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Transfer Pricing: A New Tax Challenge for Chile

By Osiel González, Mauricio Loy and Tyriak Bruzual
Posted: 30th September 2011 09:36

As a result of Chile's entry as a full member of the OECD, Transfer Pricing (TP) has received special attention by both the Chilean IRS and the taxpayers.  In this perspective, both parties have devoted time and resources to learn more in detail the scope and the implications that this has now nationally and internationally.


Chilean TP rules are set forth in section 38 of the Income Tax Law (ITL) and in the general instructions published in this regard by the Chilean IRS in Circular Letters 3/1998 and 72/2002.  This framework empowers the Chilean IRS to assess and challenge prices paid or charged by a Chilean company to a foreign related entity when they are not in accordance to prices that would have been used by independent parties under similar circumstances (i.e. arm’s length principle).  In other words, the burden of proof regarding a potential TP adjustment relays within the Chilean IRS and it is expected that the taxpayers keep the information support for all the intercompany transactions.

By related entities it is understood: (i) branches or subsidiaries and their parent company (or another branch or company related to the parent), (ii) a parent company or another branch of the same or with a financial institution where it has at least 10% participation of the capital (regarding interests), or (iii) when a company organized abroad participates directly or indirectly in the management, control or capital of a company established in Chile and vice versa,  when the same people participate directly or indirectly in the management of both (Law 19.840/02 enhanced the concept of related company to include those that agree exclusivity contracts, joint ventures, preferential treatments, financial or economic dependence agreements or trust deposits, or regarding transactions with companies organized in countries or jurisdictions that are listed by the Ministry of Finance as tax havens).

If as consequence of an audit carried out by corresponding tax authority, a TP adjustment has been determined, this amount will be subject to a 35% in case of Chilean corporations (Sociedades Anónimas).  If the adjustment is made in a Chilean limited liability partnerships (Sociedades Limitadas), it will be treated as a deemed dividend (also subject to 35% with corporate tax credit if the entity has foreign shareholders).  However, general tax penalty framework applies for TP Adjustments. In this case, the taxpayer must pay a fine equal to 60% of the unpaid tax, adding a late payment interest of 1.5% per month imposed retroactively as the date when the tax was supposed to be paid.

What’s new?

At present a Bill is being analyzed by the relevant authorities in order to modernize current TP framework.  The proposed legislation will give an express recognition of the OECD methods, including a best method rule. Likewise, a yearly documentation obligation will be introduced (TP Informative Return), as well as APA possibilities, correlative adjustments and a change in the burden of proof, being the taxpayer´s obligation to demonstrate the compliance with the arm´s length standard.

In connection with the documentation, no TP report is expected to be required by Chilean IRS.  However, taxpayers that actually have a TP report and prove their transactions are carried out at Arm’s Length values, may file it, thus making it easier to prove the payments involved if the Chilean IRS is reviewing the same.  Although this is not compulsory, it is nonetheless highly advisable.

Are the Chilean taxpayers prepared for this challenge?

On the basis of similar regional experiences, the knowledge of the OECD Guidelines, and the latest actions of the Chilean IRS, taxpayers are advised to prepare and keep comprehensive documentation in terms of TP, including the performance and updating of the relevant functional and economic analyses, considering that:

  • They allow for indentifying, documenting, and justifying compliance with the arm’s length principle by each intercompany transaction;
  • The risk of being reviewed and adjustments being derived from insufficient or lack of supporting documentation, is reduced; 
  • Monitoring compliance with the group TP policies will be possible, if any;
  • If no TP policies are in place, application possibilities may be evaluated.

Although no documentation obligations exist today, there is an increasing audit pressure from the Chilean IRS when dealing with TP.  A series of audits have been initiated during the last year.  As of this day, such audits remain as administrative reviews and no TP litigation has yet been initiated in Chile.

As can be seen, it is crucial for any Chilean taxpayer to have properly diagnosed from a TP perspective – i.e. intercompany contracts duly signed, invoices and evidencing documentation which sustained all controlled transactions -  in order to determine how well the taxpayers are prepared in case of any act or audit carried out by tax authority.


Osiel is the Local International Tax Services and Transfer Pricing Leader. From 2002 to date he has been a tax advisor of the International Practice of the Legal and Tax Division of Ernst & Young Chile.

During 2006 he was appointed as the Chilean Desk in the United States (New York). As such, he was part of the Latin America Business Center (LABC).

International Tax Services: Experience in Outbound and Inbound transactions. Financing. Restructuring Reorganizations.

Bachelor of Law, Universidad de Chile; member of the International Fiscal Association (IFA)

Teaches International Taxation in the LLM Program in Tax Management, Universidad Adolfo Ibañez, Santiago, Chile.

Mauricio is a Senior Manager at the International Tax Services division of Ernst & Young Chile.

From 2004 to date he has been actively involved in the tax analysis cross border transactions and international tax planning.

International Tax Services: extensive experience over a wide range of areas such as global tax optimization, restructuring processes (M&A), cross border transactions and taxation of financial instruments. He is also experienced in the tax issues arising in the retail industry, as well as the construction industry.

Transfer Pricing: experience in TP consultancy, and has been involved in the preparation of TP studies and reports, documentation, policies and audits.

Bachelor of Law, Universidad de Chile. Masters in Law degree awarded by Northwestern University, Chicago, Illinois, USA (2008) and an administration degree awarded by the Kellogg School of Management, Northwestern University, Chicago, Illinois, USA (2008).

Currently he’s advising an international group, focused on the commodities trading industry. The engagement has consisted in the tax design for the trading structure in Chile, all of which has demanded an income tax, indirect tax and transfer pricing analysis.


Tyriak is a Manager at the Transfer Pricing division of Ernst & Young Chile. From 2005 to date he has been a tax advisor of the Transfer Pricing  practice of the International Tax Services Sub-service line of Ernst & Young Venezuela.

He is currently assignmed to EY Chile, to develop and enhance the TP Practice. Over the years, he has gained experience in the development of local and regional TP Documentation projects, as well as Corporate finance & business valuations, among others. In addition, he has participated actively in TP reviews & audits conducted by Venezuelan Tax Authority (SENIAT). 

Tyriak holds a degree in Economics from Central University of Venezuela. He has participated in specialized international taxes and transfer pricing trainings conducted by Ernst & Young in Venezuela, Argentina, Costa Rica and the United States of America.

He was a part of the transfer pricing staff awarded by International Tax Review in 2005 & 2009 as “Best Transfer Pricing Firm” in Venezuela.

Osiel can be contacted on + 56 2 676 1674 or at

Mauricio can be contacted on +56 2 676 1674 or at

Tyriak can be contacted on +56 2 676 1674 or at


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