​The sale of goods or provision of services through digital platforms have particular characteristics, which slip through the analysis methodology normally used in the context of brick-and-mortar shops​​ and challenge existing legal institutions, including competition.

One issue that has not been fully examined in this area refers to the tax aspects of the economic activity of cross-border electronic platforms and their impact on competition. More specifically, unlike a traditional company, which carries out its activity in a physical establishment or at least with a local link—and which, therefore, must pay taxes in each country where it operates—, cross-border e-commerce or the provision of services by foreign platforms only pays taxes in the country where the company is registered (this does not prevent, for example, some of these companies from being investigated by the tax agencies to assess possible evasion practices). Indeed, in very general terms, the rules of international taxation establish that each country has the right to tax income that is produced in its territory, but only if the company is physically present in the country  (the precise legal concept is that of a permanent establishment). Thus, to the extent that the development of digital solutions has made it unnecessary for a business to be physically present in the countries where its economic activity is carried out, this entails a regulatory asymmetry for taxes between a traditional economic agent and one that bases its activity on the digital economy and that has a strong cross-border component (e.g., the use of a pl​The sale of goods or provision of services through digital platforms have particular characteristics, which slip through the analysis methodology normally used in the context of brick-and-mortar shops​​ and challenge existing legal institutions, including competition.

One issue that has not been fully examined in this area refers to the tax aspects of the economic activity of cross-border electronic platforms and their impact on competition. More specifically, unlike a traditional company, which carries out its activity in a physical establishment or at least with a local link—and which, therefore, must pay taxes in each country where it operates—, cross-border e-commerce or the provision of services by foreign platforms only pays taxes in the country where the company is registered (this does not prevent, for example, some of these companies from being investigated by the tax agencies to assess possible evasion practices). Indeed, in very general terms, the rules of international taxation establish that each country has the right to tax income that is produced in its territory, but only if the company is physically present in the country  (the precise legal concept is that of a permanent establishment). Thus, to the extent that the development of digital solutions has made it unnecessary for a business to be physically present in the countries where its economic activity is carried out, this entails a regulatory asymmetry for taxes between a traditional economic agent and one that bases its activity on the digital economy and that has a strong cross-border component (e.g., the use of a platform domiciled in another country for food delivery services somewhere in Chile).

In this regard, it is interesting to delve into remarks made recently by the competition commissioner and current favourite in the polls for the presidency of the European Commission, Margrethe Vestager, at the May session of the European Economic and Social Committee, when she insisted on the need for a global solution to digital taxation. Specifically, the commissioner explained that the entity has been promoting a community solution for digital taxation, with the intention of it serving as an example for other jurisdictions to replicate.

Why are Vestager's comments important and how are they relevant to Chile? Her reflection seems to be relevant when taking into account two important issues: (i) the fact that it is the European Union's competition authority that has raised this point; and, (ii) the discussion on the taxation of the sale of goods or services by digital platforms within the framework of the tax reform proposed by the current Government, which is currently being discussed in Congress.

The problem seems to be that, by establishing different tax charges among competitors in the same market, regulation would tend to predetermine more burdensome cost structures for some to the detriment of others, without any associated tax policy justification (e.g., the internalisation of some particular externality of the brick-and-mortar activity).

Although for other reasons, this is the logic of the European State aid regime, which, under certain conditions, declares incompatible with EU rules those regulations—including tax regulations—that tend to unjustifiably favour certain companies of one EU member country over those of another (cfr. Article 107 of the Treaty on the Functioning of the European Union or TFEU). Indeed, in the case of digital platforms, the European Union has ruled on two relevant cases that illustrate the Commission's concern about asymmetrical tax treatment between competitors: (i) the Apple case, in which the Commission challenged the Irish State's rulings on Apple's tax charge, interpreting that the subsidiaries of that company were not residents, subjecting them to a more advantageous regime than other companies competing in the common market; and (ii) the Amazon case, in which the Commission objected to the profit attribution scheme applied between two of Amazon’s subsidiary companies located in Luxembourg. In both cases, the Commission determined that the particular interpretation of these States on the tax design applied to these companies, acted as a State aid that constituted a selective advantage compared to the other companies from other Member States, and, therefore, violated Article 107 of the TFEU.

