Senate Votes Ratify US-Chile Tax Treaty, Securing American Lithium Access

Senate Votes Ratify US-Chile Tax Treaty, Securing American Lithium Access
Aerial view of brine ponds and processing areas of the lithium mine of the Chilean company SQM (Sociedad Quimica y Minera) in the Atacama Desert, Calama, Chile, on Sept. 12, 2022. (Martin Bernetti / AFP)
Autumn Spredemann

It was a landslide final vote in the Senate on June 22, which favored ratification of the critical U.S.-Chile tax treaty. One day prior, the legislative body surpassed the two-thirds supermajority required to approve treaties at 95–2.

The U.S.-Chile tax treaty has been in the works since 2010, but clearing the final legislative hurdles this week was a buzzer-beater for U.S. companies operating in the South American nation. Otherwise, Chile’s government would enforce up to a 47 percent tax rate on existing mining operations, challenging current projects to remain solvent amid lingering uncertainty surrounding access to the country’s rich lithium and copper reserves.

The initial draft of the treaty failed to clear the necessary Senate votes due to opposition led by Sen. Rand Paul (R-Ky.), who raised concerns over some aspects of the legislation that would facilitate information security risks for U.S. citizens with foreign tax officials.

Paul and Sen. Josh Hawley (R-Mo.) were the only “no” votes in the final round.

Once ratified by President Joe Biden, Chile will be the third Latin American nation to have a double tax treaty with the United States.

On Thursday, Senate Majority Leader Chuck Schumer (D-N.Y.) extolled the legislation. “Chile is the home to the world’s largest lithium reserves, the precious metal used in emerging technologies like iPhones, EV batteries, and renewable energy storage. So, as the world races to advance clean energy technologies, Chile will be a critical ally for anyone looking to lead the way.”

“The U.S.-Chile treaty is consistent with other tax treaties we have with more than 60 countries, which boosts American competitiveness on the global stage.”

Chilean Congress approved the treaty in 2015. Benefits include an investment boost between nations, a reduction in what Chile pays in withholding tax rates on interest payments and royalties. It also slashes the Chilean capital gains tax rate.

This is critical since American mining operations in Chile are substantial. Freeport McMoRan Copper & Gold Inc. out of Arizona, and the North Carolina-based Albemarle Corporation, are the leading U.S. mining extraction companies.

Chile’s tax reform passed the lower house of Congress in May, which seeks to generate millions in additional government revenue. The initial tax hike applies to large-scale copper operations producing more than 80,000 tons yearly. However, the reform is expected to extend to lithium and other commercial mineral projects within the sector.

In May, Chile’s Minister of Finance, Mario Marcel, lauded the higher tax rates as a means of preventing resource exploitation.

“With this legislation, we seek to avoid what happened many times with our country’s natural riches: they were exploited, they disappeared, which left very little for the country and its future development.” he said.

In addition to lithium, Chile is also the world’s largest copper producer.

Washington’s steps to gain a competitive edge over China for access to South America’s vast mineral wealth couldn’t be more timely. Beijing has been currying favor among governments in Latin America’s resource-rich countries, including Chile, for years with its alleged “checkbook diplomacy.”

It occurs amidst the backdrop of Biden’s push to ramp up U.S. electric battery production for cars. This creates increased competition with China for lithium access in places like Chile and Mexico, both of which are acutely aware of the soaring demand for lithium or “white gold.”

Riding this wave, Chile unveiled plans to expand its lithium sector back in April.

Autumn is a South America-based reporter covering primarily Latin American issues for The Epoch Times.
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