We would like to inform you about the main new aspects in Chilean Tax matters that will come into effect this year.

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1. Decrease of the First-category Income Tax to 18,5%

On July 31st, 2010, Law Nº 20.445 was published. The new regulation modified a series of legal dispositions for the purpose of collecting funds for the reconstruction of the areas damaged by the earthquake of February 27, 2010. The law modified the First-category Income Tax that companies pay for net income accrued or earned in each practice.

By virtue of this disposition, the rate increased temporarily to 20% for the calendar year 2011 and its reduction to 18,5% was contemplated for the calendar year 2012. The new regulation stipulates a new reduction of taxes for the year 2013, in order to achieve the old rate of 17%.

Besides the effect that the 18,5% rate will have on the calculation of the income tax applicable to companies in the declaration that will be presented during April, 2013, it is also important to consider that the decrease in the rate directly affects the monthly provisional payments (PPM) companies do over their gross incomes.

The Chilean Internal Revenue Service (SII) has instructed the following regarding the determination of the PPM rates:

• Gross Income obtained between January and March 2012: To determine the corresponding PPM rate, they will have to adjust the applied rate in December 2011, multiplying it by the factor 0,925.
• Gross Income obtained between April and December 2012: To determine the adjustment of the average fee that will be in force during these months, they will have to recalculate the First-Category Income Tax declared over the Taxable Net Income obtained during 2011, applying the current rate of said Tax for the calendar year 2012; which is 18,5%.

Finally, it is important to highlight that there has been broad discussion regarding eventual adjustments to our tax system, and in particular, eventual rate increases. However, as long as this matter is not translated into concrete legal initiatives, the current rate for this year continues to be 18,5%.

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2. Law of taxation of derivatives
On October 22, 2011 the Law 20.544 –called Law of Taxation of Derivatives- was published. Its objective is to give a legal framework to the taxation that affects these operations. The new regulation rules for all contracts that are made or modified from January 1st, 2012, on.

Its objective is to correct the current uncertainty that exists regarding the tributary treatment of these contracts and to give taxpayers assurance about it. The treatment of the derivate instruments wasn’t expressly incorporated into the legal normative, and had been regulated by administrative interpretations by the Chilean Internal Revenue Service (SII), which diminished security to the taxpayers that opted to make these contracts.

The most relevant aspects of this regulation are the following:

• It eliminates the distinction between speculative and coverage instruments qidentified by the jurisprudence of the SII. Hereby, all the contracts covered by this Law have the same treatment, being of coverage or speculative.
• The taxpayers that declare effective revenues by means of complete accounting (the majority of the companies), pay taxes based on the revenues accrued in each exercise, according to the fair value of the instruments at the closure of the respective exercise. All the others (for example, natural persons) must pay their taxes based on the perceived results to the date of the settlement of the contract.
• In general, the payments by concept of premiums, commissions and other expenses related to the derivative contracts can be deducted as an expense for Tax effects, even if they don’t correspond to the line of business of the taxpayer. In the case where the derivative contracts are made by a foreign counterpart and generate payments to the exterior, theses aspects also should be followed:
  • That the counterpart is not established in a tax paradise; and
  • That the contracts are made in the stock market or outside of it by means of formats of commonly used contracts for this kind of operations in international markets.
• The contracts celebrated between related parts will be accepted as long as they take place under the conditions of the market and are contracted in the stock market or out of it with acknowledged and commonly used formats.

It is important to highlight that the Law regulates specifically certain types of contracts -meaning forwards, futures, swaps and options, and combinations of each of these- as well as other contracts that meet the characteristics that the Law indicates. Other derivatives are excluded from the regulation’s scope, and the before mentioned rules do not apply to them; specifically, determined contracts are left out of the regulation of this Law, among others:

• Loans or lease of securities in short selling stock market transactions.
• Los Stock options
• Derivatives whose value is established based on variables which depend of natural phenomenon.

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3. Modification of the taxation of retirement savings.
On December 17th 2011, the Law 20.552 was published. Its purpose is to modify and promote the competition of the financial system. By means of this Law, the legislator seeks to make the Pension system more flexible and enhance the existing institutionality in matters of insurance, particularly in those corresponding to the management of assets of the Insurance companies and the commercialization of insurances related to mortgage loans.

