International Tax Board Mauricio Loy Decebal-Cuza Leader of the E&Y Chile transfer pricing team
Transfer Pricing - Global Roundup Q
What are the tax rules governing the pricing of
transactions between related parties in your jurisdiction, and what steps do firms need to take to understand their transfer pricing arrangements and documentation requirements?
Mauricio joined Ernst & Young in June 2004. Since such date, he has been involved in international tax planning and consulting, with a particular focus on transfer pricing issues. In this quality, Mauricio is currently leading the E&Y Chile transfer pricing team and has gained a particular expertise
in global
documentation projects and transfer pricing planning structures. He also has a vast experience in cross- border transactions and international tax planning, attending fundamentally to
multinational corporations.
Chile has recently approved a major transfer pricing reform, updating its transfer pricing legislation. New legislation includes a full adoption of OECD transfer pricing guidelines, with some particularities, such as an excessively broad related party definition, the adoption of a best method rule, full APA regulation and a very specific adjustment rule, which applies a unique tax of 35% on the transfer pricing adjustments made by the Chilean Tax Authority, regardless of the company´s tax situation as of the time of the adjustment (that is, the tax applies even if the company would register taxable losses after the adjustment).
In terms of steps to be undertaken by local companies, it would be fundamental for local Chileans to have a data retrieval work, in order for them to be in a position whereby they are able to know all of the related party transactions which exist in Chile and, perhaps more importantly, the “implicit” transactions, which are constituted by the implicit costs that the Chilean entities are undertaking in benefit of the rest of the group, without such costs being properly collected.
your jurisdiction? Q
Besides the obvious compliance effect, which will imply the need for local companies to present on an annual basis a transfer pricing sworn statement and the need to have a transfer pricing study, sustaining such sworn statement, local companies will be impacted in terms of the substance which will be needed for their tax structures.
The new transfer pricing reform will be for the Chilean administration a revenue raising tool, and in this sense, the faculties given under the new statue and the new team which has been developed by the Chilean IRS for these purposes, will likely imply a change in the optic through which the Chilean IRS will audit related party transactions. In this sense, it is my opinion that this legislation will be the first step towards a “substance over form” approach for the Chilean authority, and this will imply a need for taxpayers in Chile to plan and control their tax structures under the aforementioned approach.
88
www.finance-monthly.com
What effect will those rules have to those operating in
Q
What options are available to companies?
Under the new statue, the main options which are available for taxpayers are the following:
APA regime (bilateral or multilateral), which would allow for taxpayers to agree on their TP structure with the Chilean Authority for a 3 year time period (renewable).
Nevertheless, the procedure foreseen under the new legislation is far from protective on the taxpayer´s rights and therefore, before such procedure is regulated through administrative authority, the possibility of executing an APA in Chile should be carefully studied;
• Correlative adjustments, which will allow the opportunity for taxpayers in Chile to request the recognition of TP adjustments made to related counterparties by foreign tax administrations. There is a 5 year time period within which the taxpayer in Chile can request this adjustment (counted since the exercise in which the transaction generated tax effects in Chile); and
• Best method rule, which will allow for the taxpayer to apply whichever of the OECD TP methods fit best its operations (even considering residual methods).
Q
What implications, if any, do these options have?
Each option will have different implications. Perhaps the most significant one will be the one arising from APAs, as such agreement with the Chilean Authority will allow the Chilean taxpayer to gain a full certainty position, as the Chilean IRS will be forbidden from challenging the prices collected or paid by the Chilean entity if such prices are within the ranges agreed to in the APA.
Also, we feel the best method rule might have a significant implication on the taxpayer´s transfer pricing compliance, as such will allow to accommodate to potential business restructuring procedures or eventual changes within the structure of the taxpayer.
Q
If you are able to do so, please detail any significant
clients/cases undertaken by your firm in the past year.
Within the last year, our most significant projects have dealt with global documentation processes for Chilean firms having a relevant amount of outbound transactions and foreign subsidiaries, alongside with transfer pricing planning projects.
The previous includes an important planning and design work, carried out for a Chilean pharmaceutical company, as well as a planning and implementation project carried out for a massive consumer product company.
Likewise, we have experience in the recent TP audit activity which has been started by the Chilean IRS. Although no formal TP litigation exists in Chile today, the Chilean IRS has started formal TP audit programs which have been generating an interesting experience in these types of procedures. This has been the case for two international retail companies in Chile.
Q
Have there been any legislative changes recently
(12 – 24 months)? If not, what changes would you like to see happen?
Alongside with the new transfer pricing legislation, the Chilean Government has approved a more comprehensive tax reform. The most significant changes are the following;
• Increase in the corporate tax rate from 18.5% to 20%;
• Stamp Tax rate reduction (cap of 0.6% reduced to 0.4%)
• Indirect transfer rules; • Special rules for rejected expenses;
• Goodwill and badwill tax amortization rules; and
• New legislation on permanent establishments and branches taxation in Chile
Given this, it is unlikely to see any new tax legislation in the near future. If any new legislation is approved, I would like to see an improvement on our holding entity regime and on our foreign tax credit rules, in order to have Chile as a more viable jurisdiction for holding investments in the region.
Mauricio Loy Decebal-Cuza Ernst & Young Auditorías y Asesorías Limitada
Direct: 56 2 676 1419 Secretary: 56 2 676 1674 Fax: 56 2 676 1032 Mobile: 56 9 93442383 Email:
Mauricio.loy@cl.ey.com
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112