopromotetechnicalinnovationinsofttechnologies(management)andenhance
production quality infirms exporting manufactures orsoftware.
4. Background andauthority
Background: Tooffset major weaknesses insmall- andmedium-sized firms starting tooperate
intheexport sector, characterized bylittlespecialization, small-scale operations, lowforeign marketing
capacity, littledevelopment inproduction management andlagging behind inthestock ofmachinery
andequipment. Thisallmeans thatitisessential todevise atooltopromote production andincrease
theoverall productivity leveloffactors and/or quality ofproduction.
Authority: Production Development Corporation (CORFO), Resolution 429, dated
9August 1996, adopting thePREMEX Regulations.
5. Form ofthesubsidy
Direct transfer byco-financing ofassessment andproject consultancies.G/SCM/N/25/CHL
Page6
6. Towhom andhowthesubsidy isprovided
Thesubsidy isforallfirms (consisting ofnatural orlegal persons) exporting manufactures
orsoftware anddemonstrating accumulated minimum exports ofUS$200,000 overthepasttwoyears
and,inaddition, netsalesofnotmore thantheequivalent ofUS$10 million inthepastyear.
Thesubsidies aretofinance thehiring ofconsultants toassess thefirm'sdegree of
competitiveness andalsoforprojects toincorporate modern production management techniques, so
astoenhance suchthings asproductivity andquality intheproduction planning andmanagement
processes when shortcomings havebeendetected inthecourse oftheassessment phase.
Thesubsidy under thisprogramme isgranted toafirmonlyonce.
There willbeasubsidy fortheassessment consultancy stage andanother fortheproject
consultancy stage.
Theassessment consultancy willbegranted asubsidy equal to60percentofthecostofthe
consultancy, withamaximum ofUTM 80(equivalent toUS$4,577 atJune1997 rates) andwillbe
paidoncompletion, oncetherequirements setoutintheRegulations havebeenmet.
Theproject consultancy willbegranted asubsidy equal to50percentofthecostofthe
consultancy, withamaximum ofUTM 870(equivalent toUS$49,781 atJune1997 rates) andwill
bepaidintwoparts. Thefirst,equal to40percentoftheapproved subsidy, willbepaidatmid-term
oftheperiod stipulated inthecontract, oncetherequirements setoutintheRegulations havebeen
met; thesecond, equal totheremaining 60percent, willbepaidattheendoftheagreed period for
theaction, oncetherequirements setoutintheRegulations havebeenmet.
7. Amount ofthesubsidy
Theannual budget forthissubsidy is300,000,000 Chilean pesos (equivalent toUS$719,000
atJune1997 rates).
8. Duration
Thisincentive waseffective asof9August 1996andwillbemaintained aslongastheallocation
ismade intherelevant budget oftheProduction Promotion Corporation.
9. Statistical data
Nodataavailable.
PROGRAMME IV
1. Title
Simplified System ofRefunds forMinor Exports.
2. Period
June1997.G/SCM/N/25/CHL
Page7
3. Objectives
Tosimplify therefunding ofduties onimported inputs incorporated inminor exports, soas
toavoid theadministrative complexities thattheoverall system mayinvolve foranemerging exporter.
4. Background andauthority
Background: Atthetimeofentry intoforce ofthelawestablishing thisprogramme, the
drawback mechanism, inother words, themechanism foreffective recovery ofcustoms duties paid
onimports incorporated inexport products, wasdifficult touseforsmall exporters starting outinthe
export business. Thismeant thattheywerelesscompetitive oninternational markets. Toovercome
thisproblem, amechanism wasestablished asanalternative tothegeneral drawback system andit
provides forasimplified refund oflevies affecting thecostofinputs usedinminor exports.
Authority: LawNo.18,480, published intheOfficial Journal of19December 1985, and
Supreme Decree No.123oftheMinistry ofEconomic Affairs, Development andReconstruction,
published intheOfficial Journal of12May1997, which contains thecurrent schedule ofproducts
excluded from thescheme.
