Transfer Pricing Guide

CHILE
 Legal Background and
Requeriments
LEGAL BACKGROUND
The application of the arm’s length principle between related
parties is prescribed by Article 41 E of the Income Tax Law (“ITL).
“Chilean tax authority
has demonstrated to Based on the provisions of Article 41 E paragraph 3 of the ITL,
taxpayers may prepare transfer pricing reports for purposes of
be assertive and quick evidencing the determination of prices, values and profitability of
in the audit processes, those operations which are carried out with related parties.
with more than 265 The aforementioned means that such reports are not mandatory,
audit processes in the but it is advisable for the company to prepare them, in case the
past 2 years” Chilean IRS (“SII”) challenges the amounts of the prices paid
pursuant to cross border operations. Indeed, this paragraph
specifies that this faculty’s existence is without prejudice of the
taxpayer’s obligation to make available all background explaining
the application of the method used or the elaboration of the
corresponding studies.

DOCUMENTATION REQUIREMENTS
Every year, pursuant to Article 41 E paragraph 6 of the ITL,
taxpayers who carry out cross boarder operations subject to
transfer pricing regulations, must submit a sworn statement to the
“All SII (Form 1907) every last working day of June, on annual basis.
transactions Transfer Pricing Report (TP Report) must be kept in the Company
with related and submitted upon SII´s request.
parties,
Since 2015, it was also issued a new sworn statement, Form 1913,
including including several questions referred to different aspects such as: i)
restructuring Operations made with tax heavens or entities without economic
processes could substance; ii) Percentage of incomes and expenses with local related
parties; iii) Percentage of intercompany expenses over EBITDA; iv)
be subject to a Financial instruments (debt, forwards, hedge, etc.); v) Restructuring
TP audit” processes; vi) Information of economic scheme that involves foreign
entities and implies a shifting of profits, among other questions. Form
1913 must be submitted annually before the income tax affidavit´s
deadline (exact day depends on the SII calendar, but it´s commonly on
April).

TP: Transfer Pricing.

SII: Chilean Tax Authority (“Servicio de Impuestos Internos”)

CHILE- TP GUIDE- 2017

Which companies are subject
to TP obligations?
Taxpayers who are subject to documentation obligation (Form 1907
and transfer pricing report) are the following:
• Medium and Large companies who have carried out
operations with related parties who are not domiciled nor resident in
Chile
• Those who are not part of the aforementioned category who
carry out operations with parties who are domiciled or resident in
Ludmila Gagliadi
countries which are considered as tax haven or harmful preferential Transfer Pricing Director
tax regime as listed by the OECD. ludmila.g@mazars.cl

• Those who are not part of the two preceding categories and
who have entered into transactions with related parties for a total
amount superior to 500.000.000 Chilean pesos (or its equivalent at
the rate of exchange of December 31 of the corresponding year).

Regarding the Form 1913, companies have this obligation in the

following cases:
• Large companies.
• Companies included in the “Large Taxpayers List” issued
annually by the SII. Sofía Orbegozo
Transfer Pricing Specialist

TRANSFER PRICING RELATED PENALTIES

Sofia.o@mazars.cl

The failure to submit the sworn statement, or its inaccurate,

incomplete or untimely presentation, shall be sanctioned with a fine
of between 10 and 50 annual tax units (8.400-42.000 USD approx..). “Any TP
Nevertheless, this fine may never exceed 15% of the taxpayer’s Adjustment is
equity capital or 5% of the total of its effective capital. If the subject to a 40%
submitted sworn statement is intentionally false, the fine shall
amount to between 50 and 300% of the tax due, and jail sanctions of penalty tax
may apply. rate, and can be
If, in the SII’s opinion, the taxpayer cannot prove that the
increased
operation(s) with its related parties have been carried out at arm’s significantly
length prices, the SII will determine them. As a consequence, the after fines,
taxpayer will have to pay a unique tax of 40% on the difference.
Furthermore, a fine of 5% might be applied, if the taxpayer does not interests and re-
provide the SII with the documentation requested for review by the adjustments”
latter in a timely manner. Fines, interests and currency re-
adjustments may be also applicable increasing significantly the
amount to be paid.

CHILE- TP GUIDE- 2017

 General rules
RELATED PARTIES
For Transfer Pricing purposes, parties shall be considered as
related when:
• One of them participates direct or indirectly in the
“Chilean TP rules have management, control, equity, profits or incomes of the other, or
a very broad definition • One or various identic people or entities participate direct or
of related parties. Tax indirectly in the management, control, equity, profits or incomes of
both parties, all of them being understood as related to each other.
Heavens are also • An agency, branch or any other form of permanent
treated as related establishment is considered as related to its parent company; to
other permanent establishments of the same parent company; to
parties. If a party related parties of the latter and their permanent establishments.
carries out • When the taxpayer carries out operations with parties who
transactions with a are domiciled or resident in countries or territories which are
considered as tax haven or harmful preferential tax regime, they will
third party that in turn be considered as related parties.
carries a similar • Natural people shall be understood as related when they are
spouses or if there exists a blood relationship or affinity up to the
operation with a fourth degree included.
related party, then it´s • When a party carries out one or more operations with a third
considered a party which, in turn, carries out, direct or indirectly, with a related
party of this party, one or more operations which are similar or
controlled transaction” identic to those carried out with the first party, they shall all be
considered as related, regardless of the capacity in which this third
party and the parties act in these operations.

