Transfer Pricing
Country Summary
Chile
This document summarizes the transfer pricing requirements and regulations in Chile. Chile, an OECD member since 1998, has adopted transfer pricing rules and made legislative changes to align with OECD standards. Its transfer pricing regulations are consistent with the OECD Guidelines, and they empower the Chilean tax authority to conduct audits and ensure arm’s length pricing between related parties. Chilean taxpayers must submit transfer pricing documentation, including a Master file, Local File, and Country-by-Country reporting (CbCR). The definition of related parties in Chile is comprehensive and includes transactions between local and foreign entities. The documentation should be prepared in Spanish, and various forms, such as the Transfer Pricing Return, must be filed. Penalties exist for non-compliance.
Overview:
Chile’s Transfer Pricing Regulations
Chile, an OECD member since 1998, has adopted transfer pricing rules and has been actively working to bring its legislation in line with OECD standards. Their transfer pricing rules now conform to OECD Guidelines.
References to International Guidelines
Circular No. 29, issued on June 14, 2013, explicitly references the OECD guidelines for transfer pricing methods, comparability analysis, and the definition of transfer prices. Article 41-E of the Chilean Income Tax Law (CITL), amended in 2020, forms the core of Chile’s transfer pricing regulations and enforces the arm’s length principle.
Defining Related Parties
Chile’s definition of related parties, as established by Article 41-E of CITL and Circular 29/2013, encompasses various scenarios. It includes entities incorporated abroad participating in the management, control, or capital of Chilean companies, transactions among relatives, and dealings with entities in low-tax jurisdictions. The legislation explicitly applies to transactions between foreign and local entities.
Transfer Pricing Documentation
As per CITL Article 41-E, Chilean taxpayers engaging in cross-border operations subject to transfer pricing regulations must submit a sworn statement annually. This statement includes information about operations with related and unrelated parties, methods for determining prices, and details about related parties domiciled abroad.
Tax Havens & Blacklists
Chile maintains a blacklist of tax havens, with specific criteria for designating a territory or jurisdiction as a preferential tax regime. This includes tax rates, agreements for the exchange of tax information, adherence to OECD standards, and more. Preferential tax regimes have implications for reporting obligations, transfer pricing, thin capitalization, CFC rules, and withholding tax rates.
Advance Pricing Agreement (APA)
New Chilean statutes and regulations permit taxpayers to enter into APAs with tax authorities. Unilateral, bilateral, and multilateral agreements are possible, with a duration of three commercial years, renewable upon request.
Audit Practice
Chile’s tax authority, SII, has a dedicated Transfer Pricing Unit conducting intensive tax audits. Based on CITL Article 41-E and recent reforms, taxpayers must provide information about operations with related parties above specific monetary thresholds.
Transfer Pricing Documentation Requirements
Chile imposes transfer pricing documentation requirements based on the type of transactions, entity size, and CbCR obligations. Specific forms like Transfer Pricing Return, Global Sworn Return, Master File, and Local File must be submitted by eligible entities.
Industry and Company Analysis
Value drivers for the relevant industry are identified, giving insight into the common profitability levels within the industry.
Functional Analysis
An assessment is made of the significant activities, responsibilities, tangible and intangible assets, and risks undertaken by related parties in the reviewed intercompany transactions.
Choice of Transfer Pricing Method
Chile recognizes several transfer pricing methods, including the CUP method, resale price method, cost-plus method, transactional net margin method, profit split, and residual profit split. If none of these methods apply, and justification exists, other reasonable methods may be used.
Economic Analysis – Benchmark Study
Chile accepts both domestic and international comparables, including secret comparables used by the SII in some cases.
Inter-company (IC) Legal Agreement
While inter-company legal agreements formalize relationships between group entities, their significance is reduced, aligning with the 2017 OECD Guidelines.
Financial Statements
Companies listed on stock exchanges and financial institutions must disclose transactions between related parties in their financial statements.
Record Keeping
Chile follows general record-keeping rules, and no specific regulations pertain to transfer pricing record-keeping.
Penalties and Interest Charges
Chile has established penalties for non-compliance with transfer pricing documentation requirements. Fines are imposed for failure to submit, late submission, or inaccuracies. Failure to prove arm’s length pricing may lead to adjustments and penalties. Extension of the submission deadline is possible but must be requested.