How Chile’s tax reform could hit infra concessionaires

Chile’s tax reform could severely affect infrastructure concessions, even those which haven’t started operations or generating profit, because the new rules would apply retroactively.

"Any tax reform that affects rates [and wasn't retroactive] would be unfeasible, because it could be argued that a contract was made at a rate of 25% and they cannot change it, so obviously it affects future projects," Magdalena Brzovic, partner at legal firm Brzovic & Cia, said in response to a question by BNamericas during a webinar held by the School of Engineers.

The reform includes a 22% tax on profits distributed by companies.

For example, highway concessionaire Autopista Central, which operates one of Santiago’s main access roads, paid 31bn pesos (US$34mn) in dividends resulting from last year’s profits to shareholders, according to a filing with financial market regulator CMF.

Highway operators have received heavy criticism in recent years. Protesters demanded lower tolls or even their abolishment. A proposal to ban tolls was passed by a committee of the constitutional convention which drafted a new constitution, but the measure was rejected for the final proposal.

Following the social protests of October 2019, which led to the establishment of the convention, the government and highway operators agreed to not raise tolls above inflation.

Overall, Brzovic said the tax reform follows the line of thought that led the 2019 protests, which is that the State must guarantee social rights and finance them in some capacity. However, she claimed that President Gabriel Boric “clumsily believes that raising taxes will increase tax collection.”

The main goal of the tax bill is to increase tax collection to 4.3% of GDP once fully implemented. It also includes higher mining royalties, taxes on high incomes and closing loopholes, in addition to a dividends tax.