Although the concept of State aid has a special meaning within the framework of an international treaty as complex and multifactorial as the one governing the European Union, Chile's competition law—DL 211—does not expressly recognise this concept in its list of offences (although the current regulation on international trade does). However, in practice, the objective of maintaining a market free from artificial interference that alters competition is consistent with European regulations. In this regard, having an authority abstain from collecting the corresponding taxes, in accordance with the applicable law, could, under certain specific circumstances, be deemed to be a distortion capable of altering a market's competitive equilibrium, which may be applicable to the operation of certain digital platforms domiciled in foreign countries. Similarly, a regulation that tends to establish—or does not prevent—such asymmetries could also be of interest to our antitrust agencies in certain specific cases, which would be similar to the European state aid regime.

Thus, in line with European State aid jurisprudence, the Chilean Antitrust Court (TDLC), by virtue of the regulatory recommendation power conferred by Section 18-4 of DL 211, has twice referred to asymmetrical tax treatments as a source of competitive distortions. Thus in the Sanitary Installers case (2004), the TDLC studied Article 9 bis of the Sanitary Services Law, which grants sanitary service concessionaires the right to the free use of national public property to install sanitary infrastructure, which did not occur in the case of the external installers. Meanwhile, in the Cruceros (cruise ship) case (2008), the TDLC was consulted on the regulation that exempted certain foreign shipowners from paying Value Added Tax (IVA), while domestic operators did not receive this exemption. In both cases, the TDLC concluded that there was discrimination from a legal source that distorted competition and recommended the repeal of the respective legal provisions.

What is interesting here is that the TDLC considered that eventual differences in tax treatment, even when they originate in a legal norm, are subject to being evaluated in terms of their impact on competition. This doctrine has implications that may extend to cross-border digital platforms, insofar as they, or those offering services through them, are not taxed on some of the taxes applicable to their brick-and-mortar competitors (e.g., VAT on sales).

This problem could have an impact on the processing of the tax reform, where it would be perfectly possible for the co-legislators to acknowledge this doctrine of the TDLC as a basis for demanding taxation of such activities, thereby preventing a quasi-regulatory income benefit from being granted. Indeed, in line with the ​trend in other countries​​, the Treasury Minister has announced the intention to tax digital platforms in Chile and thus  “level the playing field” for digital commerce, mainly in terms of VAT payment. Thus, companies such as Netflix, Uber or Spotify, should this reform prosper, would be subject to paying this tax on their sales in Chile.

Commissioner Vestager's remarks illustrate that the potential implications of regulatory asymmetries in tax matters are not easily resolved. Following a long tradition of competition law, the European Union has been pushing this issue for quite some time. In the case of Chile, there are two precedents, the most recent from about a decade ago, that raise the question of whether they will eventually constitute a relevant doctrine on asymmetrical tax regimes.

atform domiciled in another country for food delivery services somewhere in Chile).

In this regard, it is interesting to delve into remarks made recently by the competition commissioner and current favourite in the polls for the presidency of the European Commission, Margrethe Vestager, at the May session of the European Economic and Social Committee, when she insisted on the need for a global solution to digital taxation. Specifically, the commissioner explained that the entity has been promoting a community solution for digital taxation, with the intention of it serving as an example for other jurisdictions to replicate.

Why are Vestager's comments important and how are they relevant to Chile? Her reflection seems to be relevant when taking into account two important issues: (i) the fact that it is the European Union's competition authority that has raised this point; and, (ii) the discussion on the taxation of the sale of goods or services by digital platforms within the framework of the tax reform proposed by the current Government, which is currently being discussed in Congress.