Regarding the taxation matters per se, this regulation introduces important modifications to the taxation regime of pension savings of natural persons, like:

• Elimination of the double taxation of the Voluntary and Voluntary Collective Pension Savings (APV and APVC), and the Voluntary savings account (CAV or second account).

Before this modification came into effect, the deposits in the contributors CAV had no tax benefit at all. Once the deposits were made, the contributor had no right to deduct them from his taxable remunerations, and at the moment of taking his pension, he had to pay taxes again, paying income taxes over the amount of the received pension.

On their part, the APV and APVC deposits enjoy a tax benefit, consisting in the reduction of said deposits from the tax base of the contributor in question. Therefore, it allowed the contributor to pay less taxes when he made his deposit, under the event that he would pay his taxes once he retires, paying taxes over the pension he receives. The problem of this was that the tax benefit associated to the APV and APVC deposits has a maximum ceiling of approximately 1.118.650 US dollars monthly or 13.423.800 US dollars per year*. Accordingly, when the deposits exceeded these amounts, the contributor had to pay taxes the moment he made the deposits and then again, once he retires.

In order to eliminate the double taxation of the CAV deposits and the APV and APVC deposits that did not receive the tax benefit when they were deposited because they exceeded the maximum established by the Law, the new legislation now establishes that those deposits –if they were destined to improve the pension of the contributor and if the contributor didn’t choose to admit them to Article 57 bis- are not subject to Income Tax on the moment of being withdrawn.

Likewise, the APV and APVC deposits that didn’t have any Tax benefit also won’t be subject to the unique Tax that punishes anticipated withdrawals. This is logic, because if the contributor didn’t take the opportunity of a Tax benefit when he did the deposit, it doesn’t make sense that he would get punished for withdrawing it.

This modification will start to be in force in July, 2012.

* These amounts are equivalent to 50UF monthly and 600UF per year.

• It allows withdrawals of the CAV or second account, selecting the tax regime.

The contributor will be able to select which funds will impute the withdrawals as of the date he makes the withdrawal, only when deposits subject to the general tax regime exist, or if there are deposits subject to the deductible of the Article 57 bis of the Income Tax Law among the CAV of the contributor.

Before, the regulation stated that the withdrawal of funds from the account was imputed to the oldest savings. This forced the contributor to impute his withdrawals in a chronological order, being able to lose the benefit because of the positive net saving of the Article 57 bis, only because these investments where older.

This modification will start to be in force in July, 2012.

• Tax for the beneficiaries of Life Insurance with savings financed with APV.

Before the validity of this Law, Life Insurances financed with APV deposits allowed the beneficiaries of the Insurance to receive the insured capital plus the saved capital without taxes, by way of compensation.

According to the new modifications, in case of death of the holder, the insured capital of the life insurance is received by the beneficiaries of the deceased as a free of Tax compensation.But the savings done through this instrument, as well as its profitability, are now subject to a unique Tax of 15%.

This modification started to be in force for those hired from December 17th, 2011, and for all those new contributions entered from that date into policies contracted before it.

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4. Other novelties

• The end of the Private Real Estate funds: From January 1st, 2012, the investment funds that maintain funds in Real Estate assets must be settled.
• New sworn statements: The contributors that have a yearly summation of IVA (VAT) credits superior or equal to $250 million (around USD 508.553) are bound to present the semi-yearly sworn statements 3327 and 3328. These declarations replace the sworn statement 3323, and must be presented in February and August of each year.

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We invite you to consult us in case you have any doubts regarding how the application of the new regulations may affect your particular situation.

The renowned publication Chambers & Partners distinguished AlbagliZaliasnik as one of the best Law Firms in its 2012 Directory, for their leadership in the areas of Dispute Resolution, Competition and Antitrust, Intellectual Property, Corporate and M&A.

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Chambers & Partners recently launched its annual directory of leading lawyers in Latin America recognizing –for the sixth time in a row- our firm and our partners, Gabriel Zaliasnik, Francisco Velozo and Álvaro Rosenblut, as some of the best lawyers in the region.

The publication highlights AlbagliZaliasnik’s Dispute Resolution team as being one of the 10 most prestigious in Chile, and ranks partners Gabriel Zaliasnik and Francisco Velozo among the best litigators in the country. “This energetic team is fast becoming a force to be reckoned with in dispute resolution. It is widely recognized for its white-collar crime expertise, particularly in relation to multi-million dollar frauds. It is also building a strong practice in civil and regulatory litigation highlighting Gabriel Zaliasnik as a highly efficient and enthusiastic leader, as well as a prestigious criminal lawyer, and a brilliant litigator with a very logical mind. Francisco Velozo is recognized for his criminal litigation work and is tempered and fair in his approach, according to clients”.

