Chilean government introduces amendments to the Mining Royalty bill

On April 17th, 2023, the government of President Gabriel Boric introduced new amendments to the Mining Royalty bill (Bulletin No. 12093-08), currently under discussion in the Senate, in order to achieve sufficient consensus for its approval.

The amendments include three fundamental axes:

1. Maintaining the obligation to report Financial Statements to the Financial Market Commission (CMF)

Currently, mining companies subject to tax stability (under the now repealed Decree Law 600) are required to report their audited financial statements to the CMF on a quarterly basis. However, these obligations also expire when the respective agreements do (there are several of these which, according to the Ministry of Finance, conclude in 2023). Considering that the information historically reported through this means has been deemed useful for the design of public policies, the amendments incorporate this duty to report (also on a quarterly basis) to the taxpayers of the mining royalty in general.

2. Reinstatement of organization and start-up expenses as a cost for the purposes of calculating the taxable base of the margin component of the royalty

In the project approved by the Chamber of Deputies, the taxable base of the margin component of the royalty, called "RIOMA" (Adjusted Mining Operational Income), does not consider start-up and operation expenses as deductions (unlike the specific tax on mining currently in force). The amendments incorporate these types of expenses, establishing that they may be amortized over a period of 6 years, which is the maximum period established for income tax purposes. Therefore, if amortization for income tax purposes was done in a period inferior to 6 years, the RIOMA will have to be adjusted so that a 6-year amortization is reflected.

3. Establishment of a maximum potential tax burden of 48%

The amendments incorporate a limit to the maximum taxation of mining royalty taxpayers (called the "maximum potential tax burden"), considering income tax, royalty, and final taxes (i.e., Global Complementary or Additional Tax) to which their owners will be subject upon profit distributions. Specifically, it is established that when the sum of the First Category tax, mining royalty, and the final tax that the owners would pay (assuming they distribute 100% of the profits) exceeds 48% of the operational profitability - defined as RIOMA before taxes - then the royalty will be adjusted in such a way that it does not exceed that percentage.

Final taxes, assuming 100% distribution, are calculated considering a tax burden of 35% on the net taxable income for income tax purposes, including therein the corporate tax itself. With this formula, the government seeks to prevent that during the high copper cycles, both the ad valorem and operational component do not result in disproportionate taxation, while ensuring revenue in normal or low cycles.

Finally, the government announced - in a presentation made to the Senate to explain the basis of the amendments - that it would be available to introduce tax stability mechanisms for the sector, about which no further details have been provided so far. This issue, however, was not included in the amendments.