Chile tax reform changes transfer pricing rules on related parties
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Chile tax reform changes transfer pricing rules on related parties

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Without much fanfare, a tax reform in Chile in December 2017 broadened the rules on the parties considered related for transfer pricing purposes, write Roberto Carlos Rivas and Gregorio Martínez of PwC.

In November 2002, with the publication of Law 19.840, the new Article 41 D of the Chilean Income Tax Law (ITL) was established, introducing the 'investment platform' tax regime. Entities constituted in Chile according to the said article were deemed foreign entities for purposes of the ITL, and then, they were only subject to taxes in Chile for their foreign-sourced income.

The truth is that the investment platform tax regime did not gain popularity and today, only around 15 of such entities exist.

What did gain in popularity from Article 41 D was the definition of tax havens contained in point 2 of the second paragraph of the article, which took into account the OECD's blacklist, but which was yet to be published by the Ministry of Finance. The list was published only once, in 2003, through Decree 628.

The popularity of the list was based on the fact that several laws referenced it and used it for different purposes. Among others, Article 14 E of the Chilean ITL referenced it to establish a reporting obligation for investments abroad; Article 41 F of the Chilean ITL, which regulates thin capitalisation rules, referenced it to have parties domiciled in tax havens considered as related parties; and Article 59 of the Chilean ITL referenced it in relation to increasing the withholding rate of royalties paid to tax havens.

As well as the above, when the transfer pricing (TP) rules, following the guidelines of the OECD, were introduced into Chilean legislation in September 2012, they referenced Article 41 D with the purpose of having a party domiciled in a tax haven considered as a related party.

Hence, any operation with a party domiciled in a tax haven was to be considered a related party operation subject to TP rules.

The already low popularity of the investment platforms received a further blow in 2012 with the introduction of the BEPS Action Plan. At this point, Chile committed to eliminating them.

Later, in 2017, several unrelated tax matters were jointly discussed in a bill, which included the elimination of Article 41 D.

The tax bill also included a benefit for the church, enabling it to receive tax-free donations (the existing donation tax was 25%). There was a plan in place for Pope Francis to visit Chile in early 2018 and the Catholic Church had no way – free of taxes – to gather funds for this purpose. In fact, the Chilean IRS has historically denied churches certain types of donation tax relief that were available for other entities. A new law was needed to render donations free of tax.

Considering the rush involved in the pope's visit, the bill was speedily discussed and approved. Law 21047 was published on November 23 2017.

As regards the abolition of investment platforms, Article 41 D was eliminated with a specific entry into force rule, starting from 2022. Considering that many laws had referenced the list of tax havens contained in Article 41 D, many laws then needed to be modified. This was done without the application of the special entrance into force rule, which meant that these modifications entered into force in December 2017.

The relevant reference to the list of parties to be considered related for TP purposes changed in December 2017 from Article 41 D to Article 41 H, the article that contains the requisites for a country to be considered a territory with a preferential tax regime. The way the requisites are set out makes the list quite open and it could be said that the criteria are broader than in the list contained in Article 41D.

Thus, the rules on the parties considered related for TP purposes changed as from December 2017 onwards.

In December 2017 the Chilean IRS published Resolution 124, which contained a list of 153 countries and territories that were considered territories with a preferential tax regime. The list is open, meaning that other countries that are not on the list could also be considered territories with a preferential tax regime.

When publishing Resolution 124, the Chilean IRS commented when the list should be taken into account, enumerating six references to Article 41 H. However, the Chilean IRS omitted to mention that the list of territories contained in Article 41 H is very relevant for TP matters.

The fact that the Chilean IRS forgot to mention that the list is to be used for TP purposes does not mean that it should not be considered as such. The law is fully applicable and does not require the Chilean IRS to state this.

The consequences are major. From December 2017 onwards, any operations with countries such as the United Arab Emirates, Malaysia, Nicaragua, Panama, Puerto Rico, Costa Rica, Cuba, Egypt, Thailand, Hong Kong, Iraq, Taiwan, Venezuela, Vietnam or Montenegro, among others, are to be considered related party operations to which the TP rules apply. This includes information obligations.

Roberto Carlos Rivas

Tax Partner


Tel: +56 2 29400116

Roberto Carlos Rivas is a partner at the tax & legal services department of PwC Chile.

During 2001 and 2002 he obtained a master in law degree in international taxation at Leiden University in the Netherlands.

In 2002 and 2003, he was on a secondment to the international taxation department of PwC in Rotterdam, the Netherlands, taking an active part in international tax planning projects concerning investments between Europe and Latin America.

He joined PwC in April 1993 and he has also been assigned to PwC Buenos Aires. He is a transfer pricing expert.

Roberto is member of the International Fiscal Association in Chile and he has written many articles on international tax matters. He has been a lecturer in international tax seminars in Rotterdam, Amsterdam, Barcelona, Buenos Aires, Punta del Este and Santiago.

Gregorio Martínez G

Tax Supervisor


Tel: +56 2 29400633

Gregorio Martínez is a supervisor of the tax & legal department, where he is involved in several tax and legal projects focusing in multinational corporations and foreign investors.

Gregorio also collaborates with the transfer pricing team of the firm, participating in major APAs, MAPs and corresponding adjustment processes and dealings with the local tax authority.

He also advises local clients directly in new business organisations, incorporation of companies, and drafting of legal documents and agreements.

Gregorio holds a master's degree in tax law from the University of Chile and currently works as an assistant professor in the Tax LLM Degree of Universidad Católica de Chile.

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