It is important to stress that according to the 2012 Directory, both partners are at the top of the Chilean ranking of leading individuals in White-Collar Crime Dispute resolution, as well as in general Dispute Resolution, which constitutes a special recognition, making our firm very proud. Chambers & Partners highlights our Competition and Antitrust practice as one of the strongest in AlbagliZaliasnik.

Our Intellectual Property practice, which is directed by partner Ariela Agosin, is also distinguished by Chambers & Partners as one of the top 10 in the country. The publication highlighted the broad array of IP services and our high profile international clients, such as Sony Playstation, Harley Davidson and Wal-Mart. Agosin is directly responsible for this important ranking since her return to Chile in 2010.

The directory also recognized AlbagliZaliasnik’s Corporate and M&A practice. Under the leadership of partners Rodrigo Albagli and Álvaro Rosenblut, our M&A Practice Group has a strong focus on the preparation and planning of acquisition strategies and purchase offers, highlighting its role in Telefonica’s USD $50 million sale of part of its network to American Tower.

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20 years of achievements
This is the sixth consecutive recognition that Chambers & Partners has bestowed to our firm, confirming AlbagliZaliasnik as one of the best Law Firms in Chile. Also, the fact that our lawyers placed at the top of each ranking by this renowned British publication, is a reaffirmation to our two decades of service and commitment to our client’s interests, which renovates and strengthens us to continue our work for the following 20 years.

Dear friends and colleagues:

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In our constant willigness to keep you informed, we would like to communicate you that Ariela Agosin has been named Albagli Zaliasnik’s new Partner.

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In our Firms 20 years of trayectory, we have been notable for having a different vision in legal services and recommendations we give our clients. Albagli Zaliasnik grows and developes itself with this new appointment, which seeks to streghten our abilities to attend our clients, on a local and international level, as well as in our Intellectual Property area in particuar.

With 13 years of experience in our Firm, Ariela Agosin graduated from the University of Chile, and has a LL.M. from the St. Thomas University, Florida. She has extensive experience in matters of International Law, Civil and Commercial Litigation, Antitrust, Advertising Law and Intellectual Property, including Trademarks, Patents, Copyrights, Information Technology, Licensing, Litigation related to these matters; as well as in general brand protection. Ariela also managed AZ’s Miami Office for five years and has been in charge of our Intellectual and Industrial Property Department with Rodrigo Albagli, founding Partner of our Firm.

Go to her profile: Ariela Agosin

Once again we would like to share the important recognition given to AlbagliZaliasnik by the prestigious publication Chambers & Partners, which has distinguished our firm and our partners, Gabriel Zaliasnik, Francisco Velozo, Rodrigo Albagli and Alvaro Rosenblut in this year’s ranking for Latin America’s Leading Lawyers and Law Firms.

According to Chambers & Partners, AlbagliZaliasnik is best known for its “expertise in white-collar crime and antitrust litigation, the talented young team here also handles general commercial disputes”.

Accordingly, Chambers & Partners highlighted AlbagliZaliasnik among the top 10 Chilean Firms in Dispute Resolution in their ranking this year. Founding Partner Gabriel Zaliasnik heads the litigation team and is described as a “prestigious white-collar crime expert who has had a great deal of success.” Francisco Velozo stands out as an “enthusiastic and efficient partner” with a particular focus on extradition and corporate crime.

Chambers & Partners also highlighted that “This young firm has been involved in a steady stream of mid-market deals in the food and beverage and retail sectors, confirming its growing profile in the corporate arena. Alvaro Rosenblut heads the department and conducted most of the firm’s deals over the past year.”

Our Firm was also ranked among the best Chilean Intellectual Property Law Firms. According to Chambers & Partners, the team “is always prepared to engage in a new case and provides immediate responses to every query,” according to clients. It also states that “The team has been handling a lot of litigation work, particularly on behalf of pharma companies, and a number of advertising issues of late. Managing Partner Rodrigo Albagli is the key contact for clients. Ariela Agosin has also returned to the team after several years heading up the firm’s Miami office.”

 
For AlbagliZaliasnik, the acknowledgment from Chambers & Partners constitutes recognition of 19 years of hard work, renewing our energies to maintain our constant commitment with our clients.

