CHAPTER 2 ROYALTY PAYMENTS ON MINING IN CHILE AND PERU (ENGLISH VERSION)
Jurisdiction | Derecho Internacional |
(April 2003)
ROYALTY PAYMENTS ON MINING IN CHILE AND PERU (ENGLISH VERSION)
Ossa & Cía Ltda,
Santiago, Chile
1. INTRODUCTION
In recent months, some commentators in Peru and Chile have voiced the view that royalty payments should be added to the tax legislation applicable to large-scale mining operations in those countries.
There are different types of royalties. The most widely used consists of a tax applied as a percentage of gross value, either real or presumed, of the extracted ore. It is. thus, an ad valorem duty levied on production, not on profits. This type of royalty is a "blind" tax, since it does not account for the margin between costs and the prices the market will bear. Royalties are a tempting concept for any government because -in theory at least—implementation is straightforward and non-discretionary.
In Peru and Chile, mining is a gravitating factor within the economy and can be expected to continue to play a fundamental role given the array, quality and abundance of reserves in both nations. While it is true that, in global terms, mining's share of total worldwide exports has fallen from 7% in 1970 to just 3% in the mid 1990s, it is equally true that both Peru and Chile account for a sizable portion of the current total.
Major mining endeavors, in terms of their profile, are all unique. To state the obvious, mining involves the use of an exhaustible natural resource. However, since that resource is usually located underground, mining also reflects the high risk associated with exploration: estimates suggest that only one in thirty geologists will discover an economically viable deposit in their lifetimes. A second, above-average risk factor is found on the commercial end: the projects are large-scale and thus involve heavy investments with protracted maturity periods. Furthermore,
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environmental policies are increasingly strict with regard to mining in both nations, while in Peru dealings between miners and indigenous groups are also increasingly stringent.
To all of the above, we must add the factor of a certain amount of political risk -an aspect never completely absent in Latin America. Most of the companies are foreign and, to a certain extent, broad sectors of society have the erroneous notion that these firms are mining the wealth of the nation, obtaining enormous profits while paying less than their fair share of taxes.
Lastly and paramount to this introduction, as the World Bank notes, one of the four factors investors analyze in determining where to locate their mining activities is the tax system applicable to the industry in any given country.
2. HISTORICAL BACKGROUND
The concept of royalties is not new. In truth, it is an ancient idea, dating back in some aspects to the so-called "royal fifth" during the colonial era. when the Spanish crown needed precious metals and thus forced mines to operate-even if doing so was not economically profitable—in order to collect the tax. Royalties emerged at a time when tax and accounting systems were rudimentary and when governments needed desperately to collect revenue, even when the mining activities in question did not generate profits.
The modernization of tax systems, with the advent of income tax (which places the onus on profits) stripped royalties of their practical grounding.
Some 25 years ago, under the leadership of Chile and Perú, several Latin American countries began to introduce a variety of reforms into mining regulations. An effort was made to acknowledge the market as the best allocator of investments, to encourage greater protagonism among the private sector while discouraging government-led enterprises, and to introduce a clear, stable playing field for investors.
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In the area of taxes, specifically, these countries modernized their systems, setting low. neutral import duties, floating exchange rates, stable tax systems and straightforward, non-discriminatory, profits-oriented tax structures.
