The "pay your taxes" Debate: Perspectives on Corporate Taxation and Social Responsibility in the Chilean Mining Industry

One of the central concerns about the dominant corporate social responsibility (CRS) agenda from a developmental perspective is that it often ignores certain corporate practices that undermine social, sustainable and economic development. These practices include subcontracting, non-payment of taxes, corporate political influence, transfer pricing and intracorporate financial flows. The last has led to the indebtedness of affiliates in developing countries engaged in production, and outflows of profits to service loans from financial affiliates in offshore havens. In the case of the mining industry in Chile, such practices have been common. This behavior has been stimulated by the country's neoliberal-inspired economic policies, which are fiscally permissive and do not charge royalties for the use of natural resources. These policies ovesstimulate investment and result in overexploitation of natural resources in the short run. As Chile is a major actor in copper mining, such policies have contributed to a long cycle of overproduction and low prices in the world copper market, with several negative implications for the domestic economy, employment in the mining sector and government revenues. This paper identifies and examines the relevance of these practices, contradictions and double standards in relation to foreign mining companies. Companies analyzed include Exxon, (1) which has a poor reputation concerning CRS practices, and BHP Billiton, generally regarded as a CSR leader. Even though the behavior of both companies in the Chilean mining industry differs dramatically in many aspects and seems to confirm their CRS reputations, the paper nevertheless finds relevant evidence that even CSR leaders may engage in some of the above-mentioned practices, when it comes to profit reporting and taxation. Chile's already significant position in the world copper market has increased considerably during the last decade. Copper production has more than tripled since 1990, and presently the country's output represents almost 40 per cent of world copper exports. At the same time, though, private mining companies, with only two exceptions, have not paid any taxes at all. Private companies extracted and exported 20.8 million tonnes of copper between 1993 and 2002, roughly equivalent to two years'-worth of world consumption. The value of these exports amounted to more than $34 billion, (2) with the net income of private companies roughly half that sum. Meanwhile, they have paid just $1.7 billion in taxes, while accumulating $2.6 billion in tax credits, thus holding the Chilean state liable for a new $900 million. Compnla Minera Disputada de Las Condes, a mine owned by Exxon, ostensibly operated at a loss for 23 years. Therefore, it did not pay any taxes at all and, on the contrary, accumulated $575 million in tax credits. Nevertheless in 2002, Exxon (by then Exxon Mobil) sold this "money-losing" operation for $1.3 billion. Exxon had engaged in the practices mentioned above, and exported the mining operation's substantial profits, mostly disguised as interest payments to Exxon Financials, a subsidiary in Bermuda. The second largest world copper player after the Corporación Nacional del Cobre de Chile (CODELCO) is BHP Billiton, which owns Minera Escondida, the largest copper mine both in Chile and worldwide. Its CSR and fiscal performance has been quite different. Escondida is the only private mining operation in Chile that pays taxes and publishes financial statements. Additionally, it voluntarily donates 1 per cent of pre-tax income to CSR-related projects in the country. BHP Billiton, therefore, seems to honour its reputation as a CSR world leader in the mining industry.