In the last five years, we have witnessed Latin American and Caribbean countries undergoing extensive reforms to their Transfer Pricing regulations to achieve standardization for the internationally proposed BEPS measures, such as Action 8 (Ecuador, Mexico, Argentina, Costa Rica and Honduras); Action 9 (Ecuador, Mexico, Argentina Costa Rica, and Honduras); Action 10 (Colombia, Ecuador, Mexico, Peru, Honduras, Argentina and Costa Rica ); and Action 13 (Argentina, Colombia, Costa Rica, Mexico, Peru, Brazil, Chile, Panama, Bermuda, Belize and Uruguay).
In addition to this scenario, Chile is also one of the 130 countries and jurisdictions that have subscribed to the OECD’s Inclusive Framework. Thus, the Chilean Revenue Service seeks to focus its actions on segments with the greatest tax impact and high risk of non-compliance.
Proof of this is that within its 2021 Tax Compliance Management Plan the aim is “to generate actions that allow taxpayers to comply with their tax responsibilities, and direct control actions towards those groups that have the greatest impact on collection or that erode tax collection bases of the tax system by promoting actions contrary to ethics and tax justice”. Therefore, the plan aims to intensify control actions on those segments with the greatest impact on the tax system. Nowadays, the most relevant in Chile are those related to digital economy and intangible/finance services.
Consider that only the latest Tax Modernization Law (law 21.120 dated 2020) has allowed the Chilean Revenue Service to collect close to USD 2 billion. These actions include, among others, the control of the declaration and payment of VAT to digital services, the ISFUT, the electronic ticket and the real estate surcharge tax. Regarding the specific case of digital services, as of June 2021 the Chilean Revenue Service has collected around USD 200 million from just over 199 registered platforms since June last year (with the highest collection coming from Google, Netflix, Apple, Facebook and Spotify), numbers that more than validate the “not so new” focus on the digital economy’s control.
Another important objective under Chilean Revenue Service’s interest on segments with the greatest impact on the tax system is regarding the audit of intangible contracts with related parties. This year was the first in which the new transfer pricing requirements (local file F1951 & master file F1950) have been filed, and the volume of information to be assessed will involve several hours of virtual screening; although in principle faster and more efficient.
Finally, it is worth mentioning that to date, the approach regarding the evaluation of intragroup financing operations and its express addition on Chilean Revenue Service’s circulars of the procedure to determine market conditions for interest rates based on the credit rating of its participants is still under discussion. Although COVID-19 imposed a series of restrictions on the Chilean economy in general and the financial system with biases in the information to be obtained, this would be one of the last issues to standardize with respect to the international practice and be considered the cornerstone of transfer pricing tax collection processes for the next years.
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