Transfer Prices in Chile, regulations and formal obligations demanded by the SII
Since the year 2012, the companies domiciled in Chile must show that the prices agreed in the operations with foreign related companies are at market value, through the presentation of the “Annual Sworn Statement Over Transfer Prices” (Declaration N° 1907) to the Internal Tax Service (SII).
The presentation of this information will let the SII have detailed information about the conditions agreed by the taxpayers in the operations performed with their related entities. In this way, the compliance of the regulations in this matter can be assessed.
Articles 38 and 41 E of the law about the Income Tax
• Taxpayers considered in the segments of Middle and Large companies that have performed operations with foreign related parties.
• Taxpayers who have operations with people resident or domiciled in tax heaven.
• Taxpayers who are not classified under the previous premises that have operations with foreign related parties for an amount similar or higher than 500 million Chilean pesos for a fiscal year.
Information to declare
Some relevant aspects that will have to be mentioned are:
– Type of operation performed
– Type of relationship with the foreign entity.
– Method of transfer prices applied to each operation performed.
– Price or profitability margin associated to the operation performed.
– Financial results for the type of operation at the taxpayers’ global activity level.
Date of presentation
The declaration N° 1907 will have as a date of presentation the last working day of June every year regarding to the operations performed in the previous commercial year.
Infractions and penalties
The non-presentation of this declaration, wrong presentation, incomplete or out of date, will be penalized with a fine from 10 to 50 annual tax units; with a limit equivalent to the higher amount by comparing the 15% of the taxpayer’s own capital with the 5% of his effective capital.
Being the most serious infraction the presentation in a “maliciously false” way, will be penalized with a fine from 50% to 300% of the evaded tax value and with minor imprisonment at medium or maximum degrees.
At the same time, the fines will be applied depending on the number of operations that should have been reported in total at the end of the respective fiscal year.
Technical study of the transfer prices
The taxpayer will have the faculty to attach a study or inform that documents his transparent price policy, the one which satisfies completely all the obligations imposed by the article 41 E of the law about Income Tax, to support a coherent policy.
The law does not impose its elaboration but this study is very important and useful, as the taxpayer, when he is called by the SII, in the administrative citation period, must give all the background to support his transparent price policy. Therefore, this inform is the best financial taxation analysis instrument to fulfill with this requirement. At the same time, the taxpayer must consider that the period that the law gives to attend this citation is just a month. For that reason, it must be prepared in advance.
Additional reports related to transfer prices
• Annual sworn statement of global tax characterization (Declaration N° 1913): The one which must be presented by the taxpayers classified in the segment
“Large Companies” and those that are in the group of Great Taxpayers. This declaration requests qualitative information to distinguish the great taxpayers, in the frame of tax compliance management.
Date of presentation: Before the presentation of the form N° 22.
• Annual sworn statement about the country by country report (Declaration N° 1937): The one that must be presented by the following taxpayers:
A. A head quarter entity or the controller of the Multinational Company Group, that are resident in Chile for tax purposes to the extent that the profits of the entities together that take part of the group, in the 12 months prior to the beginning of the corresponding tax period, is at least 750 million euros at the moment of closing the consolidated financial statements, according to the type of rate on 31 December of the previous year, in accordance with the information published by the Central Bank of Chile; or
B. An entity that takes part of a group with residence in Chile for the tax effects and that has been assigned by the head quarter or controller of that group as the unique substitute of it for the effects of presenting the Sworn Statement, “Country by Country Report” in the country of tax residence, on behave of the head quarter entity or controller.
Date of Presentation: The last working day of June of every year, regarding to the operations performed in the previous commercial year.
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