Page 1 of 7 Transfer Pricing Country Summary Chile 28 June 2018
Page 2 of 7 Legislation Existence of Transfer Pricing Laws/Guidelines Article 41-E of the Chilean Income Tax Law (CITL) introduced by the Law 20,630 published on 27 September 2012 and lastly amended in January 2015 contains the basic transfer pricing statutes. The application of the arm s length principle between related parties is prescribed by Article 41 E of the Income Tax Law ( ITL). This article allows the Chilean tax authority, Servicio de ImpuestosInternos ( SII ), to conduct audits, request specific information and challenge the prices charged, paid or accrued between related parties if such prices do not comply with the arm s length principle. Article 41 E follows, in general, the OECD guidelines. Chile is a member of the OECD and its transfer pricing rules are consistent with the OECD Guidelines, which are generally followed by the SII. Even though Chile didn t introduce the Master file suggested by BEPS, it incorporated a Global Sworn Return through External Resolution No. 110 1 of 24 December 2015, On December 27, 2016, the Chilean tax authorities published the External Resolution No. 126 2. The Resolution updates the current annual transfer pricing return (affidavit) requirements to introduce the Country-by-Country reporting (CbCR). Definition of Related Party Article 41-E CITL establishes a broad concept of the notion related parties, which includes the following situations: 1 See http://www.sii.cl/documentos/resoluciones/2015/reso110.pdf 2 See http://www.sii.cl/documentos/resoluciones/2016/reso126.pdf
Page 3 of 7 a company incorporated abroad that participates, directly or indirectly, in the management, control or capital of a company established in Chile or vice versa; a person that participates, directly or indirectly, in the management, control or capital of both a Chilean enterprise and a foreign enterprise; a branch and its head office or another branch or a related company of the head office; transactions with fictitious resellers in foreign countries (covert relationships); operations among relatives; a transaction with an enterprise established in a low tax jurisdiction included in a list enumerated in Article 41 D, No 2 of the CITL, unless a covenant for exchange of fiscal information between those states is in force. The amendment which came in force in January 2015 clearly specifies that transfer pricing legislation is applied to transactions and business activities between a foreign entity and a local one, eliminating all the previous speculations that transfer pricing regulation is valid only for activities with tax havens. Transfer Pricing Scrutiny A highly qualified Transfer Pricing Unit has been established by the SII and has been carrying out intensive tax audits. With the last reform, and based on the new Article 41-E, the SII requires from the taxpayers (medium and large) all the information about their operations in excess of 100 million Chilean pesos with related parties. Other taxpayers must file information about their operations in excess of 500 million Chilean pesos. The SII is entitled, based on Article 41-E CITL and Article 64 of the Tax Code, to investigate and assess domestic transactions as well. Current audits are being focused on all industries involving imports, such as automotive, pharmaceuticals and electronics. Audits are also focused on shipping, mining and some agricultural enterprises. Transfer Pricing Penalties Circular 31 of 12 May 2016 establishes the penalties for failure on submission or inaccurate, incomplete or untimely submission of the Transfer Pricing Sworn Statement (Form 1907). 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 (one annual tax unit is equivalent to approximately 862 USD).
