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CHILE: SII strengthens focus on transfer pricing and prepares circular fines of up to 300 %

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By: Sebastián Valdenegro Toro

Sebastian Piñera's 2012 Tax Reform incorporated a number of changes to the taxation of income tax, one of the main instructions given with regard to transfer pricing . So, how Chilean companies engaged in transactions with its subsidiaries abroad, ideally at market prices .

In this line, the Internal Revenue Service ( SII ) strengthened the control of such transactions to reduce potential sources of tax avoidance to be carried out under market prices. Four years passed that law , the SII will put the focus on cross-border transactions .

Tax watchdog is preparing a circular with instructions on the fines to take for late , incomplete or maliciously false presentation of the affidavit of transfer pricing, each taxpayer who perform transactions with related parties abroad must submit no later than last business day of June.

The reason? IBS responded to the consultation of a particular on the number of audits conducted since the entry into force of the legislation. The agency acknowledged that it has notified 255 taxpayers for transfer pricing review , with the amount paid and the matter rectified totaling US $ 265 million.

"To date they have not completed fines for this matter. On the matter, it should be noted that this service will issue a circular giving instructions on penalties promptly , "the response via Transparency of SII.

The details

IBS published a draft circular (No. 21) on December 28 last, which received market commentary until 12 January.

In the -of six pages long text states that fines for incorrect, incomplete or untimely filing of the affidavit will amount to between 10 to 50 annual tax units (UTA), or between $ 8 million and $ 26 million.

However, if the statement made outside maliciously false, the taxpayer shall be punished by a fine ranging between 50% and 300% of the value of tax evaded and imprisonment in its medium to maximum degrees, according to the provisions of paragraph one, number four, Article 97 of the Tax Code.

For the determination of the fines, the draft establishes two scales. The first is the case of the statement is not filed and the number of operations, setting the maximum fine shall send for operations not reported since 1 October each year, provided they exceed a hundred.

The second scale is related to the returns filed after the legal deadline, for which he applied as cap a fine of 40 UTA ($ 21 million) if the delay exceeds 91 days, provided that the uninformed operations exceed one hundred.

Fines may not exceed the higher limit between the equivalent of 15% of the equity of the taxpayer or 5% of its cash capital.