Transfer Pricing in Chile: A Strategic Priority for Foreign Companies

Expanding into Chile offers foreign technology companies significant opportunities, particularly in sectors connected to mining and energy. With that opportunity, however, comes the responsibility of navigating a complex tax environment. One of the most critical elements is transfer pricing, the rules that govern how related companies within the same corporate group set prices for goods, services, or intellectual property exchanged across borders.

Consider a mining software company that also sells hardware sensors. Its head office is in Canada, while a subsidiary operates in Chile. The Chilean team installs the hardware at mine sites, while the Canadian office provides the software licenses and ongoing technical support. Situations like this highlight exactly why transfer pricing becomes both practical and essential, it determines how these cross-border transactions are valued, reported, and ultimately taxed.

What is Transfer Pricing?

Transfer pricing refers to the pricing of goods, services, intangibles, or financial arrangements between related or affiliated entities—whether subsidiaries, branches, or companies operating in different jurisdictions. The principle is straightforward: these internal transactions must reflect what an arm’s-length transaction would look like. In other words, they should mirror what independent parties would agree to under similar conditions.

Why it Matters

Tax authorities pay close attention to intercompany transactions because they are one of the easiest ways for multinational companies to shift profits across borders. By manipulating the prices of goods, services, royalties, or loans, a company can reduce taxable income in high-tax jurisdictions while inflating it in low-tax ones. This practice directly threatens government revenues, which is why tax authorities, including Chile’s, monitor it closely. For companies, the risks of getting it wrong include financial penalties, reputational damage, and operational disruptions.

How it is Monitored in Chile

In Chile, the tax authority uses a combination of documentation, analysis, and technology to ensure intercompany transactions follow the rules. Companies must prepare detailed reports, such as the Local File, Master File, and in some cases a Country-by-Country Report, explaining how prices are determined and whether they align with market benchmarks. These are often compared against independent references, for example, whether a Chilean subsidiary is paying higher royalties to its parent than what local companies would normally pay for similar technology.

Beyond documentation, the tax authority carries out risk-based audits, relies on international information exchange, and uses digital tools to detect inconsistencies. Some companies also choose to negotiate Advance Pricing Agreements (APAs) to reduce uncertainty. The overall goal for regulators is clear: to protect Chile’s tax base and ensure profits are taxed where value is truly created.

How Companies Comply in Chile

For companies operating in Chile, three pillars stand out as essential for transfer pricing compliance:

• Arm’s-Length Principle
  Related-party transactions must be treated as if they were between independent companies. For example, if a Chilean subsidiary pays a fee to its foreign parent for software, that fee must reflect what an unrelated provider would reasonably charge under the same circumstances. This ensures fairness and prevents profits from being shifted artificially out of Chile.
• Documentation and Compliance
  The Chilean tax authority requires companies to maintain clear and detailed documentation to support their transfer pricing. This includes a Local File, and for larger groups, a Master File and sometimes a Country-by-Country Report. These reports are more than a formality, they serve as the company’s first line of defense in the event of an audit.
• Methods and Comparability
  Chile follows OECD guidelines, which allow for methods such as Comparable Uncontrolled Price (CUP), Cost Plus, and the Transactional Net Margin Method (TNMM). The right method depends on the nature of the transaction, the risks involved, and the availability of reliable data. Choosing the most appropriate method and supporting it with a solid comparability analysis is critical to demonstrating compliance.

Conclusion

Transfer pricing in Chile is not just a technical issue for finance teams, it is a strategic matter that senior management must oversee as part of their growth. For foreign companies, particularly those in technology and innovation where intangible assets are central, transfer pricing can be one of the most sensitive aspects of doing business in the region.

By investing in proper transfer pricing studies, drafting clear intercompany agreements, and maintaining strong documentation, companies can reduce risk and build a platform for sustainable growth in one of Latin America’s most dynamic markets. At Ax Legal, we support international technology and services companies in navigating these requirements, aligning their structures with best practices, and allowing management to focus on growth with confidence.

Ax Legal helps industrial technology, engineering, and service companies to navigate the legal and commercial aspects of operating their business in Latin America. With deep knowledge of the industrial and natural resource sectors, we provide actionable and practical advice to help streamline our clients’ entries into Latin America, improve how they operate in the region, and to protect their interests.

Over the years, our team of legal and commercial advisors have developed a track record of working with companies of all sizes from Australia, Canada, the U.S., and Europe. The one common factor that connects our clients is that they are leaders in their field, providing innovative technologies and services to the industrial sectors.

To better understand how we can support you in the Region, please contact Cody Mcfarlane at cmm@ax.legal