5. Form ofthesubsidy
Thissimplified system doesnotinitself constitute asubsidy. Thesubsidy component would
beintheamounts granted bythetaxauthorities toexporters inasimplified form, which donotstrictly
correspond totariffs actually paidbyexporters, owing tothelarge andcontinual reduction oftariffs
inChile. Accordingly, asubsidy iscreated intheform ofadirect transfer.
6. Towhom andhowthesubsidy isprovided
Thebeneficiaries areexporters ofproducts under tariffheadings involving small amounts and/or
thosewhoexport themasinputs inotherfinalproducts. Thiscategory covers products forwhich exports
inthe1983-1984 biennium were notmore thanUS$2.5 million orUS$5 million in1990.
Thelawestablishes asimplified refund of10percent, 5percentor3percentonthef.o.b.
exported value oronthenetvalue oftheinputs, asappropriate. Themaximum export values forthe
various ratesareupdated eachyear.
Theeffective amounts for1997 fortariff items defined asminor exports, areasfollows:
10percent - US$11,450,000
5percent - US$17,175,000
3percent - US$20,610,000
Inaddition, thelawentitles theauthorities todisqualify products incertain circumstances, for
instance, when theproducts havenotaveraged anexport increase overthepastthree calendar years
thatisequal to1.5times ormore theaverage increase inthegross domestic product.
7. Amount ofthesubsidy
There arenoofficial calculations ofthesubsidy component ofthesimplified refund system.
However, thetotalamount refunded in1996 wasUS$161 million, butalarge partofthatfigure is
fordrawback within thestrict meaning oftheterm.
In1996, approximately 13.3percentofChilean exports usedthismechanism.G/SCM/N/25/CHL
Page8
8. Duration
Thelawdoesnotestablish atime-limit. However, astheproducts reach theceilings specified
inthelaw,theyexitthesystem. Thisisreflected intheschedule ofexclusions issued bytheMinistry
ofEconomic Affairs, Development andReconstruction by31March eachyear.
9. Statistical data
Nodataavailable.
PROGRAMME V
1. Title
System ofDeferred Payment ofCustoms Duties, TaxCredit andOther TaxBenefits.
2. Period
June1997.
3. Objectives
Theobjective istopromote technological innovation bytransfer incorporated inproduction
investment, stimulating thepurchase ofcapital goods, bothimported andlocally produced, especially
inthecaseofexport-oriented activities.
4. Background andauthority
Background: Need toencourage technological modernization byinvestment incapital goods,
strengthening theproduction infrastructure forgoods andservices fortheforeign market.
Authority: LawNo.18,634, published intheOfficial Journal of5August 1987, andthe
Regulations thereto, Ministry ofFinance Supreme Decree No.1157, published intheOfficial Journal
of19April 1990, andamendments thereto.
5. Form ofthesubsidy
Deferred payment oftariffs ortaxcredits donotinthemselves constitute subsidies. Asubsidy
exists onlyifadebtispartly orwholly forgiven, when thecapital goods havebeenintended forthe
production ofexport goods orservices.
6. Towhom andhowthesubsidy isprovided
Thebeneficiariesareproducersandexporters(directandindirect)ofgoodsandservicesobtained
withcapital goods which havebeeneligible foradeferred payment orforataxcredit.
"Capital goods" (machinery, vehicles, equipment andtools) eligible forthedeferred payment
ortaxcredit scheme istaken tomean those directly orindirectly intended fortheproduction ofgoods
orservices orthemarketing thereof, withaneconomic lifeofnotlessthanthreeyears, ofaminimum
value ofUS$3,716 (adjustable eachyear). Inthecaseofvehicles, theminimum value isUS$4,708.G/SCM/N/25/CHL
Page9
Thelawestablishes thatthepayment ofcustoms duties onimports ofcapital goods maybe
deferred uptoamaximum period ofseven years, payable inthree instalments. Thedebtissubject
toa(market) interest rateestablished bytheCentral Bank ofChile.
