The SII (Servicio de Impuestos Internos – Internal Revenue Service) has issued Exempt Resolution No. 120, setting a milestone in tax auditing in Chile. This document, issued on December 18, 2024, establishes a clear regulatory framework to identify and prioritize cases for institutions, particularly focusing on business groups and large taxpayers.
This measure is at the Tax Compliance Law’s provisions, strengthening the SII’s auditing capabilities and ensuring a thorough supervision of strategic operations.
Business Groups at the Center of Audits
Resolution 120 focuses on the operations of business groups, especially those involving complex structures and transactions with significant tax implications. This emphasis corresponds to ensuring transparency and compliance with tax obligations in highly relevant economic sectors.
Areas of Priority Interest
Among the auditing matters for institutions, the following stand out:
- Transfer Pricing: International or cross-border transactions among related entities may affect the tax base. These transactions will be thoroughly analyzed to ensure that the prices agreed between associated parties comply with market standards.
- Asset Appraisal: The correct asset appraisal in business reorganization or wealth transfer processes is crucial, directly influencing the tax bases, which are subject to priority review.
- Business Reason Basis in Intercompany Transactions: Internal intercompany transactions must be supported by a valid business reason. The SII will assess whether these transactions have a legitimate economic purpose or are employed to obtain undue tax advantages.
- Business Reorganizations: Structural modifications, such as mergers, acquisitions, or spin-offs, are under the SII’s inspection, especially when implying a possible equity dilution or intergenerational transfer of assets.
Enhancement of Tax Powers of Auditors
The Tax Compliance Law is crucial in expanding the tools and powers of the SII regarding supervision. Through this resolution, the agency aims to identify possible tax risks and generate a dissuasive and exemplary effect among taxpayers.
The Executive Committee: Key Role in Resolution 120
The Executive Committee, created under Article 3 quater of the Organic Law of the SII and established by Law No. 21,713, is responsible for making fundamental decisions in tax auditing. This agency can address the matters indicated in letter C of the second paragraph of Article 6 of the Tax Code. Among its main attributions are:
- Approval of key transactions: Evaluate and approve, by absolute majority, operations that, regardless of their amount, affect institutions or those qualified as institutions.
According to Exempt Resolution N°120, the Executive Committee is essential in approving cases proposed for institutions by the Auditing Sub-Directorate. These include:
- International transactions.
- Related company transactions.
- Corporate reorganizations.
This committee ensures that highly relevant audits are properly supervised, reinforcing transparency and rigor in tax compliance.
Effects and Effectiveness
Resolution 120 will become effective as of January 1, 2025, applying exclusively to cases initiated as of that date. The regional directorates, the Large Taxpayers Directorate, and the Auditing Subdirectorate will be in charge of implementing the established criteria, guaranteeing standardized and efficient management.
Conclusion
Exempt Resolution No. 120 reaffirms the commitment of the SII to tax integrity and equity. Business groups and large taxpayers should prepare for a thorough analysis, particularly in Transfer Pricing, asset appraisal, and corporate reorganizations.
This measure strengthens tax control and promotes a culture of compliance and transparency, which is crucial for the country’s economic development.
Is your company prepared to face the new audit scenario? At TPC Group, we foresee your needs with comprehensive solutions in Transfer Pricing and asset appraisal.
Do not wait for the SII to visit you. Resolution 120 marks a milestone in tax auditing. Therefore, TPC Group offers you strategic advice with an expertized team that will assist you in compliance and protecting your company’s value.
