Transfer Pricing Regulations in Chile

Chile started to align its transfer pricing regulations with the international standards developed under the OECD Transfer Pricing Guidelines (OECD Guidelines) in 2012. Recently in 2024 reforms were adopted for wider compliance with the OECD framework. Currently, the transfer pricing regulations are incorporated in the Income Tax Law (ITL) and Circular 29/2013.

Arm’s Length Principle

In Chile, the arm’s length principle is implemented through Article 41 E of the ITL. It confirms that

transactions between related parties—especially in cross-border situations or during business restructurings—are conducted under the same conditions as if they were between independent entities. If the agreed prices, values, or profits do not reflect market standards, the Chilean Tax Authority – Servicio de Impuestos Internos (SII), can make adjustments using one of the methods allowed by law.

Related Party Definition

In Chilean tax law, two parties are considered related when one directly or indirectly participates in the management, control, capital, profits, or income of the other. This includes situations where the same person or group of persons controls both parties. The law also considers permanent establishments and their head offices as related, as well as entities in low-tax jurisdictions. Even certain dealings involving third parties can be treated as related if they are part of a broader related-party arrangement.

Transfer Pricing Methods

The methods that can be used to determine the arm’s length price in Chile are:

• Comparable Uncontrolled Price Method
• Resale Price Method
• Cost Plus Method
• Transactional Net Margin Method
• Profit Split Method

In Chile, the transfer pricing methods are in alignment with the OECD Guidelines, and it does not provide a hierarchy among them. Instead, the selection of the method is based on the “most appropriate” principle. A taxpayer can use other methods if can justify that the characteristics and special circumstances do now allow for the application of any of the five methods.

Comparability Analysis

An important part of the transfer pricing compliance is the comparability analysis. Chile follows the OECD Guidelines and applies the comparability analysis outlined in Chapter III, as regulated in Circular 29/2013. This means the Chilean tax authority focuses on determining the fair market value in related-party transactions, these transactions are compared to similar ones between independent parties. Factors to be considered include functions, characteristics of the goods or services, or any other reasonably relevant circumstances.

The Chilean legislator does not differ between domestic and foreign comparables, and neither does it allow for the usage of secret comparables.

Documentation Requirements

Transfer pricing documentation requirements in Chile are based on the three-tiered approach set forth by the OECD. This requires multinational groups to submit the following documentation to the Chilean tax authority:

• Master File;
• Local File, and
• Country-by-Country (CbC) report.

The Master File (Form F1950) is required for multinational enterprise (MNE) groups that qualify for the Country-by-Country (CbC) reporting. This document gives an overview of the group, including its organizational structure, core activities, major markets, contracts between related parties, financial transactions, and transfer pricing policies. It also includes information on business restructurings, intangible asset transfers, and consolidated financial statements. Master File must be submitted electronically by the last business day of June following the tax year, with a possible extension of up to three months.

The Local File (Form F1951) is required for Chilean entities that qualify as large taxpayers if their parent company is subject to CbC reporting and they have carried out transactions over 200 million pesos with foreign related parties. The local file focuses on the Chilean entity’s operations, including its business structure, strategy, pricing of transactions, financial arrangements, comparability analysis, and APAs if applicable. It also includes detailed financial data and summaries of transactions with foreign-related parties. Like the master file, it must be submitted by the end of June of the following year, with a one-time extension available.

Country-by-Country Reporting

In Chile, Country-by-Country (CbC) reporting is required for multinational enterprise (MNE) groups with a consolidated annual turnover of at least 750 million euros in the previous year. A Chilean entity can also file as a surrogate parent if designated by the group within 30 days of the deadline.

The CbC report includes four main sections: information about the reporting entity, distribution of income and taxes by country, a list of group entities and their activities by jurisdiction, and any additional relevant details.

Like the Master and Local files, CbC reporting as well must be submitted electronically by the last business day of June following the tax year.

Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)

Advance Pricing Agreements (APA)

In Chile, taxpayers involved in transactions with related parties can apply for Advance Pricing Agreements with the tax authority to agree on how transfer prices will be assessed for future transactions. These agreements can be unilateral, bilateral, or multilateral. In case the transactions involve imports as well, then the Customs Directorate must also agree. Once signed, the APA is valid for the year it is signed and the following three years, with the possibility of renewal. During this period, the tax authority cannot challenge the agreed prices, unless key conditions change or it is found that the taxpayer submitted false or incorrect information.

Mutual Agreement Program (MAP) allows taxpayers to resolve international tax disputes—such as double taxation—through negotiations between tax authorities. The MAP is available under Chile’s tax treaties and can be requested by the taxpayer, generally within three years from the first notification of the issue. The Chilean tax authority handles MAP cases through its International Tax Division; however, MAP outcomes are not automatically binding unless agreed by both sides.

Approach to Transfer Pricing Audits

According to Article 41 E of the ITL, the tax authority is vested with the power to review and challenge prices used in cross-border transactions with related parties. If the tax authority believes those prices are not aligned with market conditions, it can request documentation from the taxpayer to support the pricing. If the taxpayer fails to prove the prices are at arm’s length, the tax authority can adjust them using its data, including information from abroad, and apply the corresponding taxes, interest, and penalties.

Penalties

If the Chilean tax authority finds that related-party transactions were not at arm’s length, it will make its value adjustments using available information. These adjustments are taxed under disallowed expenses rules, which include a 40% penalty tax, plus regular interest and fines. An extra 5% fine on the adjustment applies unless the taxpayer provided the required documentation on time during the audit.

Taxation at a Glance

Taxes in Chile are levied at the national level. There is no significant municipal, provincial, or regional taxes, except for the municipal license tax and the regional contribution tax. Income tax is governed by the Income Tax Law and the Tax Code.

The official name of the Chilean tax authority is “Servicio de Impuestos Internos” and it is responsible for the administration, enforcement, and collection of taxes. The official currency is the Chilean peso.

The table below provides a summary of the main taxation rates related to businesses:

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