TP in the Southern Cone: substance, business transformation, and global tax challenges

Transfer pricing in the Southern Cone is entering a new phase in which audit outcomes depend less on documentation and increasingly on substance, governance, and business reality. Over the past decade, many multinational groups have implemented regional operating models designed to centralise management, administrative, procurement, treasury, and support functions to improve efficiency and consistency across jurisdictions. These structures have generally been accompanied by transfer pricing policies aimed at aligning the allocation of costs and profits with the respective contributions of group entities.

Those operating models are now being challenged by a very different tax and economic environment. Across the region, tax authorities are conducting more detailed examinations of intra-group arrangements, with particular attention being paid to the functions performed, assets employed, and risks assumed by each entity. At the same time, broader economic and tax developments are prompting taxpayers to reassess long-standing structures and assumptions.

In Argentina, ongoing economic reforms and the gradual normalisation of market conditions are leading many multinational groups to revisit transfer pricing policies that were originally designed for a period characterised by high inflation, foreign exchange restrictions, and limited access to financing.

In Uruguay, the growing importance of regional headquarters and service centres, combined with the implementation of pillar two measures, is increasing the focus on demonstrating the economic substance supporting regional functions and profit allocations.

In Chile, the debate has moved decisively from documentation to substance: audit outcomes now turn on whether the group’s operating model, governance, and decision-making credibly support the profits recognised locally.

Although these developments arise from different circumstances, they share a common theme: taxpayers are increasingly expected to demonstrate that transfer pricing outcomes reflect the actual way their businesses operate. Transfer pricing is no longer viewed solely as a compliance exercise but as part of a broader framework encompassing governance, operational substance, and international tax strategy.

For many years, multinational groups operating in Argentina faced a unique challenge: transfer pricing analyses were often performed in an environment shaped not only by tax rules but also by significant macroeconomic distortions. High inflation, foreign exchange restrictions, limited access to hard currency, restrictions on cross-border payments, and difficulties in obtaining external financing created a business environment that differed substantially from most other jurisdictions. As a result, transfer pricing policies frequently had to coexist with operational realities that influenced how businesses actually functioned.

Today, Argentina is entering a period of economic transformation. While uncertainty remains, many multinational companies are beginning to reassess structures, policies, and assumptions that had been in place for years.

Multinational groups now face a strategic dilemma: should transfer pricing models designed for economic distress survive in a normalising market?

One of the most significant areas of focus is intercompany financing. For years, many groups relied heavily on internal funding due to limited access to local credit markets and foreign currency financing. As financing conditions improve and capital markets gradually reopen, companies may need to revisit several transfer pricing assumptions:

• Debt capacity analyses;

• Intercompany loan structures;

• Cash pooling arrangements;

• Guarantees and financial support mechanisms; and

• Treasury functions performed within the group.

The discussion is no longer limited to determining an arm’s-length interest rate. Taxpayers should also evaluate whether existing financing structures continue to reflect commercial reality. A financing arrangement implemented during a period of severe economic restrictions may not necessarily remain appropriate under different market conditions.

Historically, companies doing business in Argentina devoted considerable attention to addressing the effects of inflation and economic volatility. Extraordinary circumstances often required additional analyses to explain unusual profitability patterns, working capital positions, or temporary losses. As macroeconomic conditions evolve, taxpayers may find themselves operating in a transitional period where historical financial results no longer provide the same level of guidance for future years.

This creates new challenges for benchmarking analyses:

• Should comparability analyses continue to rely heavily on historical periods characterised by extreme volatility?

• Should companies adjust the way they evaluate profitability trends?

These questions are likely to become increasingly relevant during the next few years.

The transition to a new economic environment also presents a documentation challenge. Tax authorities are likely to review not only current transfer pricing policies but also the rationale behind changes implemented by taxpayers. Companies should therefore ensure that business decisions are properly supported and documented. Changes in financing structures, modifications to supply chains, new service arrangements, or revised profit allocation policies should be supported by clear evidence demonstrating the underlying business reasons. In many cases, the most important question may not be whether a policy is arm’s length but why the policy changed.

Argentina’s transfer pricing landscape is entering a decisive transition. For more than a decade, multinational groups designed operating models, financing arrangements, and transfer pricing policies around a highly constrained economic environment. Many of those structures were reasonable responses to inflation, foreign exchange restrictions, limited access to capital markets, and broader macroeconomic uncertainty. As those conditions begin to evolve, taxpayers face a different challenge: not how to explain exceptional circumstances, but how to justify the continued use of structures and policies that were originally designed for those circumstances.

