Following the resolution issued by the Second Tax and Customs Court of the Metropolitan Region in deciding the claim filed under the general claims procedure established in that jurisdiction’s Tax Code — whereby Chile’s Internal Revenue Service (SII) assessed Nissan Chile a tax amounting to $5,774,515,810, surcharges included — it is important to recognize the significance of this case, as it sets clear limits on the actions of the tax authority in transfer pricing audits, specifically regarding the allocation of risks of an LRD (Limited Risk Distributor) as opposed to a full-risk distributor (Full-Fledged Distributor), including the tax characterization of transfer pricing adjustments, particularly in FFD models, which perform fully developed functions that distinguish them from an LRD, as shown in the following table:
| Functional dimension | Full-Fledged Distributor | Limited Risk Distributor |
| Functions performed | Performs fully developed commercial functions, including business planning, strategic and operational marketing, execution of promotional campaigns, management of the customer network, and provision of after-sales services. The functional scope is determined through the functional analysis and may include minimum commercial investment commitments. | Performs routine, operational functions, generally limited to the acquisition of products for resale and the execution of commercial, marketing, and pricing strategies defined and controlled by the Principal. |
| Market and inventory risks | The Distributor assumes and controls the economically significant risks associated with the local market, including demand fluctuations, inventory risk, credit risk, and commercial risk. It may be required to purchase minimum volumes or maintain minimum inventories, which is consistent with the assumption of those risks. | Market and inventory risks are substantially mitigated or transferred to the Principal. The Distributor does not control the economically significant risks, and its exposure is limited to operational risks of a routine nature. |
| Pricing mechanism (remuneration) | Remuneration is usually structured through discounts on list prices or transfer prices tied to purchase volumes, allowing the Distributor to capture the residual result (positive or negative) derived from the risks assumed, in line with the arm’s length principle. | Remuneration is typically determined through a target margin or limited return, situated within an arm’s length range, consistent with an entity that performs routine functions and does not assume significant risks. |
The case at hand can be summarized as follows:
Nissan Chile is a stock corporation incorporated in Chile in 2014, which began its commercial operations on December 23 of that year. It is engaged in the distribution and commercialization in the domestic market of automobiles, spare parts, and accessories acquired from manufacturing entities of the Nissan Group (Mexico, Japan, the Netherlands, and the United States).
Prior to the incorporation of the claimant company, the distribution of Nissan Group vehicles in that jurisdiction was handled by Marubeni, an unrelated entity. However, due to poor results in recent years, the conglomerate decided to modify its business model, opting to commercialize its products directly in Chile. To that end, Nissan Chile was incorporated in 2014 as a subsidiary, dedicated exclusively to the importation and wholesale of vehicles and spare parts — without making sales to the end consumer — operating through a network of 20 allied, unrelated dealerships across the country.
In fiscal year 2015, it implemented an aggressive commercial strategy aimed at improving the brand’s perception in the local market and achieving stronger positioning against its competitors, materialized through advertising mechanisms and the granting of incentives such as price discounts, bonuses, and gift cards, among others. This made it possible to increase sales and market share in a context of sharp contraction in the automotive sector, but it generated operating losses and a very low gross margin.
The tax authority of that country considered that these results were not consistent with the arm’s length principle and concluded that the incentive costs should have been shared with the related foreign entities, which would have benefited indirectly from the increase in purchase orders. Applying the Resale Price Method, the tax authority reconstructed hypothetical scenarios with and without incentives, allocating 59.37% of the total incentive cost to Nissan’s foreign related parties, and characterized the adjustment as a deemed profit distribution, which was taxed under the Single Tax pursuant to Article 21 of the Income Tax Law, issuing the assessment challenged before the courts.
Against this backdrop, that country’s Tax and Customs Court upheld Nissan Chile’s claim in full and voided the assessment, concluding that the tax authority exceeded its powers and misapplied the transfer pricing regime. In essence, it held that:
- Article 41 E of the Income Tax Law requires cross-border transactions between related parties, a requirement not met when the adjustment is based on discounts granted to independent domestic dealers;
- The Resale Price Method does not permit the introduction of hypothetical scenarios or adjustments to domestic income or incentives; rather, it is limited to analyzing actual purchase prices and margins against reliable comparables, which the tax authority failed to do;
- The actual cross-border purchases from Nissan Group entities were never challenged as to their price and, moreover, proved consistent with comparable transactions with the independent supplier (Marubeni);
- The incentive strategy constituted a legitimate and temporary business measure of market penetration, recognized by the OECD Guidelines[1], confirmed by the subsequent recovery of profitability; and
- Nissan Chile being a full-risk distributor, there was no contractual or functional basis for imposing an obligation to share risks or costs with the foreign affiliates.
CONCLUSIONS
The importance of the Nissan Chile vs. SII case lies in the fact that it constitutes a key ruling that reinforces the legal, methodological, and conceptual limits on transfer pricing enforcement in any jurisdiction, by making clear that a tax authority cannot extend the scope of a transfer pricing adjustment beyond its strict requirements — that is, the existence of a cross-border transaction between related parties that was not agreed at market values — nor use it to review or penalize legitimate internal business decisions, such as commercial incentive policies granted to independent domestic distributors; the court further reaffirms that the Resale Price Method does not authorize hypothetical reconstructions or ex post adjustments based on “theoretical” margins or statistical ranges, but must be applied to actual prices and with reliable financial comparables, thereby rejecting the use of the interquartile range as a mandatory normative floor.
Equally relevant is the express recognition of the tax validity of temporary market penetration strategies, even when they generate initial losses, in line with the OECD Guidelines[2], provided they are reasoned and a subsequent recovery of profitability is observed — a circumstance proven in this specific case, as the taxpayer demonstrated in its audited financial statements that the loss position was transitory, with its operating margin rising from -6.23% in 2015 to 4.15% in 2017, evidencing a significant recovery over two years against a general contraction of the automotive industry. The ruling also protects the coherence of the functional analysis and the allocation of risks, by confirming that a full-risk distributor may autonomously assume commercial costs and risks without any obligation to share them with foreign group entities in the absence of contractual agreements, and rejects the attempt to impose a “forced solidarity” of risks based solely on indirect benefits. Finally, it restricts the use of adjustments as a residual punitive mechanism, by invalidating a deemed profit distribution characterization built on abstract assumptions and without proof of actual income or an outbound flow of assets, making this case a relevant jurisprudential benchmark that delimits fiscal discretion and strengthens taxpayers’ legal certainty in accordance with OECD standards.
[1]OECD (2013), OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2010, Instituto de Estudios Fiscales, Madrid, https://doi.org/10.1787/9789264202191-es.
[2] Ibidem. Paragraph 1.60 of Chapter I and paragraph 2.7 of Chapter II.
[1] Available at: Case Law Databases – Tax and Customs Courts of Chile, https://www.tta.cl/jurisprudencia/ Accessed April 15, 2026.
