Chile

Market overview

Although transfer pricing only was introduced into local legislation in 2012, the market in Chile has rapidly matured with businesses and authorities having a better understanding of the possible impacts of rules on intra-group transactions. The market has also been subject to some changes over the past year.

One of these changes is the implementation of country-by-country reporting (CbCR), with the first information exchanges expected to begin in 2017. Chile is one of 83 countries worldwide that have signed the multilateral competent authority agreement (MCAA) for the automatic exchange of CbCR. From June 2013, taxpayers were also required to submit an annual notification to the authorities regarding transactions with foreign-related parties and the relevant transfer pricing policy.

With regards to the BEPS Actions 8-10, which relate to aligning transfer pricing outcomes with value creation, a reform in 2014 introduced new rules to enhance the oversight of the tax authorities of cross-border transactions. Large companies are required to submit a sworn declaration on their global tax footprint, Deloitte reports.

For taxpayers, this increase in documentation requirements means that they will have to prove that transfer prices in transactions with related parties are consistent with the arm's-length principle.

Chile signed up to become a member of the OECD in 2010 and is still the only South American member country. Practitioners say that more and more changes are being implemented in order to comply with the OECD's regulations. As more changes come into effect, the transfer pricing market is becoming a bigger focus for both taxpayers and the authorities.

"Transfer pricing is something that wasn't viewed very much, but now it has become much more complicated and it is an area with which we are engaging much more," said Jaime Carey, managing partner and co-head of tax at Carey. "The market has become a lot more sophisticated and people are starting to realise that."

While the authorities discuss TP policies openly with companies, the growth in sophistication has been matched by a growth in aggression. The authorities carried out far more in-depth audits in 2015 than in previous years.

"They are very aggressive in their auditing in transfer pricing," said Juan Pablo Guerrero, partner at KPMG.


Tax authorities

Servicio de Impuestos Internos
Alonso Ovalle 680, Santiago
Tel: +56 22 395 1115
Website: www.sii.cl


Tax rates at a glance

(As of April 2016)

Corporate income tax rate 24%
Capital gains tax rate 24/35%
Branch tax rate 24%
 
Withholding tax
Dividends 35% (a)(b)
Interest 35% (a)(c)
Royalties from patents, trademarks, formulas and similar items 0/15/20/30% (a)(d)
Technical services 15/20% (e)
Other fees and compensation for services rendered abroad 35% (a)
Branch remittance tax 35% (f)
 
Net operating losses (years)
Carryback Unlimited (g)
Carryforward Unlimited

  1. The tax applies to payments to non-residents.
  2. The 35% tax is applied to the amount of the grossed-up dividend. A credit equal to the corporate tax paid is available.
  3. A reduced rate of 4% applies to certain interest payments including, but not limited to, interest paid on loans granted by foreign banks, insurance companies, financial institutions, and interest paid with respect to import operations.
  4. No withholding tax is imposed on payments related to standard software if certain requirements are met. A reduced withholding tax rate of 15% applies to payments with respect to the following:
    • Invention patents
    • Models
    • Industrial drawings and designs
    • Layout sketches or layouts of integrated circuits
    • New vegetable patents
    • Use or exploitation of computer programs (software) The reduced tax rate does not apply to payments made to related entities or to companies resident in countries included in a list prepared by the Chilean Ministry of Finance containing the territories considered to be tax havens. As a result, the withholding tax rate for such payments is 30%. Two companies are considered to be related if one of the following conditions is satisfied:
    • Either company owns 10% or more of the other company's capital.
    • Either company participates in 10% or more of the other company's revenues.
    • A shareholder or owner owns 10% or more of each company or participates in 10% or more of its revenue. A reduced withholding tax rate of 20% applies to payments for television broadcasting and cinematographic materials.
  5. A 15% rate applies to payments for engineering, technical assistance, professional and other technical services rendered in Chile or abroad. However, if the parties are related or if the payments are being made to a company domiciled in a country included in the tax-haven list, the withholding tax rate is 20%.
  6. The 35% tax is applied to the grossed-up branch remittance. A credit is available for the corporate tax paid at the branch level.
  7. The carryback of losses will no longer be available, effective from the 2017 accounting period. Applies to payments for television broadcasting and cinematographic materials.

Source: EY 2016 Worldwide Corporate Tax Guide


Firm contact details

PwC