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By Tom Azzopardi
Major mining companies operating in Chile are moving out of island tax havens, a decision that could shield them from higher tax bills under the country’s new regime.
The companies are moving to jurisdictions that hold double-taxation treaties with Chile, allowing them to take advantage of more favorable tax policies, practitioners told Bloomberg Tax. Similar restructuring has occurred among energy companies and is likely to occur in other industries as companies acquaint themselves with the law change that triggered it, practitioners also said.
Most recently, London-listed Antofagasta Plc and commodities giant Glencore Plc restructured to move out of Jersey and Bermuda respectively, two jurisdictions considered to be tax havens, and which don’t have double-tax treaties with Chile.
“Not all the parent companies of Chilean mining companies were based in countries with which Chile has a double-tax treaty. So there have been international restructurings to try to move these holding companies from one country without a tax treaty to one which does,” Eduardo Torretti, a partner at CorreaGubbins, told Bloomberg Tax July 18.
Glencore’s Bermuda connection made headlines in November last year when documents published in the Paradise Papers leak showed that Glencore Inversiones Chile SpA had sent $534 million of profits from its operations in Chile to another Bermudan company Ronlis Limited.
As a loan, the distribution wasn’t subject to the 35 percent withholding tax that Chile charges on profits distributed to foreign investors.
Under Chile’s semi-integrated corporate tax regime, which came into force last year and under which almost all large multinationals must pay tax, companies can only discount 65 percent of corporate taxes from a withholding tax of 35 percent on profits distributed abroad. Companies based in a country that has a double-tax treaty with Chile can discount 100 percent of taxes, for a final tax burden of 35 percent.
On May 30, Antofagasta transferred a controlling stake in Minera Los Pelambres S.A.,—one of the world’s largest copper mines—from Jersey-based subsidiary Los Pelambres Investment Co. Ltd. to its Chilean subsidiary Antofagasta Minerals S.A.
In a filing last month, Glencore revealed that its local subsidiary Glencore Inversiones Chile SpA had been absorbed by another local subsidiary, Glencore Chile SpA, in February this year.
Created in 2014, Glencore Inversiones Chile SpA was owned by a Bermuda-based entity Glencore Holdings (Bermuda) Limited and was the vehicle through which Glencore held majority stakes in the Altonorte metallurgical complex and the Lomas Bayas and Altos de Punitaqui copper mines.
“Many companies have redomiciled between last year and this, some to Spain, some to Belgium, anywhere that has a tax treaty with Chile and a favorable tax regime,” Osiel Gonzalez, a partner at Bruzzone & Gonzalez Abogados, told Bloomberg Tax July 24.
That is especially true for companies located in tax havens who are fleeing not only a higher tax burden but the reputational risk and greater scrutiny that such an address can bring.
“Unless they have a genuine business in a tax haven, they are internally studying options to get out,” Gonzalez said.
Chile’s tax authority keeps a list of jurisdictions it considers to have preferential tax regimes. The jurisdictions are areas where the authority could require additional reporting from companies doing business there.
Antofagasta maintains that restructuring was meant to centralize its four mining operations and wasn’t motivated by tax benefits.
“Beyond the company changes, the organizational changes undertaken seek to standardize process to achieve greater productivity and efficiency,” Antofagasta told Bloomberg Tax July 23.
“The operations in Chile pay all their taxes in Chile and the group’s parent company does not change,” Antofagasta said. Majority-controlled by Chile’s Luksic family, Antofagasta reported in June that it paid $311 million in 2017 taxes in Chile.
According to financial statements filed by Antofagasta with Chile’s financial regulator Comisión de Mercado Financiero last month, Jersey-registered LPIC still owns a 54.82 percent stake in its Antucoya mine, 29.66 percent of the Encuentro mine, and 14.44 percent of its Centinela operation.
Antofagasta declined to comment on whether it planned to transfer these shares from the Jersey-based entity.
Glencore told Bloomberg Tax on July 20 that the merger of the two entities was part of a restructuring following its 2013 takeover of mining multinational Xstrata and denied that it would affect the taxes paid by its operations.
“This structure in no way impacts the tax paid by our operations in Chile, which do so in full accordance with regional and national tax laws,” the company said.
The company reported that it paid $117 million in taxes in Chile last year, according to a June filing.
Planning involving moves such as Glencore’s transfer of profits to its Bermuda-based entity could have a limited shelf life.
Chile’s new government is currently studying legislation to modernize and simplify the tax system following the 2014-2015 reforms. Many expect the bill to end the distinction between how much tax companies based in treaty or non-treaty jurisdictions pay.
“If a client asks me today whether they should change domicile, I tell them let’s wait until September and see what the text of the law says,” Torretti said.
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