Chile, a member country of the OECD, has been introducing changes in its transfer pricing regulations, in such a way that it has been adapting to what the OECD has indicated related to such matter.
The purpose of this article is to provide a brief description of the regime, such as its scope of application, the obligated parties, the affidavits and the penalties for non-compliance.
Since 1998, Chile has incorporated transfer pricing rules into its legislation.
However, it was not until 2012, when Law 20.630 reformed the rules on this matter, incorporating in Article 41-E of the Income Tax Law (the Law) measures according to the guidelines of the Transfer Pricing Guidelines of the Organization for Economic Cooperation and Development (OECD).
Being a member country of the aforementioned organization, it has continued to introduce changes to its transfer pricing regime as from 2016, according to Action 13 of the BEPS Plan (Base and Erosion and Profit Shifting), to take measures against tax evasion or avoidance.
Also known as the “Arm’s Length” principle, it seeks to ensure that the prices agreed for transactions with related parties are in line with market value, understood as those agreed between independent parties.
In the Chilean case, the Income Tax Law has regulated this principle in Article 41-E, which states that transactions with related parties abroad must be carried out at normal market prices, values or returns.
Likewise, those who have or would have agreed to or obtained independent parties in comparable transactions and circumstances will be understood as such.
Following paragraph 1 of Article 41-E of the Law, the parties involved in a transaction are considered to be related when one of the following events occurs:
The transfer pricing regime in Chile consists of six methods to analyze whether the prices agreed between related parties are in line with normal market values.
According to numeral 2, of article 41- E of the Law these will be the following:
As for the choice of methods, the last paragraph of the indicated numeral indicates that “the most appropriate method” will be taken, for which the characteristics and circumstances of the particular case must be considered.
According to article 3.2 of Circular No. 29 issued by the Internal Revenue Service (SII), the following criteria will be followed to perform the comparability analysis:
The transfer pricing regime in Chile establishes, as part of its formal obligations, that taxpayers who carry out transactions with related parties must have a Technical Study, under paragraph 3 of Article 41-E of the Law.
It also states that according to paragraph 6 of the aforementioned article, they may also be required to file an information return in accordance with the forms and terms established by the SII.
It should be noted that since 2016, Chile has been adapting to Action 13 of the OECD BEPS plan, introducing the Country by Country Report (CBC Report) as one of the three levels of the documentation outlined in that action.
Later, in August 2020, it introduced the other two levels of documentation, the Local Report and the Master File.
According to Resolution No. 126 of 2016, an “Annual Affidavit of Transfer Pricing” must be filed on Form 1907, when one of the following cases applies:
The above-mentioned declaration must be filed on the last working day of June of each year, regarding the operations carried out in the previous commercial year.
In addition, as mentioned above, as of 2016 the three levels of documentation indicated by the OECD have been implemented, for which reason the following declarations must be filed if applicable:
According to Ex. Resolution N°101, of August 2020, the SII establishes the “Informative Annual Affidavit” called Local File, which must be filed through Form 1951 with its respective annex.
Likewise, taxpayers that meet the following requirements are obliged to file such return:
According to the above-mentioned Resolution, taxpayers who meet any of the following conditions must file the “Informative Affidavit” called Master File through Form 1950 and attachment:
According to Resolution No. 126 of 2016, the obligation to submit the Affidavit Report Country by Country, on Form 1937, is established for the following cases:
The deadline for submitting the aforementioned annual affidavits and their annexes will expire on the last working day of June of each year, concerning the operations carried out during the immediately preceding business year.
In turn, said term may be extended once for up to three months, for which purpose it must be submitted before the expiration of the original term.
Paragraph 3 of Article 41-E of the Law states that taxpayers may accompany a transfer pricing study that accounts for the determination of the prices with its related parties.
According to Circular No. 31 of 2016 and paragraph 6 of article 41-E of the Law, the penalties for failure to file or misfiling transfer pricing information returns will amount to 10 to 50 tax units per year.
The referred penalty will depend on the number of operations or untimely dates.
It should be noted that the indicated fines may not exceed the equivalent of 15% of the taxpayer’s own capital or 5% of the effective capital, which is higher.
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