All of these reforms sought to inject greater...
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- TABLE OF CONTENTS
- CHAPTER 1 CREATING A POSITIVE INTERNATIONAL MINING INVESTMENT CLIMATE1
- CHAPTER 2 REGALÍAS A LA MINERIA EN CHILE Y PERU
- CHAPTER 2 ROYALTY PAYMENTS ON MINING IN CHILE AND PERU (ENGLISH VERSION)
- CHAPTER 3 STRUCTURING OF MINING VENTURES IN LATIN AMERICA — PANEL DISCUSSION
- GENERAL COMMENTS ON THE USE OF "FORM 5" IN ARGENTINA (ENGLISH VERSION)
- CONSIDERACIONES SOBRE EL USO DEL "FORM 5" EN ARGENTINA
- ARBITRATION IN BRAZIL AND THE 1958 NEW YORK CONVENTION — RELEVANT ISSUES
- LA JUSTICIA ARBITRAL EN COLOMBIA: MECANISMO ALTERNO DE SOLUCIÓN DE CONFLICTOS
- THE ARBITRAL JUSTICE IN COLOMBIA: ALTERNATIVE DISPUTE RESOLUTION SYSTEM (ENGLISH VERSION)
- DISPUTE RESOLUTION ARBITRATION AND MEDIATION —CHILE— (ENGLISH VERSION)
- LA RESOLUCIÓN DE CONTROVERSIAS EL ARBITRAJE Y LA MEDIACIÓN —CHILE—
- Choosing the Proper Forum and Jurisdiction, and the Importance of Treaties and Enforcement of Arbitration Awards A U.S. Perspective … 5 Significant Developments in International ADR
- CHAPTER 5 THE CONCEPT OF FORUM NON CONVENIENS IN U.S. LAWSUITS
- EL PROBLEMA DE LA SEGURIDAD: CÓMO CONSEGUIR SEGURIDAD EN LAS OPERACIONES DE EXPLOTACIÓN DE RECURSOS SIN INCURRIR EN RESPONSABILIDADES INTERNACIONALES
- THE SECURITY CONUNDRUM: HOW TO MAKE YOUR RESOURCE OPERATIONS SECURE WITHOUT CREATING INTERNATIONAL LIABLITIES (ENGLISH VERSION)
- RESPONSABILIDAD POR DAÑO AMBIENTAL EN EL SECTOR MINERO1
- LIABILITY FOR ENVIRONMENTAL DAMAGE IN THE MINING SECTOR
- LIABILITIES ARISING FROM MINING ACTIVITIES IN LATIN AMERICA
- LIABILITIES ARISING FROM MINING ACTIVITIES IN LATIN AMERICA
- TAXATION OF THE MINING INDUSTRY IN CHILE: AN UPDATE
- REGIMEN FISCAL DE LA INDUSTRIA MINERA EN MEXICO
- TAXATION OF THE MINING INDUSTRY IN MEXICO (ENGLISH VERSION)
- MINING INVESTMENTS IN ARGENTINE
- PERSPECTIVES ON SUSTAINABLE DEVELOPMENT IN THE MINING INDUSTRY
- CHAPTER 9 Canadian Aboriginal Law: Creating Certainty In Resource Development
- PUBLIC PARTICIPATION IN NATURAL RESOURCES MANAGEMENT IN LATIN AMERICA: TO INCLUDE OR NOT TO INCLUDE
- THE ROLE OF PUBLIC PARTICIPATION IN NATURAL RESOURCES DECISIONS
- CONSULTA VECINAL Y LICENCIA SOCIAL
- POPULAR CONSULTATION AND SOCIAL LICENSE
- NEGOTIATION WITH LOCAL COMMUNITIES: HOW TO BUILD A LONG-TERM RELATIONSHIP
- MINERIA Y AGRICULTURE; ¿SON INCOMPATIBLES?
- CONFLICT BETWEEN OWNER AND CONCESSIONAIRES DUE TO PRAEDIAL OCCUPATION UNDER THE CHILEAN LEGAL SYSTEM (ENGLISH VERSION)
- CONFLICTO ENTRE PROPIETARIO Y CONCESIONARIOS POR OCUPACION PREDIAL BAJO EL REGIMEN JURÍDICO CHILENO
- SOLUCION DE CONFLICTOS ENTRE PROPIETARIOS SUPERFICIARIOS Y TITULARES MINEROS: EL CASO PERUANO
- RESOLUTION OF CONFLICTS BETWEEN SURFACE OWNERS AND MINING CONCESSIONAIRES; THE PERUVIAN CASE
- CHAPTER 13 Methods of Financing
- CHAPTER 14 FINANCING OF MINING PROJECT
- LA INDUSTRIA MINERA Y LOS MERCADOS DE CAPITALES DE RIESGO EN LATINOAMERICA: EL CASO CHILENO
- THE MINING INDUSTRY AND VENTURE CAPITAL MARKETS IN LATIN AMERICA: THE CHILEAN CASE (ENGLISH VERSION)
- LAWS, REGULATIONS AND PROCEDURES FOR LISTING EXPLORATION AND MINING COMPANIES ON CANADIAN STOCK EXCHANGES
- CHAPTER 16 FINANCIAL GUARANTEES
- POLITICAL RISK INSURANCE — MIGA's GUARANTEES PROGRAM (ENGLISH VERSION)
- POLITICAL RISK INSURANCE — ZURICH EMERGING MARKETS SOLUTION
- CHAPTER 18 USING LONG TERM INTERNATIONAL CONCENTRATE SALE AGREEMENTS IN MAJOR PROJECT FINANCING
- ISSUES OF ENVIRONMENTAL LAW IN THE DISPOSAL OF WASTE FROM TAILING DAMS AND OTHER MINING WASTES
- AN OVERVIEW OF MINE WASTE REGULATION IN THE UNITED STATES
- PROTECTION FOR FOREIGN INVESTORS IN LATIN AMERICA UNDER BILATERAL INVESTMENTS TREATIES
- EMERGENCY LAWS vs. RIGHTS GRANTED UNDER PRE-EXISTING LAWS: THE ARGENTINE CASE
- null PREVENTING AND MITIGATING A FINANCIAL CRISIS IN MÉXICO
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