Purchasers ofChilean-manufactured capital goods areentitled toataxcredit equivalent to73per
centofthecurrent customs duty, onthenetinvoice value ofthegoods. Thisdebttothetaxauthorities
issubject toa(market) interest rateestablished bytheCentral Bank ofChile andthebeneficiary must
repay authorities within amaximum period ofseven years.
Thesubsidy arises where thetaxauthorities partly orwholly forgive amounts duefordeferred
payments ofimport duties oncapital goods orcredits granted inthecaseofChilean-manufactured capital
goods. Thisoccurs when theexporter hasusedthecapital goods toproduce exports andwrite down
thedebt2.5times theexport percentage oftotalsalesonexpiry oftheperiod ofthefirstinstalment
(100percentif40percentormore havebeenexported). Forthetworemaining instalments, itis
written down 1.66times theexport percentage oftotalsales(100percentif60percentormore have
beenexported). Theperiod taken intoaccount forthereduction isthetwoyears prior toexpiry of
eachoftheinstalments.
Land vehicles arenoteligible fordebtforgiveness, unless theyareusedfortheinternational
transport ofgoods.
7. Amount ofthesubsidy
There arenoofficial calculations ofthescheme 'ssubsidy component. Theonlyinformation
available isonthetotalamounts ofdeferred payments, approximately US$160 million, andfortax
credits anamount ofUS$16 million for1994. However, alarge partofthese amounts isreceived
bythetaxauthorities and,accordingly, itdoesnotconstitute asubsidy.
8. Duration
Thelawdoesnotestablish anytime-limit.
9. Statistical data
Nodataavailable.
PROGRAMME VI
1. Title
Motor Vehicle Statute.
2. Period
June1997.
3. Objectives
Toturntheautomobile sector intoadynamic export sector, based onefficiency andthereby
doing away withthespecial support itreceives atthepresent time.G/SCM/N/25/CHL
Page10
4. Background andauthority
Background: Toprovide asafer transition tothenormal regime oftheother sectors ofthe
economy.
Authority: LawNo.18,483, which entered intoforce on28December 1985.
5. Form ofthesubsidy
Taxcredits andcustoms exemption, intheform ofataxallowance.
6. Towhom andhowthesubsidy isprovided
Endprocessors thatassemble motor vehicles andareentered assuchintheappropriate Register
andalsouseminimum percentages oflocalcontent established inthelawitself.
Inthecaseoftaxcredits forlocalcontent, endprocessors mustalsobeincluded intheExport
Development Programme.
Thesubsidy takes three forms:
- Alocal content taxcredit forfirms assembling CKD units, withadulycertified
13percentminimum content oflocalparts. Thetaxcredit isnow30percentofthe
local content percentage, onthecustoms value ofthefinished CBU vehicle, andit
decreases 10percentage points ayearuntilitendsin1998.
- Ataxcredit topromote exports, equal to11percentofthef.o.b. value ofexports
oflocal components (lessthose recorded forcompensatory purposes, asmentioned
below) withaceiling of8.25percentoftheSKD andCKD units imported. This
percentage declines by2.75percentage points asfrom 31December 1995.
- CKD andSKD imports arewholly orpartly exempt from an11percentadvalorem
dutywhen endprocessors export localcomponents, inaccordance withaprogramme
approved bytheMotor Vehicle Commission. Thisbenefit isgranted forimports up
toanamount equivalent tolocalcomponent exports overaperiod of12months.
Inall,assembly firms cannot under thesearrangements obtain benefits higher than35percent
ofthecustoms value ofthefinished vehicle.
7. Amount ofthesubsidy
Theamount ofthetaxcredits andthecompensatory trade wasUS$36.82 million in1995and
US$29.52 million in1996. However, partoftheamount ofthecustoms exemption isnotinitself
asubsidy because itinvolves drawback.
8. Duration
Thisincentive came intoeffect on28December 1988 andwilllastuntil31December 1998
inthecaseoftaxcredits, withnotime-limit inthecaseofthecustoms exemption.
9. Statistical data
Nodataavailable.