The problem seems to be that, by establishing different tax charges among competitors in the same market, regulation would tend to predetermine more burdensome cost structures for some to the detriment of others, without any associated tax policy justification (e.g., the internalisation of some particular externality of the brick-and-mortar activity).

Although for other reasons, this is the logic of the European State aid regime, which, under certain conditions, declares incompatible with EU rules those regulations—including tax regulations—that tend to unjustifiably favour certain companies of one EU member country over those of another (cfr. Article 107 of the Treaty on the Functioning of the European Union or TFEU). Indeed, in the case of digital platforms, the European Union has ruled on two relevant cases that illustrate the Commission's concern about asymmetrical tax treatment between competitors: (i) the Apple case, in which the Commission challenged the Irish State's rulings on Apple's tax charge, interpreting that the subsidiaries of that company were not residents, subjecting them to a more advantageous regime than other companies competing in the common market; and (ii) the Amazon case, in which the Commission objected to the profit attribution scheme applied between two of Amazon’s subsidiary companies located in Luxembourg. In both cases, the Commission determined that the particular interpretation of these States on the tax design applied to these companies, acted as a State aid that constituted a selective advantage compared to the other companies from other Member States, and, therefore, violated Article 107 of the TFEU.

Although the concept of State aid has a special meaning within the framework of an international treaty as complex and multifactorial as the one governing the European Union, Chile's competition law—DL 211—does not expressly recognise this concept in its list of offences (although the current regulation on international trade does). However, in practice, the objective of maintaining a market free from artificial interference that alters competition is consistent with European regulations. In this regard, having an authority abstain from collecting the corresponding taxes, in accordance with the applicable law, could, under certain specific circumstances, be deemed to be a distortion capable of altering a market's competitive equilibrium, which may be applicable to the operation of certain digital platforms domiciled in foreign countries. Similarly, a regulation that tends to establish—or does not prevent—such asymmetries could also be of interest to our antitrust agencies in certain specific cases, which would be similar to the European state aid regime.

Thus, in line with European State aid jurisprudence, the Chilean Antitrust Court (TDLC), by virtue of the regulatory recommendation power conferred by Section 18-4 of DL 211, has twice referred to asymmetrical tax treatments as a source of competitive distortions. Thus in the Sanitary Installers case (2004), the TDLC studied Article 9 bis of the Sanitary Services Law, which grants sanitary service concessionaires the right to the free use of national public property to install sanitary infrastructure, which did not occur in the case of the external installers. Meanwhile, in the Cruceros (cruise ship) case (2008), the TDLC was consulted on the regulation that exempted certain foreign shipowners from paying Value Added Tax (IVA), while domestic operators did not receive this exemption. In both cases, the TDLC concluded that there was discrimination from a legal source that distorted competition and recommended the repeal of the respective legal provisions.

What is interesting here is that the TDLC considered that eventual differences in tax treatment, even when they originate in a legal norm, are subject to being evaluated in terms of their impact on competition. This doctrine has implications that may extend to cross-border digital platforms, insofar as they, or those offering services through them, are not taxed on some of the taxes applicable to their brick-and-mortar competitors (e.g., VAT on sales).

This problem could have an impact on the processing of the tax reform, where it would be perfectly possible for the co-legislators to acknowledge this doctrine of the TDLC as a basis for demanding taxation of such activities, thereby preventing a quasi-regulatory income benefit from being granted. Indeed, in line with the ​trend in other countries​​, the Treasury Minister has announced the intention to tax digital platforms in Chile and thus  “level the playing field” for digital commerce, mainly in terms of VAT payment. Thus, companies such as Netflix, Uber or Spotify, should this reform prosper, would be subject to paying this tax on their sales in Chile.

Commissioner Vestager's remarks illustrate that the potential implications of regulatory asymmetries in tax matters are not easily resolved. Following a long tradition of competition law, the European Union has been pushing this issue for quite some time. In the case of Chile, there are two precedents, the most recent from about a decade ago, that raise the question of whether they will eventually constitute a relevant doctrine on asymmetrical tax regimes.