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Tax Law

Transfer pricing in Chile

I. Introduction to transfer pricing

This article will discuss Chile’s current regulations regarding transfer pricing. Transfer pricing applies when, for any reason, a natural person or a company transfers goods, intangible goods or provides services to a related entity domiciled abroad.

We will examine Law 20.630, published on September 27, 2012, which introduced the current regulation, and was based mainly on the OECD rules, with several changes made to adjust it to the local requirements, and specific applicable administrative rules.

II. Scope of the transfer pricing regulation

According to Circular Nº29 of the Chilean Internal Revenue Service (IRS), transfer pricing is relevant, and can be established or contested, when the following conditions are met:

Thus, it is required that a person or an entity carry out one or more cross-border operations that involve the transfer of tangible or intangible goods or the provision of services, that these operations are executed between related entities, and, for the transfer pricing to be contested or established by the IRS, it must not follow market pricing, as explained above.

It should be noted that, according to article 41E of the Income Tax Law, the potential contest of transfer pricing also applies to corporate or business restructuring or reorganization, when, due to them, tangible or intangible goods or activities that can generate taxable income are transferred from Chile to a country or territory included on Article 41D (mainly tax havens), when, if this was done by independent parties, they would have set or determined a different price, value or profit.

III.Related entities

The applicable regulations determine that the entities that intervene in an operation are within the following categories:

General Rule

a) One of the entities, directly or indirectly, participates in the management, control, equity, profits or income of the other.

b) The same person or persons directly or indirectly participate in the management, control, equity, profits or income of both parties. In this case, all of them are considered related entities.

This general rule correlates to the OECD standards regarding related entities and is included on similar terms on most Double Taxation Agreements signed by Chile to date.

Permanent establishments

An agency, branch or any other form of permanent establishment with the parent company; with other permanent establishments of the same parent company; with related parties of the parent company and its permanent establishments are considered related parties.

Operations with entities resident, domiciled or created on tax havens

 It is presumed that operations with entities that reside, are domiciled or were created on countries or territories incorporated on the list of tax havens referred to by article 41D of the Income Tax Law are with related parties.

However, this presumption is not applied when the country or territory signs a treaty with Chile that includes the exchange of relevant information with the objective of applying tax regulations, and this treaty is in effect at the time of the operation.

Physical persons

Physical persons are understood to be related when they are married, or if they are related, by blood or affinity, up to the fourth degree inclusive.

Indirect connection (back to back structures)

It is presumed that there is a connection between the intervening parties when one of them executes one or more operations with a third party that, in turn, directly or indirectly executes one or more operations with a related party that are similar or identical with a related party of the first, no matter the standing of the third party and the original parties on those operations.

IV. “Market” Prices, value and profits

Market prices, value or profits are understood to be those that third parties agreed upon or would’ve agreed upon or be obtained by independent parties on comparable operations and circumstances, considering several variables, such as the functions assumed by each party, the characteristics of the goods or services, among others.

In case the aforementioned operations are not executed following the market prices, value or profits, the IRS can contest or establish them, with a substantiated resolution.

V. Transfer Pricing Methods

Article 41E of the Income Tax Law defines the methods with which to calculate transfer pricing, which are based on the ones established by the OECD, without an established priority for their application. Taxpayers must choose a method and justify its application on a case-by-case basis. A detailed explanation of each method exceeds the scope of this article, so they will only be listed. For more details, please refer to Article 41E and Circular Nº 29 of the IRS.

a) CUP Method
b) Resale Price Method
c) Cost Plus Method
d) Transactional Net Margin Method
e) Transactional Profit Split Method
f) Residual Methods (used when it is not possible to apply any of the listed methods)

The choice of the method applied must be made by the taxpayer, who must consider diverse factors, such as the advantages and disadvantages of the method, availability of relevant information, among others. OECD guidelines[1] regarding transfer pricing are useful in this regard.

It is likely that time will allow standardization, which will create legal certainty for choosing transfer pricing methods.

Studies or price reports regarding transfer pricing are not mandatory, but regulations provide the option to present them. However, it must be noted that taxpayers must be able to describe the way the pricing of goods and services was determined in operations with related entities. Additionally, the taxpayer must keep available to the IRS the records that justify the applied pricing methods.

VI. Price adjustment and right to appeal

If the taxpayer cannot show that the operations with related entities were executed with market prices, value or profit, or if these were not defined, the IRS, through an audit, will determine or recalculate the transfer pricing, based on the information delivered by the taxpayer and any other at its disposal, applying the aforementioned methods.

