PANEL ON MONEY, PEOPLE, AND GOODS: GETTING WHAT YOU NEED IN AND OUT OF THE HOST COUNTRY MONEY

• Jurisdiction: United States

Mining Agreements: Contracting for Goods & Services
(Sep 2015)
CHAPTER 4B
PANEL ON MONEY, PEOPLE, AND GOODS: GETTING WHAT YOU NEED IN AND OUT OF THE HOST COUNTRY MONEY
Ricardo Escobar
Partner
Bofill Escobar
Santiago

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RICARDO ESCOBAR is a Partner with Bofill Escobar Abogados in Santiago, Chile. He concentrates his professional practice on corporate, tax and foreign investment, and dispute resolution matters. He has vast experience in both the public and private sectors. During the last two decades, Mr. Escobar has played a pivotal role in the design of public policy and legislation in matters related to concessions for public works, double taxation, and the capital market. He has also worked at the Foreign Investments Committee and has acted as a negotiator of foreign investment protection treaties and conventions to avoid double taxation. He was the Commissioner of the Chilean Internal Revenue Service (SII) from 2006 to 2010, where he led one of the key teams in the process of the incorporation of Chile to the OECD. Mr. Escobar has acted as an advisor for the Government of Paraguay (IDB Program for Tax Reform) and delegate of the Finance Ministry of Chile before the Fiscal Affairs Committee of the OECD. In the private sector he was a partner at Carey y Cía. Before becoming a founding partner at Bofill Escobar he was a partner at Ernst & Young in Chile, being designated as the partner in charge of Tax Policy of the Americas, as well as partner in charge at a global level of Tax Policy for the mining industry. He received his law degree (J.D. equivalent) from Universidad de Chile and obtained a Master's Degree (L.L.M.) at the University of California at Berkeley. Ricardo Escobar is a professor of the Universidad de Chile where he has given courses in Tax Law and Economic Policy. He is also a visiting professor at the School of Law of the University of Miami, where he teaches the seminar on Taxation in Latin America. He is a member of the Chilean Bar Association as well as a member of the Permanent Scientific Committee (PSC) of the International Fiscal Association (IFA).

Bringing Money in and Out of Chile In a Mining Project^{1 2}

This paper discusses some of the most frequently discussed legal issues and practical considerations related to making an investment in a mining project in Chile, such as the "Oceana Gold" hypothetical mining development project presented for this conference. The term "Oceana Gold" as used in this paper does not refer to Oceana Gold Corporation of Melbourne, Australia, whose engineers have developed the hypothetical mining development project.

1. Formal foreign exchange market:

In Chile the foreign exchange market is regulated for some key operations such as foreign investment (equity and loans), repatriation of profits (dividends or others) and capital, and other operations. These operations must be conducted through entities operating in the "Formal Exchange Market" (FEM), namely commercial banks. Depending on the case, rules may apply to either the non-resident party, the local party or both. Severe penalties may be applied by the Central Bank of Chile in case of breach of the applicable regulations.

Practical take away: Do not transfer or carry relevant amounts of foreign currency (USD $ 6,000 or more) without timely filing the appropriate transfer documents with the respective bank.

2. Registration as taxpayers before the IRS:

Most legal transactions from the very beginning of a project will require identifying the parties involved with their respective local tax identification numbers, known as "RUT".

In the case of Oceana Gold, the company used as formal shareholder or partner of the entities in Chile as well as the latter will need to have their own RUT. For obtaining these from the local IRS it will be necessary to present a file with legalized copies of the respective incorporation documents as well as a power of attorney "to an individual resident in Chile" who will remain responsible for such entities before the IRS until formally substituted by another person resident in Chile.

Practical take away: Make sure that a local individual is readily available to perform such duty from the start and make the registration before the IRS. Obtaining a RUT is one of the first legal items in your To Do list. Issues such as opening bank accounts, exchanging foreign currency, hiring people, entering into contracts, renting office space, and so forth, may become extremely difficult and delayed without a RUT.

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3. Choosing a corporate³ entity:

In Chile there are several types of legal entities to chose from. In the past there use to be some significant tax differences for some of these entities; however, after the last two tax reforms (2012 and 2014) most differences have gone away.

In cases where there are two or more unrelated parties as partners or owners, it is common to have a stock corporation (sociedad anónima or SA) as the chosen form. It has the usual features of shareholders meetings, board of directors and a general manager, as political and management powers. For a single owner as is the case of Oceana Gold, there is no especial advantage in having a complex three level management system. The answer would be different if, for example, Oceana Gold would be willing to raise some equity in the local capital market, in which case having a SA is a must.

A common vehicle these days is a Sociedad por Acciones (SpA), which is also a type of stock corporation. However, it is extremely flexible in terms of the design of its by-laws, including management, distribution of profits, and so forth. Unlike all other entities, it allows for a single shareholder.

Limited liability companies (Ltda.) are also common. These require having at least two partners. Management is very flexible, too, and so it is the way the partners agree on profit distributions.

In the mining sector there is a peculiar legal vehicle called "Contractual Mining Company", which is a hybrid type between a Ltda. and an SA, but with a special registration procedure in the Register of Mines instead of...