How the U.S.-Chile Tax Treaty Protects Mineral Supply Chains

Posted on August 24, 2022 by Minerals Make Life

It’s no secret that demand for minerals is skyrocketing and only a handful of global powers, including China, are positioned to prosper from it. In 2022, U.S. automakers are scrounging for secure and reliable sources of copper, lithium, nickel and many other minerals necessary to build the electric vehicle fleets of the future. To support U.S. companies and compete with countries like China, the U.S. must increase its domestic mineral output and work alongside allied nations. Chile is one of these allies.

Chile is an important economic and trade partner for the U.S. mineral supply chain. Several U.S. mining companies have established Chilean operations that produce vital electric vehicle battery minerals such as copper, lithium and molybdenum. Other U.S. companies sell equipment and services to these mining operations. In 2020, the sale of equipment to these operations was worth roughly $12.8 billion in U.S. exports. Unfortunately, this beneficial relationship is only as strong as the agreements that protect it.

The U.S.-Chile tax treaty, awaiting ratification in the U.S. Senate, ensures U.S. companies investing and operating in Chile will not face higher country taxes than competitors like China. First signed in February of 2010, it’s been pending ratification ever since. If the treaty stays unratified, corporate income tax rates for U.S. companies will jump from 35 percent to over 44.45 percent, while Chilean operations headquartered in countries with treaties in force (China, Japan, Canada, Australia, U.K.) continue to enjoy the current Chilean rate of 35 percent. Failure to ratify the treaty will undoubtedly weaken the U.S.-Chile relationship and the investments within it.

A ratified treaty would surely strengthen U.S. competitive advantage in mineral supply chains and promise benefits for U.S. companies, including but not limited to limits on Chilean withholding taxes on interest, royalties, and fees for the use of equipment. Ratifying the treaty would also encourage investment in the U.S. by Chilean companies, creating potential jobs for American citizens. It would be the second U.S. tax treaty in South America and would lay the groundwork for further tax treaties in the region, which has been a long-term objective of the U.S. government.

The Senate should swiftly ratify this pending treaty, thereby strengthening the relationship between the U.S. and Chile while stimulating economic growth for both countries. After more than a decade of waiting, it’s clear the time to act is now.

Read what NMA CEO Rich Nolan had to say about the ratification of this treaty here.

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