Wednesday, 18 January 2017

Chile’s Internal Revenue Service (IRS) issued Resolution No. 126 (28 December 2016), which establishes an obligation to file Sworn Statement No. 1937 (i.e., the Country-by-Country (CbC) Report).
This new reporting obligation is in response to the Organisation for Economic Co-operation and Development (OECD) Base Erosion Profit Shifting (BEPS) project, which requires member countries to introduce new and more efficient control tools in terms of transfer pricing (Action 13).
Sworn Statement No. 1937 is the annual obligation to submit to the IRS integral information (e.g., financial, tax and functional (i.e., main activity of a company)) of the consolidated group on a CbC basis, including the revenue, profits, taxes (paid or determined), retained earnings, tangible assets and personnel. Sworn Statement No. 1937 also requests additional functional information for each company of the group.
This obligation applies to Chilean groups with consolidated revenue of at least €750 million as of the closing of the previous year. The “ultimate parent” that consolidates the financial statements in Chile will be in charge of submitting the CbC Report. According to the Resolution, a different entity may be appointed to submit this report, and notice of such appointment must be given to the relevant Regional Bureau of the IRS within 30 days of the CbC Report due date. To make the appointment, the group must follow the template contained in Appendix 5 of the Resolution.
Sworn Statement No. 1937 must be filed by the last business day of June for the financial, functional and tax information of the prior fiscal year (a one-time-only three-month extension may be obtained). Therefore, Chilean Groups required to file this statement must do so by the last business day of June 2017 (or September 2017 if an extension is requested).
The objective of this obligation to file this Sworn Statement, which has already been implemented in approximately 25 countries, is to grant tax administrations a tool to control tax avoidance and evasion while at the same time facilitating cooperation between them. In this regard, on 27 January 2016, the Chilean Government signed the Multilateral Competent Authority Agreement on the exchange of CbC reports. As stated in such agreement, the tax administrations of the signatory countries (50 to date) will automatically exchange CbC reports as of 2018, according to the Chilean Government commitment.
Failure to submit the Sworn Statement or submission of an erroneous, late or incomplete Sworn Statement will result in fines pursuant to the provisions in No. 6 of Article 41 E of the Income Tax Law. If the submitted Sworn Statement is intentionally false, a fine will be applied as stated in No. 4 of Article 97 of the Tax Code.
As stated in the Resolution, although the information required by the Sworn Statement is normally requested when making an assessment of inherent transfer pricing risks, such information may be exchanged or used in order to apply and review not only income taxes, but also taxes on sales and services, inheritance taxes, assignments and gift taxes.
Source: EY