Roberto Carlos Rivas and Carolina Céspedes Lacombe of PwC Chile explain how Chile's transfer pricing laws are converging towards the global model.
In February 2020, the law that is set to modernise Chilean tax law was published in the Chilean Official Gazette. Among other changes, the updated laws will introduce certain modifications to the Chilean transfer pricing (TP) regulations as of January 1 2020.
Although most changes are relatively minor, the modifications introduced to Article 41E of the Income Tax Law will potentially increase pressure on companies. The change gives the tax authority the possibility of requiring the filing of transfer pricing affidavits to taxpayers domiciled or resident in Chile, who carry out transactions with foreign related parties.
Taking into account that Chile is a member of the OECD, it is not a surprise that the scope and content of the obligations are in line with the commitments agreed in Action 13 of the BEPS Action Plan. It requires taxpayers to annually submit information associated with the so-called local file or the master file, as many of the signatory countries do.
The information required could be similar to the types requested in countries such as Australia, Netherlands or Peru, where taxpayers have to:
Although it would seem like a large amount of information, these requirements would align Chile with the global trend of being more transparent when doing business within a multinational group.
In Latin America, for instance, the local file required in Peru must contain the following information:
When the modifications to the tax regulations are fully in force, it is reasonable to expect that the Chilean Internal Revenue Service (IRS) to request one or more sworn statements from 2021, regarding inter-company transactions carried out during 2020. Likewise, it can also be expected that the fines for not complying with the requirements of the authority, would be the same as those already in force. Thus, taxpayers may be charged up to $36,000.
Therefore, what would the implementation of this regulatory change imply for multinationals that have a subsidiary in Chile and for national economic groups that have subsidiaries abroad? The answer will only be known when the Chilean IRS issues its instructions through a resolution. However, the power granted to the authority, to request more information from taxpayers through affidavits, makes it clear that there must be a greater concern regarding the way of doing business in companies belonging to an economic group. The changes allow authorities to make assessments with increased documentation requirements regarding TP in the short term.
The regulatory change will expectedly align Chile with the global compliance trend in TP matters. However, this compliance will involve an additional effort that companies will have to assume.
Roberto Carlos Rivas
T: +56 22 9400116
Coordinadora de Comunicaciones Externas, PwC Chile
Tel: (56) 9 5658 8000