Chile SII Clarifies VAT Rules for Digital Platforms

The Chilean Internal Revenue Service (SII) published a tax notice clarifying the tax treatment of a digital platform that acts as an intermediary between clients who need judicial notification services and court officers who provide them. The SII explains how the money flow should be treated, given the specific circumstances of the case, by differentiating between pass-through payments and actual platform revenue.

Economic Substance Over Legal Form

The digital platform does not provide legal services. Instead, it connects lawyers and law firms (clients) with court officers. The court officers set the price, clients request the service through the platform, and the digital platform collects the full payment. Once it collects the client's payment, the platform distributes most of it to the court officers while keeping a 15% commission.

The SII explained that, from a tax perspective, the key issue is how this money flow should be treated. From that perspective, even though the platform collects 100% of the payment, that does not reflect the transaction's real economic substance. In reality, only 15% represents the platform's income for brokerage or intermediation services, which is subject to VAT. The remaining 85% belongs to the court officers as payment for their own VAT-exempt services.

More specifically, the remaining 85% is considered income of the receivers, who should report it under personal income tax rules as professional earnings. Consequently, they are responsible for issuing their own invoices directly to the client for their part of the service.

As a result of the SII's conclusion, the digital platform should issue VAT documents only for its commission, while the payment passed through it for the court officers is treated as a pass-through amount, not revenue. The SII also clarified that the platform should issue credit notes to cancel its initial invoices to correct the VAT document mistakenly issued for the full transaction amount instead of only its own commission.

Conclusion

The SII's interpretation offers clarity on the VAT treatment of judicial service intermediation platforms and provides valuable guidance for other digital platform operators with similar business models. The notice serves as a practical reference for digital intermediaries seeking to correctly determine their taxable revenue and ensure their VAT documentation reflects the economic substance of their transactions, rather than the gross amounts collected on behalf of third parties.

Source: Chilean Internal Revenue Service (SII)