In recent days, the Internal Revenue Service (SII) has begun to outline more clearly a significant change in its Transfer Pricing audit strategy: a focus on companies’ operating profitability, particularly in terms of comparable margins by industry.
This new approach marks a shift toward a more quantitative, systematic, and risk-based model, in which the analysis of EBIT margins (operating income as a percentage of sales) serves as a key indicator for assessing compliance with the arm’s-length principle.
A Model Based on Risk and Comparability
The SII’s initiative draws inspiration from international experiences, such as that of the Australian Taxation Office, which has implemented industry-specific profitability monitoring systems to allocate audit resources based on tax risk.
In the Chilean context, the initial focus is on distribution sectors—such as pharmaceuticals, automotive, technology, and distributors in general—with a clear intention to expand into strategic industries such as mining, banking, and retail. This potential scope foreshadows a broad impact on the country’s business landscape.
The proposed model classifies taxpayers into three risk levels:
- Green zone: companies with profitability above the market median.
- Yellow zone: profitability close to or slightly below the median.
- Red zone: companies with margins significantly below average, considered high-risk and potential candidates for audit.
This framework not only allows the SII to focus its efforts but also encourages self-compliance by providing clear signals to taxpayers regarding their relative position in the market.
Practical Implications for Companies
The emphasis on profitability compels companies to adopt a more comprehensive view of their Transfer Pricing policies. It is no longer sufficient to have a technical study; it will be necessary to continuously assess the consistency between observed profitability and factors such as:
- Business strategy
- Level of risk assumed
- Functional structure
- Competitive environment
- Commercial and contractual policies
In this context, proper documentation and economic justification for any deviation from the market median will be essential.
Additionally, recent amendments introduced by the Tax Compliance Act reinforce this approach. The possibility that the SII may determine adjustments based on a single figure or the median of the interquartile range, coupled with the application of an additional 40% tax on differences, significantly increases levels of tax exposure.
An Environment of Increased Tax Auditing
This change does not occur in a vacuum. It is part of a broader framework in which the tax authority seeks to increase tax revenue—with a target of 1.5% of GDP—where Transfer Pricing and the auditing of corporate groups play a central role.
New powers, such as greater access to financial information, and a strengthened focus on anti-avoidance rules, enhance the SII’s ability to detect inconsistencies and challenge structures that do not reflect market conditions.
How to Prepare?
Given this scenario, companies should consider taking concrete actions:
- Periodically review their operating margins against updated benchmarks.
- Strengthen their Transfer Pricing policies and documentation.
- Evaluate the relevance of certainty mechanisms such as Advance Pricing Agreements (APAs).
- Anticipate and properly document any deviations from the interquartile range.
Finally, it is important to note that classification into a risk zone does not, by itself, determine compliance or non-compliance with Transfer Pricing rules. However, it does constitute an early and powerful warning sign that companies cannot ignore.
Ultimately, the SII’s new focus places profitability at the center of the analysis and requires companies to shift from a reactive approach to a proactive, strategic, and well-founded one, where the economic consistency of their operations will be more visible—and more strictly enforced—than ever before.
Juan Pizarro Bahamondes , Partner TPC Group Chile