Chile Tax Compliance Bill

Last September, after passing through the Chamber of Deputies and the Senate, the so-called “Tax Obligations Compliance Project” (Bulletin 16621-05) was approved. Among the various points that the project includes/modifies within the framework of transfer pricing and mutational economic groups, we can highlight the following: 

1. TAX CODE  

1. New audit procedure for transactions carried out in Chile by business groups – Article 59 ter. 

• Article 59 ter is added, which aims to regulate the procedures for the audit of business groups¹. This article explicitly allows the Servicio de Impuestos Internos (“SII”) to carry out integrated audits that include all taxpayers of the business group involved in the transactions to be audited. 

Effective date of Amendments to Article 59 ter: Effective from the first day of the month following its publication in the Official Gazette. 

2. Redrafting of Article 64 –  Article 64. 

• Article 64 establishes the power of the SII to assess any acts, agreements, and transactions where the prices or values agreed by the parties differ significantly from the usual market values. It also defines “market value” as the value that would have been agreed between unrelated parties in comparable transactions and under comparable conditions. 

It is important to note that the requirement of a legitimate business reason, as originally proposed, has been eliminated in the case of mergers and divisions, whether domestic or international. However, the article states that the power of appraisal will not be applied in respect of any type of business reorganization, to the extent that they follow a legitimate business reason.  

In addition, the new Article 64 of the Tax Code does not establish specific valuation methods as proposed in the initial draft. However, it is expressly stated that the taxpayer may provide, in the context of a summons under Article 63, the background information that serves to prove that the transaction was carried out at normal market values. In fact, it is explicitly mentioned that the taxpayer may attach a “valuation report” to prove compliance with the arm’s length principle. In practice, a valuation report will include the application of generally accepted valuation methods, which makes it necessary to have such documentation to support the price in the transaction being analyzed. 

Effective date of Amendments to Article 64: Effective from the first day of the month following its publication in the Official Gazette. 

2. INCOME TAX LAW  

1. Amendments to the transfer pricing provisions – Article 41 E: 

• The arm’s length principle is explicitly introduced, in line with the OECD guidelines, and the concepts of functions, assets, and risks assumed by the parties are further emphasized. 

• In the case of business reorganizations or restructurings, the concept of movements from abroad to Chile is incorporated, as opposed to the previous text, which only mentioned transfers from Chile abroad for goods or activities that generate taxable income. 

• The reference to natural persons in the definition of related parties has been eliminated. 

• It is clarified that taxpayers must keep the supporting information of the analyses when the tested party is abroad (i.e., not the Chilean entity). This is important because it will not be sufficient to have contracts or policies that indicate the remuneration of the counterparty, but the taxpayer must have financial information that proves the actual remuneration. 

• Regarding Advance Transfer Pricing Agreements (“APAs”), several recommendations and international best practices proposed by the OECD are implemented, such as: 

• The possibility of prior consultations, known as prefiling meetings. 

• Extension of the duration of the agreements from 4 to 5 years. 

• The Introduction of the “APA Roll-back” figure, which allows the effects of the agreements to be evaluated up to three years prior to their signing, with the advantage that the tax of Article 21, paragraph 1 of the Income Tax Law will not be applied during that period. 

• SII’s review period of the APA is extended from 6 to 12 months. 

• Modification of the deadline for filing transfer pricing adjustments to 1 year from the date the adjustment is considered final in the other jurisdiction(s), so that multinational groups affected by transfer pricing adjustments abroad can request the corresponding adjustments in Chile. 

• The so-called “self-initiated transfer pricing adjustments” are included, provided that they are aimed at improving the economic results of the taxpayer and that these adjustments must be added to the taxable base of the first category of tax. It is emphasized that taxpayers must keep all background information that allows them to prove that the self-initiated adjustment was made taking into account the arm’s length principle and the specifics of the transaction. Consequently, it can be deducted that self-initiated adjustments that reduce the profitability of the Chilean taxpayer are prohibited. 

• A new rule is established in the Customs Ordinance, which states that transfer pricing adjustments or self-initiated adjustments shall not affect the declared values on import or export, nor shall it be necessary to change such values.