On February 28, 2019, Chile issued an updated version of Form 1907, Annual Transfer Pricing Affidavit to be used in 2019 for tax year 2018 filings, which must be submitted by the following taxpayers:
- Taxpayers, who as of December 31 of the year under review, belong to medium or large companies, and have carried out operations during that year with foreign related parties.
- Taxpayers that have carried out transactions with foreign related parties for amounts exceeding $500,000,000 Chilean pesos or its local equivalent.
- Taxpayers that have carried out operations with persons domiciled or resident in a territory or jurisdiction, which is considered a preferential tax regime under Article 41H of the Income Tax Law (ITL). (This Article does not apply with respect to OECD member countries.)
According to Article 41H of the ITL, a territory or jurisdiction is deemed to have a preferential tax regime when it meets at least two of the following criteria:
- Effective tax rate on foreign-source income is less than 50% of the Chilean 35% income tax rate (i.e., less than 17.5%).
- No agreement has been signed with Chile to enable the exchange of information for tax purposes, or an existing agreement is no longer valid.
- Legislation lacks rules, which substantially comply with the recommendations of the OECD or UN, that empower the respective tax authorities to monitor transfer pricing.
- Do not meet the conditions to be deemed compliant or substantially compliant with internationally accepted standards on transparency and the exchange of information for tax purposes.
- Laws maintain one or more preferential regimes for tax purposes, which do not comply with international standards.
- Only tax income generated, produced, or whose source is in their own territories.
Under Article 41E of Chile’s ITL, the Chilean tax authorities (Servicio de Impuestos Internos or SII) may challenge prices, values, or profitability of cross-border transactions that Chilean taxpayers carry out with foreign related parties, and that have not been carried out at arm’s-length. Arm’s-length prices, values, or profitability have been or would have been agreed to or obtained by independent parties in comparable circumstances and transactions, taking into account the characteristics of the relevant markets, the roles assumed by the parties, and the specific characteristics of the contracted goods or services.
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