In 2018 lawmakers presented a bill to incorporate a new tax on copper and lithium mining into Chilean law (Bill N°12,093-08). The bill was not discussed in the National Congress until two years later, as it was only due to the economic and social crisis of 2020 when, by means of an amendment, the original project was modified in its integrity and the discussion of the so-called Mining Royalty Project (“MR Project”) was introduced.
The discussion of the MR Project began its second constitutional procedure in the Senate during 2021. Further on, the Executive submitted amendments to it in July 2022, but these were withdrawn without even being discussed, along with the amendments presented last October.
If the current version of the RM Project were to be approved, in general terms, the mining activity in Chile would be taxed as follows:
- The taxpayers of the Mining Royalty shall be the Mining Operators, this being understood as any individual or legal person that may extract concessionable mineral substances and sell them in any productive state in which they may be found.
- The Mining Royalty will take into consideration the following components:
2.1 Ad-Valorem, which applies to Mining Operators based on their annual copper sales provided their total annual sales exceed an equivalent of 50,000 metric tons of fine copper (“MTFC”).
The calculation of annual sales must consider the Mining Operators own sales and those of related parties.
The most recent amendment dated October 2022 modified this factor from a progressive rate up to 7% to a fixed rate of 1% and eliminates the “price of the pound of copper” as a reference to determine the ad-Valorem tax.
Furthermore, the amendment also states that if the mining operator determines a negative adjusted taxable mining operating income (“RIOMA”) for the year, this component will be equal to the sum resulting from deducting from the ad-Valorem factor the negative amount of the RIOMA.
In order to determine the RIOMA for the exercise:
- The ad-Valorem tax must be deducted from the net mining income for the year, unlike the Operating Margin component that must not be deducted; and,
- Add to the net mining income for the year: (i) the expenses for the difference between the ordinary depreciation and the accelerated depreciation; and, (ii) the start-up expenditures and disbursements. The most recent amendment also made changes in this aspect, since until then the MR Project did not allow the deduction of the ordinary depreciation of fixed assets from the RIOMA.
2.2 Operational Incomes, which determination differentiates between:
- o Mining operators that obtain 50% or more of their sales from copper and that, in addition, sell annually the equivalent of more than 50,000 MTFC. This component is applied to the RIOMA in accordance with the progressive rate applicable to the Mining Operating Margin determined by the taxpayer each fiscal year (quotient resulting from dividing the RIOMA by the taxpayer’s mining operating income multiplied by 100). Before the last amendment, the applicable rates ran from 2% to 36%, dependent on the fluctuation of the price of the pound of copper, while the RM Project currently contemplates rates that range from 8% to 26%, depending on the Mining Operating Margin.
- Other Mining Operators, being those who are not involved in copper mining, or those involved in it and whose annual sales do not exceed the equivalent of 50,000 MTFC. This component is similar in its rates to the current Mining Specific Tax stipulated in the Chilean Income Tax Law, meaning this that taxpayers whose annual sales do not exceed the equivalent of 12,000 MTFC are exempted from paying this tax. In addition, the applicable rates and tranches are similar and continue to distinguish whether the Mining Operator obtains sales valued up to the equivalent of 50,000 MTFC or exceeds such amount. For the calculation of sales, both own sales and those of related parties must be considered.
- Mining Operators must make monthly provisional payments (“MPP”), which amount is determined in accordance to the gross income from the sale of mining products. Subsequent to the amendments made in October 2022, in order to determine the PPM, the MR Project maintains the benchmark in the “price of the pound of copper” which value must be determined by publication of the Ministry of Finance, according to the average price quoted on the London Metal Exchange.
The Mining Royalty return and payment must be made in April of each year in respect of the income obtained in the previous year.
It should be noted that the MR Project contemplates the elimination of the Specific Tax on Mining regulated in Articles 64 bis and 64 ter of the Income Tax Law.
Finally, it is worth mentioning that the amendments are being discussed simultaneously with the tax reform bill, which, if approved, will also affect the Mining Royalty, since the concept of related party contained in the Tax Code will be broadened, which could affect the determination of annual sales and the components and/or rates applicable to a Mining Operator.