Advance Pricing Agreements ("APAs") are commonly entered by and between the Chilean Tax Authority ("SII") and taxpayers. Based on a voluntary proposal filed by taxpayers on how the arm's length profitability, prices and values of certain operations are to be determined, the SII is entitled to audit and validate such methodology, which if accepted is binding for a renewable 3 year term.
For the SII APAs represent an opportunity to fully access taxpayers' records and methodologies being used to value cross border transactions with related parties, thus enriching its comparables database and easing the transfer pricing audit procedure.
On the other hand, taxpayers benefit by having their transfer pricing policies validated for a 3 year term, thus making sure they will avoid, in regards to said operations, time consuming audits and potentially costly litigation procedures upon there being a disagreement1.
Notwithstanding the above, while APAs were binding for the SII, they were not for the Chilean Customs Authority ("SNA"), public service charged with collecting taxes from import operations (i.e. VAT and customs duties).
In that context, on March 8th, 2016 the Chilean Ministry of Treasure issued Resolution No. 64, published on the Official Gazette on March 24th, 2016, whereby a procedure is established, in order to allow taxpayers to enter into APAs with the SII and with the SNA, jointly.
This procedure differentiates itself in terms that it is applicable only to imports of goods and that it requires the agreement of the SII and SNA. The later is without question a substantial difference as entering into this type of APA or terminating it, will require both the SII and the SNA to communicate and come to an agreement. For the taxpayer, this represents a safeguard in terms of securing that the agreement will not be easily discarded, challenged or terminated by one of the abovementioned public offices without the consent of the other.
Therefore, Chilean distributors may find in this new regulation a window of opportunity in order to secure and validate the pricing methodology used when purchasing goods from foreign related suppliers, by entering into an agreement with the two Chilean institutions charged with ensuring tax collection in Chile, thus substantially limiting their transfer pricing risk exposure and future prices assessments by the SNA and the SII.