Pension funds invest large sums of money in the development of real estate and infrastructure projects. According to information available from the Pension Superintendent, these funds would maintain investments in alternative assets totaling over USD 110,000,000 (this class of assets includes, among others, the aforementioned projects).

As we well know, the profitability of investments made by Pension Funds directly benefits their respective affiliates, so logically, we must believe that the legislator would always seek to maximize this profitability.

Relacionado con lo anterior, se encuentra la sobretasa de impuesto territorial incorporada por la reforma tributaria de 2020 que “Moderniza la Legislación Tributaria”.

La Sobretasa es un impuesto progresivo que grava el avalúo fiscal total del contribuyente (suma de avalúos fiscales de bienes raíces de propiedad de un RUT) y cuya tasa marginal máxima asciende a un 0,425%. En simple, la Sobretasa es un mayor impuesto territorial a pagar.

Currently, investment vehicles owning real estate projects in which Pension Funds indirectly invest pay substantial sums for the Surcharge, significantly affecting the profitability of Pension Fund investments and therefore the pensions of respective affiliates.

This is despite the fact that, in our opinion, the legislator would have intended for the Surcharge not to burden the indirect real estate investments of Pension Funds, considering that otherwise, the pensions of all Chileans would be affected.

This would stem from Article 7 bis of the Property Tax Law, which establishes that properties invested in by Pension Funds in accordance with letter n) of Article 45 of Decree Law No. 3,500 of 1980 shall not be subject to the Surcharge.

Article 45 of Decree Law No. 3,500 of 1980 regulates how resources administered by AFPs should be invested. In turn, letter n) states as investment objects: instruments, operations, and contracts representing real estate assets, private equity, private debt, infrastructure, and other types of assets.

Thus, from the reading of the aforementioned legal provisions and a practical analysis and study of the matter, in our opinion, investment vehicles owning real estate projects in which Pension Funds indirectly invest could be exempt from the Surcharge.

The above analysis is not without complexities to arrive at a clear conclusion, and there are no pronouncements from the Internal Revenue Service or the Pension Funds Superintendent regarding the applicability of the exemption in the described cases.

However, there are other elements or clear signals that the legislator's intention was not to burden the investment vehicles in question with the surcharge, and these are primarily as follows:

1. The spirit of the exemption of Article 7 bis of the Property Tax Law, the subject of this opinion, would be not to affect the pensions of the affiliates. Regarding this point, it should be noted that it is expressly recorded in the history of Law No. 21,210 that the exemption would have sought for real estate investments of Pension Funds, both direct and through investment vehicles, not to pay the Surcharge. In the legislative discussion of the Surcharge, lawyer Manuel Alcalde, coordinator of tax policy for the then government of President Sebastián Piñera, responded to his interrogator, Senator García, that a recent legal reform allowed pension funds to invest directly in real estate, so it is wanted to avoid that they bear the surcharge on their profits. He added that it is both direct investment and through investment vehicles of pension fund administrators.
2. In practice, Pension Funds are not direct owners of real estate and only invest in them indirectly (through the aforementioned investment vehicles). In fact, during our investigation into the practical application of the exemption in question, we did not find evidence indicating direct real estate investments by Pension Funds, even though such funds are authorized to be direct owners of real estate. We only found evidence of million-dollar investments by Pension Funds in investment funds that, in turn, own stock corporations which develop enormous real estate and infrastructure projects.

Given the above, we call on other tax and real estate experts to express their views on the issues raised, as well as on the Internal Revenue Service and the Pension Funds Superintendent.

It is public knowledge that the non-application or incorrect application of legal exemptions and the miscalculation of property tax give rise to a number of administrative and judicial claims and to million-dollar refunds from the General Treasury of the Republic in favor of taxpayers.

In the context of the discussion of the pension reform and the present tax reform "Regarding Compliance with Tax Obligations", it is our duty to ensure that the appropriate taxes are paid as well as that the tax exemptions established by law are applied, especially when they affect the pensions of affiliates.

The practical application of this exemption must be clarified, thus avoiding it becoming a dead letter.

 

Martín Hudson Correa

Senior Attorney Jara del Favero Lawyers

Master in Tax Management and Administration Tax Specialization

Diplomas from UAI and U. Chile

 

Sebastián Hudson Correa

General Manager Póliza Gestión Inmobiliaria

MSc Environmental and Infrastructure Planning

Master in Real Estate Project Management