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Chile: Transfer pricing tax claims under Chile’s new tax justice law



Gonzalo Schmidt

Felipe Dominguez

Since the New Tax Justice in Chile (Law N° 20.322) was enacted in 2009, many challenges have been presented both to the Chilean Tax Administration and to taxpayers regarding litigation before the Tax and Customs Courts, which are independent from the tax authority. We analyse two cases that will challenge the litigation efforts of the tax administration with respect to its position in transfer pricing cases.

The first challenge is related to transfer pricing assessments. The tax administration commonly uses other taxpayers' information to determine whether a taxpayer under assessment fulfils the arm's-length principle or not in its transactions with related entities.

Secret comparables

The tax administration is obliged under law to keep this information secret, therefore, this information is known as the "secret comparable". The tax administration has access to information regarding prices, profit margins and contractual terms related to specific transactions of taxpayers with their own related parties or with independent parties.

Often, the tax administration uses these secret comparables to analyse the transfer pricing situation of a company and its related parties abroad; however, it is not allowed to reveal this information to other taxpayers.

This situation has been under close scrutiny by lawyers that defend taxpayers' interests in transfer pricing related trials in the new Tax and Customs Courts.

Assessment methods

Another source of controversy regarding transfer pricing is the methods used by the tax administration to assess taxes under the transfer pricing regulations.

The tax administration has chosen to assess taxes in some cases using methods contained in the OECD Transfer Pricing Guidelines.

Chile entered the OECD on May 7 2010, however, the domestic Income Tax Law only recognised one method for transfer pricing assessment until September 27 2012, when Law N° 20.630 entered into force. This sole assessment method was contained in section 38 of the Income Tax Law.

In this sense, until September 2012, the Chilean Income Tax Law did not recognise some of the methodologies contained in the OECD guidelines for assessing transfer pricing issues.

For this reason, many attorneys have argued in defence of taxpayers that there is no legal or administrative basis for the tax administration to use the OECD guidelines to assess taxes when referring to transfer pricing issues before September 2012.

When facing these two different issues related to transfer pricing assessments, taxpayers have claimed there are transparency issues in the process that result in the transgression of certain principles and rights formally recognised in Chile's political constitution, such as the legal principle, whereby the acts of the public institutions must submit to the law, and the right to a fair and just trial, and the even application of the law and the right to an even defence in trial.

It will be interesting to see how the Tax and Customs Courts will analyse these common auditing practices of the Chilean tax administration, since before these new tax courts, the Chilean tax administration fulfilled two different roles, as it enforced compliance with the tax law and at the same time was in charge of resolving judicial controversies regarding claims that taxpayers filed against the State.

Therefore new jurisprudence in these matters will serve both taxpayers and the tax administration, in confirming or modifying existing transfer pricing assessment practices.

Gonzalo Schmidt ( and Felipe Dominguez (


Tel: +56 2 29400101


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