At the same time, recent amendments to the transfer pricing framework and the significant increase in penalties for late, incomplete, or non-compliant filings send a clear signal that the Argentine tax authorities expect a higher standard of compliance, documentation, and governance. Transfer pricing is no longer only about demonstrating that intercompany transactions are arm’s length; it is increasingly about evidencing that transfer pricing policies remain aligned with the economic reality of the business and are supported by robust compliance processes.

For multinational enterprises, 2026 may therefore represent more than another compliance cycle. It may be the first year in which transfer pricing policy, business transformation, and tax governance can no longer be evaluated separately. Companies that proactively reassess their operating models and document the rationale behind change will be better positioned to navigate this new environment. Those that continue relying on assumptions developed under a different economic reality may find that the greatest transfer pricing risk is no longer their pricing itself but their inability to explain why nothing changed when everything around them did.

The Chilean transfer pricing environment is shifting. Filing a robust transfer pricing report and defending an arm’s-length range remain non-negotiable, but they are no longer where audits are won or lost. Over the past two audit cycles, the Servicio de Impuestos Internos (Internal Revenue Service, or SII) has clearly repositioned its transfer pricing practice around three anchors:

• Economic substance;

• Functional reality; and

• The credible location of value creation.

For multinational groups with a Chilean footprint, the question SII is now asking is not whether the intercompany price sits within a defensible range but whether the group’s operating model, governance structure, and decision-making footprint genuinely justify the profit sitting in Chile.

Recent tax audits reveal a more analytical SII. Country-by-country data, master file narratives, and publicly available information are being cross-checked against local returns to detect gaps between the group’s stated value chain and the profitability reported by the Chilean entity. In recent files, the reviewer’s attention has concentrated on three recurring themes:

• Whether the Chilean company actually exercises control over the risks allocated to it under the intercompany agreements or is merely contractually assigned to them;

• The DEMPE-type activities performed locally in respect of intangibles; and

• The consistency between group-level business restructurings and the resulting movements in Chilean margins.

The practical implication is that intercompany contracts and benchmarking studies, however carefully drafted, no longer carry the case on their own. SII is looking for people, capabilities, and decisions behind the numbers, and expects to trace them through board minutes, delegations of authority, internal reporting lines, and management reports.

In parallel, Chile has been consolidating its position as a regional hub for Latin American operations. Local groups are increasingly looking to operating-model redesigns, such as regional principals, procurement, and treasury hubs, shared service centres, digital platforms, and reworked supply chains, most of them accelerated by nearshoring, tariff volatility, and the resilience agenda that emerged from the pandemic. This is precisely where the transfer pricing risk now sits. Any time functions, risks, or assets move – into or out of Chile – SII expects a contemporaneous, economically grounded rationale, backed by a valuation of what is being transferred where relevant.

Groups that reshape their Chilean footprint without a coherent value chain story face exposure well beyond a routine adjustment: exit charges, permanent establishment discussions, and customs valuation reviews are increasingly part of the same conversation. Against that backdrop, value chain analysis has stopped being an academic or purely planning exercise. It has become the connective tissue between commercial decisions, tax positions, and audit defence, and is being requested by boards and tax committees of Chilean-headquartered groups expanding regionally.

Isolating transfer pricing from the rest of the international tax agenda is no longer feasible in Chile. Multinationals are modelling transfer pricing jointly with pillar two, customs valuation, substance, and permanent establishment risk. For instance, the SII and the Servicio Nacional de Aduanas (National Customs Service) are increasingly aligned on related-party pricing. Irrespective of the status of local pillar two implementation, the domestic debate – coupled with the near certainty that groups touching Chile will already be in scope through their parent jurisdictions – is already shaping where functions, risks, and profits are being located across the region.

The message for 2026 and beyond is unambiguous. Chilean transfer pricing positions will be defended on substance, governance, and value creation, not on documentation alone. Groups that align their operating model, their people, and their intercompany policies – and that can evidence how key decisions are actually taken – will be materially better placed to withstand SII scrutiny and to turn their Chilean platform into a durable regional advantage.

Uruguay continues to position itself as one of the most stable and business-friendly jurisdictions in the region, maintaining a legal framework aligned with international standards and providing a predictable environment for multinational groups operating across the region.

