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Monday, May 5 de 2014

Ministry of Finance announces schedule of placements in its local market for 2014 and the beginning of the new Article 104 of Chilean Law on Income Tax


  • These bonds are covered by the new Article 104 of the Chilean Income Tax Law, which governs the tax treatment of gains and losses from fixed-income instrument transactions.   


The Ministry of Finance announces its public debt auctions calendar for 2014, both in pesos and UFs (unidades de fomento, an inflation-indexed unit of account), for a total amount of up to US$6.0 billion.
From May 13 to December 10, the Government of Chile will conduct monthly local auctions of denominated bonds in Chilean peso, in its local market.

These auctions are part of the debt strategy, which contributes to maintain adequate liquidity in the bond market, in order to establish new standards for financial market development, strengthening again the curve in pesos.

The calendar with dates and amounts for each auction is available in the web page of the Ministry of Finance (http://www.hacienda.cl/english/public-debt-office.html).

This section also provides historical information and the following documents regarding the 2014 bond issuance:

•    Issuance Decree (Decreto de emisión).
•    Operational Rules (Reglamento operativo).
•    Term and Conditions for Each Bond (Símiles).
•    Abstract of Terms and Conditions (Resumen de términos y condiciones generales).

As it was previously informed, 2014 issuances include the following bonds:

i.    Issuance of a 5-year bond in pesos (BTP-5), up to Ch$320 billion (US$0.6 billion).
ii.    Issuance of a 10-year bond in pesos (BTP-10), up to Ch$630 billion (US$1.2 billion).
iii.    Issuance of a 20-year bond in pesos (BTP-20), up to Ch$530 billion (US$1.0 billion).
iv.    Reopening of a 30-year Bond in pesos (BTP-30, issued on 1 January 2013), up to Ch$320 billion (US$0.5 billion).
v.    Issuance of a 10-year bond in UF (BTU-10, an inflation-indexed bond), up to UF 27 million (US$1.2 billion).
vi.    Issuance of a 20-year bond in UF (BTU-20, an inflation-indexed bond), up to UF 22.5 million (US$1.0 billion).
vii.    Issuance of a 30-year bond in UF (BTU-30, an inflation-indexed bond), up to UF 11.5 million (US$0.5 billion).

This calendar could suffer modifications in the case of significant changes in market conditions. In that case this shall be informed.

The Bonds are under the tax treatment established in the Article 104 of Chilean Income Tax Act, which governs the tax treatment of gains and losses from fixed-income instrument transactions. This Article was replaced by Law 20,712, also known as Single Funds Act (Ley Única de Fondos) published in the Official Gazette on January 7, 2014. These modifications simplify the former Article 104 and allow access by more investors to the tax treatment.

New Article 104

As was informed at the beginning of the year, these modifications would be in force once legal procedures had been completed. In this regard, we inform the corresponding decrees were published on April 30 and the modifications will be in force from May 1, 2014. The decrees are available at the web page of the Ministry of Finance in the Public Debt Office section, and are the following:

•    List decree, which establishes Central Bank and Treasury instruments that will be included under the tax treatment specified in Article 104.
•    Holding period decree, which establishes a minimum period of one hour between the acquisition and disposal of the instrument to access the tax treatment.
•    Contractual change for Treasury bonds decree, which ends the withholding executed by the issuer, and establishes a unique and final retention for accrued interest between January 1 and May 1, 2014. This retention will be effective at the moment of next coupon payment, on July 1, 2014.

This modification seeks to promote more competition, liquidity and depth in the Chilean fixed-income market, attracting new suppliers of funds, such as foreigner investors, and contributing to a reduction of financing costs for Chilean companies and the Government.

The main changes to Article 104 and related provisions of the Chilean Income Tax Act are the following:

•    The tax treatment specified in this article will be extended to OTC transactions. Currently, it is only available for stock exchange transactions and continuous auctions.
•    Issuers will no longer be required to withhold 4% of the coupon payment for tax purposes. In the case of foreign or nonresident investors, the local agent will be responsible for the tax obligation. For local or resident investors, the tax will be included in the general income tax collection procedure.
•    The tax penalty for issuing below par is eliminated. From now on, income taxes will be calculated on the basis of a fiscal interest rate, equivalent to the yield of issuance for corporate bonds and the coupon rate for Treasury and Central Bank bonds.
•    Treasury and Central Bank instruments issued before 2010 are incorporated under the fiscal treatment. Currently, only bonds issued after 2010 are included.
•    Huaso bonds are eligible for the fiscal treatment of Article 104 (debt securities issued by foreign entities in the local market, under SVS Norm 304 of 2011).

For more information regarding the new Article 104 of the Chilean Income Tax Act, the web page of the Ministry of Finance (http://www.hacienda.cl/english/public-debt-office.html) offers a detailed presentation of the changes described above.

Finally, we inform that during 2014 no T-Bills will be issued.

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