This content is from: Chile

Chile aligns with OECD three-tiered transfer pricing documentation approach

Roberto Carlos Rivas and Carolina Céspedes Lacombe of PwC take a look at the practical implications of the latest transfer pricing affidavits in Chile.

As expected on August 31 2020, the Chilean Internal Revenue Service (IRS) included two new affidavits (the annual master file affidavit and the annual local file affidavit) regarding transfer pricing in Chile.

With these new information requirements, the IRS is aligned with the three-tiered transfer pricing documentation approach, contained in Action 13 of the OECD’s BEPS project: the country-by-country report (in force in Chile since 2016), the master file, and the local file. Accordingly, taxpayers domiciled or resident in Chile that carry out transactions with related parties abroad must deliver information and documentation to the tax authority in accordance with international standards.
Although these new documentation requirements would update Chile with the global trend of transparency in the way of doing business within a multinational enterprise (MNE) group – both for multinationals that have a presence in Chile, and for national economic groups that have subsidiaries abroad — the new requirements reflects a greater concern regarding the way of doing business in companies belonging to a business group. It suggests greater scrutiny by the IRS to the administrations of companies in Chile, which must prove that their transactions with related parties abroad are consistent with the arm's-length principle.
To comply with these new obligations, taxpayers must provide the IRS a wide range of background information. On the one hand, the master file affidavit mainly refers to the MNE group, requesting the organisational structure, the names of all MNE group entities, countries, advance pricing agreements (APAs) in force, business reorganisations, transfer of intangibles and transfer pricing policies, among others. On the other hand, the local file affidavit mainly refers to Chilean taxpayers and requests general background of the entity in Chile, such as number of workers, organisational divisions, business reorganisations during the reported year, details of the transactions carried out with related parties abroad, information regarding the transfer pricing analysis of each transaction (interquartile range, number of comparables, use of comparability adjustments) and economic-financial information, which includes income and operating costs, administrative and sales expenses, and operating results, among other concepts.
In addition, Chilean taxpayers must provide the IRS – through an electronic file – descriptive and specific documentation to support the information filled in the affidavits. This includes matters such as functional analysis, financial activities, analysis of the transactions with related parties, including details of the comparability analysis carried out, segmented financial information, if applicable, agreements between MNE group entities, consolidated and individual financial statements, transfer pricing policies, etc. 
Bearing in mind that Chile is a member of the OECD, multinationals that have a subsidiary in Chile and national economic groups that have subsidiaries abroad should be prepared to face a greater scrutiny of the Chilean Tax Authority regarding compliance with the arm's-length principle and the terms under which their inter-company transactions are carried out. It is important to highlight that the master file and local file affidavits, as well as the annexes and documents required in each of them, must be submitted as of tax year 2021, with the information corresponding to the commercial year 2020, on the last business day of June of each year, consistent with the transfer pricing and country-by-country affidavits, a term that could be extended once for a period of three months.
Now that the Chilean IRS has aligned with the OECD three-tiered transfer pricing approach, Chilean entities belonging to a MNE group must be prepared, not only for timely compliance with these new formal obligations, but also for a greater concern regarding the way of doing business in companies belonging to a business group.
Roberto Carlos RivasT: +56 2 940 0000E: roberto.carlos.rivas@pwc.com
Carolina Céspedes LacombeT: +55 22 9400741E: carolina.cespedes@pwc.com


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