Chile Strengthens Transfer Pricing Compliance Through Stricter Documentation Requirements

In recent years, Chile has strengthened its regulatory framework for Transfer Pricing in line with the standards established by the Organisation for Economic Co-operation and Development (OECD) and the BEPS Action Plan. As a result, multinational groups operating in the country face increasing documentation and reporting requirements aimed at enhancing tax transparency and reducing the risks of tax base erosion.

Among the main obligations required by the Internal Revenue Service (SII) are the Transfer Pricing Affidavit (Form 1907), the Local File (Form 1951), the Master File (Form 1950), and the Country by Country Report (CbCR – Form 1937). These filings allow the tax authority to assess the consistency of intercompany transactions, the allocation of profits, and the economic substance of multinational operations.

Key Filing Deadlines in Chile

According to the Internal Revenue Service (SII), taxpayers may be eligible for an automatic extension of up to three additional months for these Transfer Pricing obligations. However, relying on such extensions does not replace the need for adequate planning and advance preparation.

Transfer Pricing Affidavit – Form 1907

Form 1907 is the primary annual transfer pricing return in Chile. Through this filing requirement, taxpayers must report transactions with foreign related parties, including the nature of the transactions, the amounts involved, and the jurisdictions of the counterparties.

This return plays a fundamental role in the SII’s risk assessment processes, as it allows for the identification of inconsistencies, unusual margins, or transactions that may require a more thorough review.

Local File – Form 1951

The Local File contains a detailed analysis of transactions carried out by the Chilean entity with related parties. It includes information on functions performed, risks assumed, assets used, methodologies applied, and comparability studies that support compliance with the arm’s length principle.

Due to its technical complexity, the preparation of the Local File requires significant coordination among the company’s tax, financial, and operational departments. Adequate planning is essential to ensure consistency between the financial information and the supporting economic analysis.

Master File – Form 1950

The Master File provides the SII with an overview of the multinational group’s operations. This document generally includes information related to:

• organizational structure
• intangibles
• financing agreements
• supply chain
• global Transfer Pricing policies

Its relevance lies in the fact that it allows the tax authority to understand how value is generated within the group and to assess whether the allocation of profits is consistent with the economic substance of the operations.

Country by Country Report (CbCR) – Form 1937

The Country by Country Report represents one of the most significant measures of international tax transparency promoted by the BEPS project. Through this report, multinational groups disclose the global distribution of:

• revenue
• profits
• taxes paid
• employees
• economic activities.

This information enables tax authorities to detect potential discrepancies between the location of profits and the jurisdictions where economic activities are actually carried out.

Why is it important to prepare for these obligations in advance?

Advance preparation of Transfer Pricing documentation has become increasingly important in the current tax environment. The SII, like other tax authorities in Latin America, has been strengthening its audit capabilities through greater international information exchange and more sophisticated risk analysis tools.

A lack of adequate preparation can expose companies to:

• tax audits
• Transfer Pricing adjustments
• financial penalties
• reputational risks
• questions regarding the economic substance of intercompany transactions.

Furthermore, inconsistencies between the Local File, Master File, CbCR, and financial statements can significantly increase the likelihood of a review by the tax authority.

Therefore, it is essential that multinational groups promptly review their intercompany policies, validate the consistency of their documentation, and ensure that their Transfer Pricing structure adequately reflects the economic reality of their operations.

In this context, TPC Group assists companies in the comprehensive management of their Transfer Pricing obligations, providing support in the preparation, review, and alignment of documentation with international standards, using a practical approach focused on risk mitigation and strengthening tax compliance.

Source: SII

The role of each obligation is interpreted based on the OECD guidelines on Transfer Pricing documentation (BEPS Action 13) and their implementation in Chilean regulations by the Internal Revenue Service (SII).