This has contributed to the growing presence of regional structures based in Uruguay, including management, treasury, procurement, technology, and other strategic functions. From a transfer pricing perspective, the key challenge is no longer limited to documenting intra-group transactions but rather demonstrating that the functions performed in Uruguay are consistent with the level of remuneration attributed to the local entity.

Recent audit activity, both in Uruguay and across the relevant counterparty jurisdictions, reflects a greater focus on the functional profile of the entities and the extent to which they contribute to value creation within the group. Tax authorities are increasingly interested in understanding where key decisions are taken, how risks are managed, and whether the allocation of profits appropriately reflects the economic reality of regional business models.

While intra-group services remain a relevant area of review, attention is also being directed towards broader questions concerning regional management activities, strategic decision-making functions, and the role played by Uruguay-based personnel in supporting business operations across multiple jurisdictions. In practice, taxpayers are expected to demonstrate that the substance of their operations aligns with their contractual arrangements and transfer pricing policies.

Another important development is the implementation of a domestic minimum top-up tax in Uruguay through the adoption of measures aligned with the OECD’s pillar two framework. In doing so, the country has taken a leading role in the region by being among the first to incorporate these international standards into its domestic legislation. For large multinational groups within scope, the new rules introduce a minimum effective taxation standard that may significantly alter the way regional structures are assessed from both a tax and business perspective.

Although transfer pricing and the global minimum tax pursue different policy objectives, the interaction between both regimes is becoming increasingly relevant. Transfer pricing determines how profits are allocated among group entities, while pillar two evaluates whether those profits are subject to a sufficient level of taxation. As a result, transfer pricing adjustments, changes in functional profiles, or revisions to intra-group pricing policies may have consequences beyond local tax compliance, potentially affecting effective tax rate calculations and top-up tax exposures at the group level.

For multinational groups with a presence in Uruguay, this evolving framework reinforces the need for greater coordination between transfer pricing and broader international tax planning. Structures that were historically evaluated primarily on the basis of arm’s-length outcomes are now also being reviewed through the lens of global minimum taxation, increasing the importance of consistency between operational substance, profit allocation, and overall tax governance.

Moving forward, Uruguay is expected to remain an important location for regional business functions. However, taxpayers should anticipate continued scrutiny regarding the economic substance supporting their transfer pricing positions and ensure that governance, decision-making processes, and operational activities are adequately documented. In an environment where both tax authorities and multinational groups are placing greater emphasis on value creation, substance is likely to remain at the centre of transfer pricing discussions.

Taken together, the developments observed across Argentina, Chile, and Uruguay point to a broader regional trend. While transfer pricing documentation continues to be an essential compliance requirement, tax authorities across the Southern Cone are increasingly moving beyond the review of reports, benchmarking studies, and contractual arrangements. The common expectation is that transfer pricing outcomes must be supported by a credible business reality: real decision-making, operational substance, effective control of risks, and a clear connection between value creation and profit allocation.

In that sense, the region is evolving from a transfer pricing environment primarily focused on documentation towards one centred on governance and substance. Although each country reflects this shift through different lenses, the underlying message is remarkably consistent.

Argentina is encouraging taxpayers to revisit historical assumptions and demonstrate the business rationale behind structural changes. Chile is increasingly testing whether governance structures, people functions, and decision-making processes genuinely support the profits reported locally. Uruguay, meanwhile, is placing greater weight on the economic substance supporting regional functions while simultaneously integrating the implications of pillar two into the assessment of cross-border operating models.

For multinational groups, this evolution requires a broader perspective. Transfer pricing can no longer be managed as a standalone compliance exercise. Instead, it must form part of an integrated framework encompassing business operations, tax governance, value chain management, and international tax strategy.

Against this backdrop, four priorities should be at the forefront of any transfer pricing agenda in the Southern Cone:

• Reassess legacy operating and financing structures to determine whether they continue to reflect current business realities and market conditions;

• Strengthen the documentation of governance and decision-making processes, ensuring that key functions, risk management activities, and strategic decisions can be evidenced and supported;

• Integrate transfer pricing and pillar two analyses, recognising that profit allocation and minimum tax outcomes are becoming increasingly interconnected; and

• Leverage value chain analysis as both a planning and defence tool, providing a consistent narrative that links business activities, value creation, substance, and transfer pricing outcomes.

As tax authorities continue to adopt a more holistic view of multinational business models, the companies best positioned for the years ahead will not necessarily be those with the most sophisticated transfer pricing documentation but those capable of demonstrating that their governance structures, operational substance, and transfer pricing policies tell the same story.