ADVANCE PRICING ARRANGEMENT (“APA”)

“APA can be Chilean law provides the possibility for the taxpayer to propose an
requested and Advance Pricing Agreement (APA) to the SII, in order for the
in case of company to establish ordinary market return of its operations. In the
event the SII accepts the proposal of the taxpayer, the agreement
acceptance it is shall be applicable from the commercial year it is subscribed, and
valid for the 3 for the 3 immediately following years. Said term may be extended
immediate by mutual agreement of the parties (taxpayer and SII).

following years
including the INTERCOMPANY LOCAL TRANSACTIONS
Following Article 64 of Tax Code, the SII can determine the market
year in which it value of any local intercompany transaction if it has been done at a
is requested” significant different price from the one that would have been agreed
between independent parties under similar circumstances.

CHILE- TP GUIDE- 2017

 Technical aspects
TRANSFER PRICING METHODS
The Chilean legislation follows the recommendation of the OECD
Guidelines. The following methods are accepted:

• Comparable Uncontrolled Price Method

“The general statute of • Resale Price Method
• Cost Plus Method
limitations in Chile is 3 • Transactional Net Margin Method
years starting from the • Profit Split Method
latest date at which the
If none of them is applicable, the tax payer has the opportunity to
income tax was due” define and use other approaches (“Residual Method”). The method
chosen must be the most appropriate given the characteristics and
circumstance of the particular case.

ARM’S LENGTH RANGE

“Comparable When the appropriate method is used and it still results in a broad
companies with range of prices or margins, statistic tools which allow to narrow it by
operating losses reference to the central tendency (for example, the interquartile
range or other percentiles) may be used to improve the reliability of
(average of last the analysis.
3 years) are
commonly COMPARABLES
rejected” When choosing comparable companies, comparability factors set
out in the OECD guidelines must be taken into account, namely:
the characteristics of the goods or services, the functional analysis,
the contract clauses, the economic circumstances as well as the
companies’ strategies.

Commonly only publicly information companies are included as

comparable by the SII and comparable companies with operating
losses in the past 3 years of available information are usually
rejected.

STATUTE OF LIMITATION and LANGUAGE

The general statute of limitations in Chile is 3 years starting from
the latest date at which the income tax was due. It could be
extended to 6 years if no return is filed, or if the authorities consider
that the returns are false.

Only documentation in Spanish is accepted by the SII. In some cases

simple translation of agreements is accepted.

CHILE- TP GUIDE- 2017

BEPS* impact and
recent changes
The SII has recently issued - on December 27, 2016 – the first “As off the date
regulation as to the country-by-country reporting obligation. there has not
Taxpayers who are subject to such an obligation have to inform the
been introduced
SII through an additional sworn statement, Form 1937, which aim is any rule
to provide the SII with financial, functional and tax information. regarding
The taxpayers who must submit this file are the parent or controlling Master File”
entities domiciled in Chile of Multinational Groups of Companies (the
controlling entity being subject to this obligation only if the Group’s
annual income amount to 750.000.000 euros or more, as at the rate
of exchange of December 31 of the corresponding year). Information
must be provided over the last commercial year (starting with
commercial year 2016). “Chile has signed the
multilateral competent
Any national holding subject to CbC obligation that aims to designate
a surrogated foreign entity must inform to the SII 30 days prior of
authority agreement
CbC´s deadline. Also, any taxpayer that has being designated as a on the exchange of
surrogated entity of a foreign Group subject to CbC, will have to Cbc reports promoted
inform such situation to the Chilean IRS 30 days prior to the CbC´s
Chilean deadline by written notification. by the OECD”

Failure to submit the Form 1937 or submission of an erroneous, late

or incomplete Sworn Statement will result in fines pursuant to the
provisions in No. 6 of Article 41 E of the Income Tax Law (mentioned
u-supra). If the submitted Sworn Statement is intentionally false, a
fine will be applied as stated in No. 4 of Article 97 of the Tax Code.

OTHER RECENT CHANGES

Last Tax Reform has incorporated the so called Ani-Avoidance Rules
stablishing its application to those that have designed
or planned acts, agreements or businesses considered abusive or
as simulation.

Also thin capitalization rules has been introduced stablishing that if

he debt-to-equity ratio exceeds a 3:1 threshold, the excess interest
is subject to a sole tax rate of 35% (reduced by the withholding tax
paid on the interest).

*BEPS: Base Erosion and Profit Shifting

CHILE- TP GUIDE- 2017

CONTACT
Mazars Chile

Cerro el Plomo 5680, Oficina 301

Las Condes, Santiago, Chile
Tel : +56 2 2963 33 00

More information
on
www.mazars.cl