Chile

Consolidated returns are not allowed in Chile.

Transfer pricing

The transfer pricing legislation generally adheres to the OECD in its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines). Law No. 21,713 modified several provisions regarding transfer price legislation. In first place the principle of full competition (arm's length) is expressly incorporated as a guiding factor in transfer pricing. In this context, the SII may question prices, values, or returns used in transactions between related parties if they have not been conducted at normal market prices, values, or returns.

Modifications to the Concept of Related Parties:

A legal presumption of relatedness is established for transactions with parties domiciled or residing in tax havens, regardless of whether they belong to the same corporate group.

The criterion of relatedness based on natural persons (family or kinship relationships) is eliminated.

Transfer Pricing Adjustments:

To determine whether a transaction complies with the arm’s length principle, the Chilean Tax Authority (SII) may establish a single figure or two or more comparable prices or profit margins. In the latter case, an interquartile range will be used, and values outside this range will be considered non-arm’s-length.

If the taxpayer accepts the SII’s adjustment and amends their annual tax return, any value within the interquartile range may be agreed upon. However, if the SII issues an assessment or resolution, only the median can be used.

It is clarified that transfer pricing adjustments will not affect taxes other than income tax.

Amendments to Advance Pricing Agreements (APAs):

A voluntary preliminary stage called a “consultation” is created, during which a preliminary administrative analysis of the agreement’s feasibility will be conducted.

The SII’s response period is extended from 6 to 12 months, and the agreement’s validity is increased from 3 to 4 years. Taxpayers must submit an annual report on compliance with the agreement.

Self-Adjustments for Transfer Pricing:

Taxpayers are allowed to make self-adjustments to transfer pricing without the SII’s intervention if they fail to comply with the arm’s length principle. These adjustments may only result in an increase to the taxpayer’s taxable base, and it does not require SII authorization, and will solely affect income tax.

Customs Regulations:

A new provision is added to the Customs Ordinance specifying that transfer pricing adjustments or self-adjustments will not affect the values declared in import or export transactions, nor will it be necessary to modify these declared values.

Country-by-country (CbC) report

Chile, as an OECD member, applied Action 13 of the Base Erosion and Profit Shifting (BEPS) Project in order to require from ‘multinational enterprises’ the filing of a report that includes, among other things, the revenues, results, and taxes of the entities of the group in their relevant jurisdictions.

Provided that the consolidated revenues of the group in the last fiscal year were at least 750 million euros (EUR), the ultimate parent company or controller entity with Chilean residence of a group of ‘multinational enterprises’ has to file an annual sworn statement by 30 June.

Business Groups

Law No. 21,713 modified certain aspects of Article 8 of the Tax Code. Among the modifications in this area, the new provisions state that:

• Every business group must designate a “business group representative”, this being understood as the natural person designated by the group to maintain communications and coordination with the SII, for the purposes of carrying out collaboration measures.
• It is established that, within the framework of an audit, both the Regional Office (or the Large Taxpayers Division) and the taxpayer may request the incorporation of entities outside the territorial jurisdiction of the former.
• The concept of “tax sustainability” is introduced, which seeks to positively recognize taxpayers who demonstrate cooperative and transparent behavior with the tax administration.

Thin capitalisation

The thin capitalisation rules apply to related-party loans at a 3:1 debt-to-equity ratio, and a 35% sole penalty tax is levied on interest, commissions, services, or any other financial disbursements associated to loans subject to the Additional WHT at a rate lower than 35%, or that have not been taxed under domestic law or due to the application of a reduced rate under a DTT, when the taxpayer is in an excess of indebtedness position.

The excess of indebtedness is calculated on an annual basis, and, in order to determine if the taxpayer is in an excess of indebtedness position, its total annual indebtedness takes into consideration all loans, domestic or foreign, with related parties or not.

In case the company is in an excess of indebtedness position, the tax will apply only to cross-border loans granted by related parties and subject to the 4% Additional WHT, to a rate lower than 35%, or that have not been taxed under domestic law or due to the application of a reduced rate under a DTT.

Controlled foreign companies (CFCs)

The CFC statute provides that taxpayers or affectation equities ('patrimonios de afectación') incorporated, resident, or domiciled in Chile have to recognise passive income (dividend, interest, royalties, etc.) directly or indirectly derived from controlled foreign entities, as long as this passive income exceeds 10% of the controlled entity's total revenues, in the corresponding calendar year. A tax credit will be granted for taxes paid or due abroad no matter how many levels down the chain separate the controlled entity from the Chilean entity, provided there is a DTT in force between Chile and the source country of the income.

Business reorganizations

Law No. 21,713 modified some rules regarding business reorganizations. The new article redefines the cases in which business reorganizations (national or international) will be considered tax-neutral (with the power to assess being inhibited).

The Internal Revenue Service (SII) may assess an act, agreement, or operation that serves as the basis or is one of the elements to determine a tax when the price or value in these cases differs significantly from normal market values. The SII must issue a summons for the taxpayer to provide all evidence that can verify whether the act, agreement, or operation was carried out at normal market values.

It is established that the power to assess will not apply to any type of business reorganization, such as the conversion of an individual business owner or the contribution of assets of any kind, carried out by natural or legal persons, assigned within the national territory, as long as these reorganizations are due to a legitimate business purpose.

It is important to highlight that the power to assess will also not apply to mergers and demergers, whether national or international, as long as the tax basis of the assets is maintained in the absorbing or newly created company from a merger, in the company or companies created as a result of a demerger, or in the one receiving the contribution of one or more assets, and no actual cash flows arise for the contributor. Therefore, the requirement for a legitimate business purpose in the case of mergers and demergers, as contemplated in the original bill, was eliminated.