Mining in Chile: Can transfer pricing be a means of tax evasion?

Foreign copper mining companies have obtained an economic income of approximately US$ 90 billion. However, according to the Internal...

Foreign copper mining companies have obtained an economic income of approximately US$ 90 billion. However, according to the Internal Revenue Service (SII), they paid US$ 29,030 million in taxes to the State in 30 years of exploitation, which constitutes a low tax collection.

In 1990, Law 18.985 was modified, changing the taxation of large mining companies from presumptive income to effective income. If mining companies obtain or declare profits or gains, they pay income tax. However, if they declare losses, they do not pay taxes, so they accumulate losses and will not pay taxes until the eventual future profits absorb all the accumulated losses.

In this regard, foreign mining companies can use transfer pricing as a form of evasion in the purchase and sale of their related parties. An example is the purchase of mining trucks, worth around US$5 million, which are not bought from the manufacturer but from a related trading company domiciled in a tax haven to which they pay US$7 or 8 million, thus increasing the Chilean company’s expenses, to reduce profits so as not to pay taxes.

Likewise, sales are made in futures markets to related companies that earn what the Chilean mining company loses. Thus, they reduce the quantity and metallic content of copper and other by-products that enter the concentrate under the pretext that Customs or the SII do not control copper exports.

Therefore, it is necessary to analyze whether the directors and officials of these agencies carry out a correct control of these foreign mining companies to sanction tax evasion through transfer pricing.

Source: Reporte Platense 09/02/22

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