On 26 July 2021 the OECD published the stage two peer review report on Chile’s compliance with the minimum standard under action 14 of the action plan on base erosion and profit shifting (BEPS). BEPS Action 14 is concerned with making dispute resolution mechanisms more effective.
The minimum standard sets out the procedures that need to be in place to ensure that dispute resolution processes are effective. Member countries of the OECD’s Inclusive Framework are being monitored in the peer review process regarding compliance with the minimum standard.
Chile has a small mutual agreement procedure (MAP) programme with only two cases pending on 31 December 2019. The peer review report notes that Chile has resolved some of the issues identified in the stage one peer review.
All of Chile’s tax treaties contain a provision relating to the MAP, and the treaties are generally in line with the requirements of the minimum standard, however around 85% of the treaties do not include a provision for mutual agreements to be implemented regardless of any time limits in domestic law, as required under Article 25(2) of the OECD Model; and do not include the alternative provisions for Article 9(1) and Article 7(2) in relation to time limits for making transfer pricing adjustments. Around 90% of the treaties do not provide for the competent authorities to consult together for the elimination of double taxation in cases not provided for in the tax treaty as required under Article 25(3) of the OECD Model.
Chile has signed and ratified the Multilateral Instrument (MLI) to include the tax treaty related BEPS provisions in its bilateral tax treaties. The MLI can therefore be used by Chile to amend its tax treaties to align them with the minimum standard. For treaties that cannot be amended under the MLI, Chile will commence bilateral negotiations with the relevant treaty partners.
Chile has a bilateral advance pricing agreement (APA) programme, but this programme does not allow roll-back of bilateral APAs as required by the minimum standard.
The report notes that access to the MAP may be denied in some cases because the application was not filed in a timely manner. This includes some situations where the MAP request is submitted within three years from the first notification of a proposed transfer pricing adjustment, or of filing of an amended tax return resulting in taxation not in accordance with the tax treaty.
The report notes that there is no documented bilateral consultation or notification process where the competent authority considers the issue in a MAP request as not justified. Also, Chile has not yet issued guidance for taxpayers on the availability of the MAP and its application in practice.
In the years 2016 to 2019, MAP cases were completed on average within the targeted time period of 24 months, the average time to completion being 21.30 months. The competent authority is therefore considered to be adequately resourced.
Chile almost meets the minimum standard in relation to the implementation of MAP agreements, however it has a domestic statute of limitation which creates a risk that a MAP cannot be implemented if the relevant tax treaty does not include the equivalent of the second sentence of Article 25(2) of the OECD Model. There was one case in which a potential MAP agreement could not be implemented, and no agreement was therefore reached in practice, because of the statute of limitation, although Chile was willing to discuss the issue.