Once transfer pricing is determined or recalculated, the IRS will liquidate the tax owed or the respective adjustments and will calculate the applicable interest and fines. When transfer pricing differences are detected, they will affect the corresponding tax year, and the flat tax regulated on article 21 of the Income Tax Law will apply. In addition, a fine equivalent to the 5% of the amount of the difference detected will be applied, unless the taxpayer delivered the information required by the IRS in due course.

The taxpayer can appeal the established transfer pricing before a court of law, following the general procedure contained on the Tax Code.

VII. Mandatory information submission

Taxpayers that execute the operations listed above must draft and submit a yearly sworn statement, through Form 1907[2]. This statement must be submitted before the last business day of June of each year, referring to the operations executed the year prior.

The existing term for submission can be extended just once, for up to 3 months, and will also extend the term for the IRS’ audit.

If the sworn statement is not submitted, if it is submitted after the deadline or if it contains errors, the following fines, listed on Circular 31, apply:

Sworn statement not submitted

Date From July 1 to August 15 From August 16 to September 30 From October 1 onwards
Number of operations
1 to 25 10 UTA 20 UTA
26 to 99 12 UTA 24 UTA 45 UTA
100+ 15 UTA 30 UTA 50 UTA

Overdue submission

Date Up to 45 días overdue From 46 days overdue to 90 days overdue 91 days overdue onwards
Number of operations
1 to 25 5 UTA 15 UTA 30 UTA
26 to 99 10 UTA 20 UTA 35 UTA
100+ 12 UTA 25 UTA 40 UTA

Incomplete or faulty submission, if a rectifying statement is presented[3]

Time when the rectifying statement was presented vs the original statement / Fine Up to 45 days from the date of submission From 46 and up to 90 days from the date of submission 91 days and onwards from the date of submission
Fine for omitted or faulty transaction 0.15 UTA 0.25 UTA 0.50 UTA
Fine cap 10 UTA 20 UTA 40 UTA

Submitted Statement is maliciously false

In this case, a fine of the 50% to 300% of the tax avoided is applied to the taxpayer who is also subject to criminal penalties.

VIII. Advance pricing agreements (APAs)[4]

New regulations contemplate the possibility for taxpayers to propose to the IRS advance pricing agreements regarding transfer pricing of the operations that are executed between related parties. These agreements can involve foreign tax authorities, and, if the operations include the import of goods, Customs can also participate.

The request must be made in writing, including the description of the operations involved, their market pricing, value or profit and the proposed duration of the agreement. It must include several other records, which are listed on number 2º of Exempt Resolution 68/2013. The IRS must decide within six months, and if it doesn’t the request is understood to be denied.

If an APA is signed, it will apply for the operations carried out by the petitioner on the same year of the request and for the next 3 years. This term can be extended by an agreement signed by all the participating parties.

The IRS can terminate the APA if the request was based on erroneous or maliciously false information, or if the essential records or special circumstances that were examined significantly vary. The termination of the agreement is done via a reasoned decision, explaining the reason for the termination and its justification, detailing the records on which it is based.

IX. Final conclusions

1. The new regulation regarding transfer pricing contained on article 41E of the income tax law, adjusts the rules to the recommendations and guidelines of the OECD, also including regulations that help adjust them to Chile’s circumstances. Some changes are extensions of the existing system, and others are new for the country, such as advance pricing agreements.

2. As transfer pricing studies are not mandatory, costs for the taxpayer have not gone up significantly, and the analysis is flexible. However, taxpayers must fill and send the newly established sworn statements when they operate with related entities. Fines for not sending these statements and for filing them after their due date can be significant.

3. There is an exhaustive administrative regulation regarding transfer pricing and APAs, through Orders and memorandums of the IRS. This creates legal certainty for affected taxpayers.

[1] Available in English at

[2] According to Exempt Resolution 14/2013, of the IRS.

[3] If a rectifiying statement is presented prior to the expiration of the term to present the original statement, no fine is applied.

[4] Several administrative rules have been issued regarding APAs, including Res. Ex. 64/2016 (IRS), regarding requests related to the import of goods, Res. Ex. 54/2016 (IRS and Customs), regarding the procedure and opportunity for requests related to the import of goods, and Res. Ex. 68/2013 (IRS), which establishes the general procedure for APAs.

Last modified: 29/07/2019

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