Transfer Pricing in Chile, regulations and formal obligations required by the Internal Revenue Service (SII)

The transfer pricing rule in Chile is regulated by Law 20. 630 by means of article 41E of the Income Tax Law and its respective amendments, being complemented by Resolution No. 14 published on January 31, 2013, which establishes the obligation to submit an annual informative affidavit; Circular No. 31 published on May 12, 2016, on the applicable penalties for failure to file or filing an erroneous, incomplete, untimely, or maliciously false annual affidavit on transfer pricing and Resolution No. 126 published on December 28, 2016 regarding the obligation to file the annual affidavit on transfer pricing and country-by-country reporting (CbC).

The norm mentions the power of the tax administration to make adjustments to a Chilean company when it identifies transactions with its related parties abroad that were not carried out at market values (Arm’s Legth principle). For this purpose, the methods for which such transactions will be valued are established, which are taken from the OECD Guidelines for Transfer Pricing for Multinational Enterprises and Tax Administrations.

Formal obligations and obligated subjects

Annual Affidavit on Transfer Pricing (Declaration No. 1907): Required for those taxpayers who meet the following conditions:
It has been established that the deadline for the Annual Transfer Pricing Affidavit will be the last day of June of each year, with respect to the previous year.

In addition, as of business year 2018, the annual TP 1907 form includes some specific fields to notify which group entity is submitting the CbC and in which country.

This Affidavit will be submitted on the last working day of June of each year, for the operations carried out in the immediately preceding business year.

Penalties for non-compliance

Failure to file the Annual Transfer Pricing Affidavit, erroneous, incomplete or untimely filing, will be sanctioned with a fine of 10 to 50 annual tax units; with a limit equivalent to the amount that is greater when comparing 15% of the equity with 5% of the effective capital of the taxpayer. The most serious infraction is the “maliciously false” presentation, which will be sanctioned with a fine of 50% to 300% of the value of the tax evaded and with a minor prison sentence in its medium to maximum degrees.

Likewise, 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.

With respect to adjustments, differences in price, value or profit margin resulting from the application of Chilean transfer pricing rules are subject to a one-time tax penalty of 40% of the determined adjustment.

If the SII determines the adjustment as a result of an audit, an additional 5% will be applied unless the taxpayer has submitted the information and documentation required during the audit process by the SII, as determined by the SII in a notice.