WORLD TRADE  
ORGANIZATION  G/SCM/Q2/CHL/20 
3 November 2004 
 
 (04-4671) 
Committee on Subsidies 
and Countervailing Measures Original:   Spanish 
 
 
 
SUBSIDIES  
 
Replies to Questions Posed by the UNITED STATES1 Regarding  
the New and Full Notifications of CHILE2 
 
  The following communication, dated 1 November 2004, is being circulated at the request of the delegation of Chile.  
___________________ 
   The following are questions regarding the notifi cation of Chile pursuant to Article XVI:I of 
the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures, in 
document G/SCM/N/95/CHL.  
 
I. TAX CREDIT FOR INVESTMENT IN THE PROVINCES OF ARICA AND 
PARINACOTA (REGION I) 
Question
 
 
 Besides the tourist industry, what oth er industries benefit fr om this programme? 
 
Reply  
 
 Taxpayers are also eligible for tax credit if they  invest in the construction of buildings for use 
as offices or dwellings, whether or not they incl ude business premises, car pa rks or shops, consisting 
of more than five units, in places specified in the Law, with a built area of not less than 1,000m2 and 
completed or built during the financial year.  
II. EXEMPTION FROM FIRST-CATEGORY TAX UNDER THE INCOME TAX LAW 
ON EARNINGS 
Question
 
 
1. What are the typical requirements establishe d by the Ministry of Finance and the 
Ministry of Economic Affairs?  Are compan ies located in the free zones required, on a de jure  or 
de facto basis, to export or use domest ic over imported goods (e.g., are there local 
content/domestic value-added requirements)? 
                                                      
 1 G/SCM/Q2/CHL/18. 
 2 G/SCM/N/95/CHL. G/SCM/Q2/CHL/20 
Page 2  
 
 Reply
 
  The requirements are not discretionary, but ar e explicitly provided for in Decree having force 
of law (DFL) No. 1 of the Ministry of Finance, of 18 April 2001, published in the Official Journal on 
11 September 2001. 
 
 DFL No. 1, enacted on 18 April 2001, approves the revised, coordinated and consolidated text 
of Law No. 19,420, which establishes incentives fo r the economic development of the provinces of 
Arica and Parinacota and amends  the legislation indicated.  
 
 Companies wishing to benefit that are located in the free zones are not required, on either a de 
jure or a de facto  basis, to export or use domestic over imported inputs. 
 
Question
 
 
2. Are all companies located in free zones exempt from "first-category taxes"? 
Reply  
 
 Yes. 
 
Question  
 
3. What is the normal length of time between  the due date for the first-category tax and 
payment of the second-category tax?  
Reply  
 
 First-category tax is payable at the latest by Ap ril of the fiscal (calendar) year following that 
in which the income was earned.   Second-category tax is a withholding tax due m onthly not later than the twelfth day of the 
month following that in which the income was earned.  Question
 
 
4. What other benefits are provided to companies in a free zone? 
Reply  
 
 The notified programmes are the only benefits r eceived by companies located in a free zone.  
DFL No. 341; FDL 1/2001; DL No. 889; Law No. 19,946.  
Question
 
 
5. What is the legal status of the companies loca ted in the free zones?  Do they have to be 
incorporated in accordance to Chilean law? 
Reply  
 
 Yes, they must be incorporated in accorda nce with Chilean law, like any other company 
established in Chile.  The presumption of extraterri toriality provided for in law is only for customs 
and tax purposes.  G/SCM/Q2/CHL/20 
 Page 3 
 
 
 Question  
 
6. It is noted that in document G/SCM/Q2/CHL/16, Chile states that "the free-trade zones 
enjoy extraterritoriality, that is to say, go ods are assumed to be abroad and are therefore 
tax-exempt unless they enter the rest of the na tional territory".  Is it Chile’s view that 
companies located in its free trade zones are exempt from the normal disciplines of the 
Subsidies Agreement, such as specific company income tax benefits and other normally actionable subsidies, including prohibited subs idies under Article 3?  If so, please explain the 
legal basis in the Subsidies Agreement or other WTO agreement for this exemption. 
Reply
 
 
 No, the disciplines of the Agreement on Subs idies and Countervailing Measures do indeed 
apply in the free-trade zones, since these zones form pa rt of the national territory.  It is on this premise 
that Chile notifies its programmes pursuant to  Article 25 of the Subsidies Agreement. 
 
 The reply in document G/SCM/Q2/CHL/16 to the question posed by Bolivia refers to the 
extraterritoriality of goods from free zones, that is  to say, "goods are assumed to be abroad and are 
therefore tax-exempt unless they enter the rest of national territory".  
III. SIMPLIFIED SYSTEM OF REFUNDS FOR MINOR EXPORTS 
Question
 
 
1. Is any export product eligible for this refund? 
Reply  
 
 Yes, non-traditional exports which, not being liste d in the decree on exclusions, have not 
exceeded an export value of US$18 million. 
 
Question  
 
2. Why must qualifying exports have at least 50 per cent imported inputs? 
Reply  
 
 The simplified system of refunds was reduced to 3 per cent in order to remove its export 
subsidy component.  The 3 per cent drawback and the requirement that 50 per cent of inputs are 
imported would indeed eliminate that component.  The system has hardly been used.  Question
 
 
3. How was the three percent figure established?  What is the link between the amount of 
the refund and the amount of duties paid on imported products?  How was the establishment of this figure consistent with the requirements of the Subsidies Agreement?  
Reply
 
 
 According to Annex I(i) of the Subsidies Agre ement, the drawback of import charges in 
excess of those levied on imported inputs that are consumed in the productio n of the exported product 
constitutes an export subsidy.  With the 3 per cent drawback and the requirement that 50 per cent of G/SCM/Q2/CHL/20 
Page 4  
 
 inputs are imported, the export subsidy component woul d be eliminated.  The system has hardly been 
used.  In 2003, disbursements under the single 3 per cent scheme amounted to US$116,965.  
 
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