Consolidated returns are not allowed in Chile.
The transfer pricing legislation generally adheres to the OECD in its Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (OECD Guidelines). The law establishes contemporaneous documentation requirements, filing of an informative return, and specific penalties for non-compliance.
Although the law does not explicitly mention the adoption of the methods established in the OECD Guidelines, the methods described therein are in line with them. The rules also adopt the best method rule and allow the use of other unspecified methods when the methods described in the Chilean Income Tax Law are deemed not appropriate to determine the arm’s-length nature of the inter-company transactions.
Finally, the Income Tax Law includes the ability to enter into advance pricing agreements (APAs), unilateral or multilateral. The Chilean tax authority can reject, totally or partially, the request, and such decision is not subject to an administrative appeals procedure. APAs should be valid for four years and are subject to renewal or extension.
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.
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.