Chile wants more from electric generating companies

Chile wants more from electric generating companies | Norton Rose Fulbright

May 01, 1999 | By Keith Martin in Washington, DC

Chilean President Eduardo Frei has proposed, and a congressional committee has approved, a proposal to require Empresa Nacional de Electricidad SA, Gener SA, Colbun SA and other privately-held companies to compensate customers directly for power outages, including outages that occur as a result of natural disasters (such as the recent drought). The proposal would require generators to deduct an amount from customers’ monthly bills to reflect the period of time the customer was without power due to an outage.

Frei also called on private power companies to build new generators to increase the country’s capacity by 500 megawatts. If the companies do not comply, Frei intimated that Chile will re-enter the power business by putting formerly dormant state-owned plants into service. Empresa Nacional de Electridad SA has already agreed to spend up to $100 million by September 1999 to generate an additional 200 megawatts of electricity.


The proposal was included in the budget the Hindu nationalist government presented to parliament on February 27. The lower house approved the budget on April 22, notwithstanding the collapse of the ruling coalition, and the upper house was also expected to approve the budget without incident.

The government announced that it has granted “infrastructure status” to power transmission and distribution operations, making them eligible for the same 10-year tax holiday that applies to generating facilities. Such facilities will qualify for a 100% exemption from income taxes for five years and then a 50% reduction for another five years. The benefit is available during any 10-year period in the first 15 years after a project begins commercial operation.

The budget also reduced customs duties on LNG imports from 12% to 5%.


The changes were in circulars issued by the State Administration of Taxation in November, but only available recently. China collects a 20% withholding tax on money leaving the country in the form of interest, rents or royalties. Dividends paid to foreign investors are normally exempted from withholding tax. Under the new policy, withholding taxes will be collected on interest as the interest accrues without waiting for the interest actually to be paid.

China also said it will collect withholding taxes in future on payments from Chinese customers to foreign companies for communications services like satellite, cable, and fiber optics transmissions. China regards the payments as Chinese-source income to the recipients. They are subject to withholding taxes as “rents.”

A COALITION OF COMPANIES IS LOBBYING TO ELIMINATE WITHHOLDING TAXES ON INTEREST BETWEEN THE US AND CANADA. The group sent US international tax counsel Philip West a report on April 14. The US and Canada are in discussions about negotiating a new protocol to amend an existing tax treaty. The group includes the Bank of Montreal, BP Amoco and GTE.


The tax lapsed at the end of last year, but Congress voted in March to extend it. The tax will be 0.38% for 12 months, after which it will drop to 0.30% for 24 months. Economists say the tax has the potential to increase consumer prices by 2.3% if it is passed through to consumers, but most expect the economy is soft enough that companies will be forced to absorb the tax rather than pass it through.

ECUADOR INCREASED TAXES IN MARCH. The tax increases came at the same time the country was negotiating for financial help from the International Monetary Fund. Ecuador restored its income tax that was scrapped in January. A 1% tax on financial transactions that was introduced to replace the income tax will remain in place. Most VAT exemptions have been eliminated.

HUNGARY WILL PROBABLY NOT INTRODUCE MAJOR TAX REFORMS NEXT YEAR, despite past promises. The minister of economy, Attila Chikan, broke the news at a meeting of American business leaders in Washington in March.

THE CZECH GOVERNMENT IS PROPOSING TO REDUCE THE CORPORATE TAX RATE from 35% to 33%. It would also reduce a withholding tax on dividends paid to both resident and nonresident companies from 25% to 20%. Both changes would be effective next year.

Keith Martin