Page 4 of 7 Nevertheless, this fine may never exceed 15% of the taxpayer s equity capital or 5% of the total of its effective capital. If the submitted sworn statement is intentionally false, the fine shall amount to between 50 and 300% of the tax due. Furthermore, jail sanctions may be incurred. It must be noted that the taxpayer may ask one time for the extension, of up to 3 months, of the time limit to file the statement. Penalty of article 97(1)of the Tax Code applies in case of failure in submission or late submission of the Global Sworn Return. Penalties for late filling vary from US$ 64.00 to US$ 774.00 approx. Article 106 also establishes penalties for the incorrect submission from US$ 7.74 to US$ 774.00. Transfer Prices Adjustments If, in the SII s opinion, the taxpayer cannot prove that the operation(s) with its related parties have been carried out at arm s length prices, the SII will determine them. As a consequence, the 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 provide the SII with the documentation requested for review by the latter in a timely manner. Advance Pricing Agreement (APA) The new Chilean statutes and regulations allow taxpayers to conclude an APA with the tax authorities, based on article 41-E CITL. Bilateral and multilateral agreements are available. APAs apply from the date of its signing and will last for the following three commercial years. A renewal may be requested. Documentation and Disclosure Requirements Tax Return Disclosures 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 SII ( Declaraciónjurada N 1907 ), with the information that such service requires, including but not limited to : information on the characteristics of the operations carried out with related and unrelated parties, the methods applied to determine the prices and values of these operations, information on the taxpayers related parties domiciled abroad, as well as general information on the Corporate Group to which the taxpayer belongs.
Page 5 of 7 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 countries which are considered as tax haven or harmful preferential tax regime as listed by the OECD. 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). Taxpayers subject to the Form 1913 are: Large companies. Companies included in the Large Taxpayers List issued annually. Level of Documentation 1. TP Return The transfer pricing return (form 1907 3 ) need to be filled by medium and large tax payers, entities with intercompany transaction exceeding 500 million Chilean Pesos and by entities that made transactions with entities established in low tax jurisdictions. 2. Implementation of BEPS-related documentation requirements Global Sworn Return(Form 19134): It consist of a questionnaire that collect qualitative information from the company established in Chile together with the non-domiciled companies that make up the economic group in order to identify the large taxpayers and the company profile. Taxpayers classified in the "Large Companies" segment, as well as those taxpayers who are within the payroll of Large Taxpayers must submit the Global Sworn Return. Form 1937 comprises the following 7 sections: Section A: Taxpayer Identification, Section B: Data referred to group or business holding, Section C: Data referring to business reorganization, Section D: Data referring to financial instruments and / or derivatives contracts, 3 Seehttp://www.sii.cl/declaraciones_juradas/suplemento/2014/f1907.pdf 4 See http://www.sii.cl/declaraciones_juradas/suplemento/2016/f1913.pdf
Page 6 of 7 Section E: Data referred to result before of tax, Section F: Data referring to capital assets and, Section G: Data referring to international operations. CbCR The CbCR applies to MNEs headquartered in Chile with annual consolidated group revenue equal to or exceeding 750 million in the previous year. Record Keeping There are no specific statutory provisions, regulations or rules dealing with record keeping for transfer pricing purposes. The general record keeping rules apply. Language for Documentation Documentation should be in Spanish. The business description of foreign comparables may be in English, but should be translated into Spanish upon request of the SII. Small and Medium Sized Enterprises (SMEs) There are no specific statutory provisions, regulations or rules with regard to small and medium sized enterprises. Deadline to Prepare Documentation The SII has established the month of June for the transfer pricing documentation to be prepared. Deadline to Submit Documentation Transfer pricing documentation must be submitted no later than 6 months after the last day of the Reporting Fiscal Year of the MNE Group. Statute Of Limitations The SII may conduct audits, make assessments and charge taxes and fines within 3 years from the end of the term in which the taxes are due. The term is 6 years for taxes assessed by means of returns when the return is not filed or is willfully false.
Page 7 of 7 Transfer Pricing Methods The CITL includes specific references to the CUP method, the resale price method and the cost plus method. The tax reform includes the traditional methods of transactional net margin method, profit split and residual profit split, adopting the OECD Transfer Pricing Guidelines. Exceptionally if none of the referred methods can be applied due to special circumstances and this is duly justified, other reasonable methods will be allowed. To determine which method is to be applied in each particular case, the taxpayer must apply the most appropriate method to reflect an arm s length value considering the circumstances of the case. Comparables Domestic and international comparables are acceptable. There are a number of cases where the SII has used secret comparables. In most of these cases, the SII has disclosed these comparables.