Chile to square up to widespread tax evasion
By Laurie Blair
Published On : Tue, Nov 25th, 2014
Published On : Tue, Nov 25th, 2014
New official figures, investigations reveal offshore tax havens home to nearly US$90 billion of Chilean assets.
UK overseas territory the British Virgin Islands is home to several “paper” companies alleged to help Chilean firms dodge multi-million dollar tax bills at home. Photo by Latham Jenkins / Flickr.
Chile is set to tackle endemic tax avoidance by firms which, according to official figures, have seen 306 Chilean nationals stash at least US$87 billion worth of capital in offshore tax havens.
The Cayman Islands and the British Virgin Islands — UK overseas territories in the Caribbean — rank alongside the tiny European principality of Liechtenstein as the most popular jurisdictions where Chile’s biggest business empires have registered activities. The Cayman and Virgin Islands were home to 122 and 78 Chilean-registered firms in December 2012, with potentially many more unregistered.
By creating “paper” parent companies in such locales and splitting ownership of their activities in Chile between them — a technically legal process — firms have benefited for decades from minimal tax regimes and a lack of information-sharing agreements with the taxman in Santiago.
According to lawyer and tax expert Héctor Álvarez, tax havens represent “a specially designed environment” where CEOs join “dictators and drug traffickers” to hoard their “ill-gotten treasure.”
“The company sells at artificially lowered prices to an intermediary, whose profits from the operation are minimal or non-existent,” Álvarez told press.
“Then the intermediary [a sister company in a tax haven] sells at the normal price, pocketing profits which are taxed at 0.01 percent. Similar operations occur when companies attribute the majority of their profits to their subsidiaries in tax havens.”
Such shadowy arrangements hit the headlines in September 2014 when Chile’s stock exchange regulator (SVS) found several national firms liable for US$164 million in fines for collusion. However, owner of chemical and mining conglomerate Soquimich, Julio Ponce Lerou — liable for US$70 million of the total — was proved to be technicallyexempt as his company is in the hands of holding firm The Pacific Trust, based in the British Virgin Islands.
Recent investigations have further uncovered the lengths that corporations allegedly go to in order to avoid paying taxes in Chile. The Luksics, a prominent business family, own six companies registered in Liechtenstein (pop. 37,000) which between them share the official ownership of Antofagasta PLC, a holding group which itself controls key Chilean mining and utility concerns worth some US$600 million in 2013, according to company records.
Lisena Establishment and Merquior Establishment, despite their Central European zip codes, are similarly registered owners of the Quiñenco holding group, the umbrella firm for such Chilean business mainstays as Banco de Chile, CCU and Enex. However, their charters assert that they are “Investment Companies” that “don’t carry out any commercial activity.” Other part-owners of Quiñenco — whose investor arm made profits in the region of US$87.4 million in 2013 — include the Caribbean-based CCU Cayman Ltd.
Quiñenco has denied any inappropriate activity, saying that these companies, formed “in specific moments as investment vehicles abroad,” are now largely inactive and that their existence is “completely public, set down in company reports and duly audited.”
Yet it’s not just the Chilean state that is missing the Luksics’ tax receipts. It also emerged in March 2014 that the family was using a Lithuanian-based company, Sutivan Investments Establishment, to control Laguna Porec, the second-biggest hotel chain in Croatia.
Nor is the Luksic family the only Chilean business dynasty to have enjoyed the benefits of offshore fiscal havens. The Matte family has split its ownership of tissue paper giant CMPC, energy firm Colbún and Banco Bice — as well as other forestry, housing and agricultural concerns — between nine foundations in the Cayman and Virgin Islands, as well as UK crown possession Guernsey. One of CMPC’s Cayman-registered holding companies, CMPC Cayman Ltd., holds assets of US$496 million while presenting losses in Chile of US$24 million to the national treasury in 2013. CMPC has similarly argued that these subsidiaries date back decades as vehicles for regional investment and that it complies with all existing norms on transparency.
Yet tax havens are not party to international agreements between countries such as Australia, New Zealand, Denmark, Germany and Canada which see their tax ministries share information on firms operating internationally, meaning that firms are not obliged to deliver accounts to the Chilean Tax Service (SII).
However, two parallel movements — one from within Chile, the other from outside — are set to begin tightening up the tax loopholes and atmosphere of anonymity that large Chilean firms have hitherto enjoyed. A turning point came at the beginning of 2014 when the Supreme Court ruled in favor of the SII against Coca-Cola Embonor, which had been charged with using a sister company in the Caymans to present losses and lower its tax bill in Chile. Meanwhile, as part of an ongoing program of tributary reform, the government of President Michelle Bachelet is to introduce a new Controlled Foreign Companies (CFC) norm which will oblige Chilean companies to divulge annually their investments in offshore tax havens.
More effective may be the Multilateral Convention on Mutual Administrative Assistance In Tax Matters, aninternational accord signed by Chile in October 2013 pending presidential approval and ratification by the Senate. The agreement, created by the OECD and with the input of the G20 forum of developed nations, currently has more than 60 signatory countries which pledge to share information bilaterally with a view to cracking down on tax evasion.
Bachelet’s administration has predicted that nearly a fifth of a 3 percent planned increase in GDP dedicated to social spending will come from reducing tax evasion. But Chile is finding itself under increasing pressure from outside to remedy rates of inequality that are the highest within the OECD. While Chilean executives protect their record profits overseas, more than one in four of their compatriots report not being able to afford enough food.
By Laurie Blair
Copyright 2014 – The Santiago Times
Copyright 2014 – The Santiago Times
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