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Royalty Payments on Mining in Chile and Peru

Juan Luis Ossa, Mining Law & Investment in Latin America (2003)

In recent months, some commentators in Peru and Chile have voiced the view that royalty payments should be added to the tax legislation applicable to large-scale mining operations in those countries.

There are different types of royalties. The most widely used consists of a tax applied as a percentage of gross value, either real or presumed, of the extracted ore. It is. thus, an ad valorem duty levied on production, not on profits. This type of royalty is a “blind” tax, since it does not account for the margin between costs and the prices the market will bear. Royalties are a tempting concept for any government because -in theory at least—implementation is straightforward and non-discretionary.

In Peru and Chile, mining is a gravitating factor within the economy and can be expected to continue to play a fundamental role given the array, quality and abundance of reserves in both nations. While it is true that, in global terms, mining's share of total worldwide exports has fallen from 7% in 1970 to just 3% in the mid 1990s, it is equally true that both Peru and Chile account for a sizable portion of the current total.

Major mining endeavors, in terms of their profile, are all unique. To state the obvious, mining involves the use of an exhaustible natural resource. However, since that resource is usually located underground, mining also reflects the high