In Chile, International arbitration is regulated by Law No. 19.971 of September 29th, 2004.
Like most arbitration hypotheses in Chile’s domestic legislation, international arbitration adopts the character of “voluntary jurisdiction”, so it cannot be conceived without the existence of the so-called “arbitration agreement” (Article 7), which may be part of a contract (commitment clause) or separate agreement, and has no formalities but to be stated in writing. For this purpose, the existence of electronic correspondence is sufficient.

Quality of International Arbitration

Article 3 of the law defines the parameters to understand that a particular arbitration is international, namely: I) If the parties in an arbitration agreement have, at the time of the conclusion of that agreement, their businesses in different States; or if II) the place of arbitration or III) the stipulated place where the obligations must be fulfilled, is outside the state in which the parts are established. Nevertheless, outside these cases, the parties may agree that the matter in dispute is related to more than one State.

Composition of the Court

As we have announced, the parties are free to agree on what regards the constitution of the Court and fixation of the rules of the procedure.
However, if the parties fail to arrive to an agreement the act (Article 10) states that lack of consensus between the parties on the composition of the court, it will be composed of three arbitrators, so that each party appoints one arbitrator and they in turn appoint the third. On the other hand, if the parties had agreed on a single arbitrator, and there is no agreement on their person, this should be appointed by the President of the Court of Appeals where the trial takes place.
The Court thus appointed to rule on its own jurisdiction (Article 16), and may even dictate protective measures or injuctions (Article 17).
If the parties don’t agree under which law the conflict must be resolved, this subject must be resolved by the arbitrators. Clearly, it is a matter of fundamental importance and cannot be ignored in the constitution of the arbitration (Article 28).

Procedure

This procedure is initiated whenever the defendant has received the order to submit a particular dispute to arbitration. In the agreed deadline, the parties shall make claims on their own interest, request and reply. It is noteworthy that the law avoids referring to ¨statement of claim¨ or ¨written reply¨, so nothing prevents these actions could take place as oral proceedings, which constitutes a complete novelty in our legal system.
Furthermore Article No. 24 states that the Court, in silence of the parties, must decide whether subsequent acts of the procedure must be substantiated in writing or by oral hearings.

Ruling or Decision and means of challenge

It must be in writing and motivated. A signed copy will be delivered to each party.
The ruling can only be challenged by an appeal for annulment, which must be filed to the corresponding Court of Appeals. The ruling will be null if, among other reasons, it`s decision contravenes to the Chilean public order, or if the dispute is not susceptible for arbitration (Article 34).

Written by Eugenio Ruiz-Tagle

Associate

eruiztagle@az.cl

Academic literature focuses on the direct relationship between economic growth, the development of financial markets and, the more transparent and accountable, corporate governance which recognizes that it is to the best interest of a corporation to respect the rights and interests of its shareholders. Higher standards of corporate governance are also good growth predictors of the value of a company and the increase of dividend payments. They can also predict surges in stock exchange openings and more cost-efficient capital markets.

 The main objective of corporate governance is based on the decision of regulating all relationships within a corporation.  In fact, it focuses on increasing the information that corporations must provide to their shareholders and the regulators in charge of monitoring them. Furthermore, it aims to ensure adequate oversight of the market which allows for more fluid operations, and directs and controls corporations in order to ensure their transparency and demonstrate how boards of directors manage company assets. It also provides conflict solution tools when interests collide among stakeholders and protects all shareholders’ interests.  However, corporate governance gives special consideration to the interests of minority shareholders, which prevents majority shareholders from taking opportunistic control over a corporation’s assets at the expense of its general investors. This situation tends to occur when a corporation is controlled by a single majority shareholder, a family or an economic group. Conflict also tends to arise between administrators in charge of management and investors, who own corporate assets. On one hand investors need the specialized human capital possessed by administrators to obtain revenue while the latter needs the resources of investors in order to materialize their projects.

 Even though Chile has been a prime example in areas such as corporate management and corporate law in South America, international practices on matters such as these are continuously evolving. Since Chile is completely active in the international economic community, it has been essential for its legislation to adapt to new international standards regarding corporate governance. This was rendered concrete through “Law 20.382” which seeks to elevate Chile’s Corporate Governance to meet the highest of international standards. To achieve this, a number of modifications were made to the Securities Market Act, Corporate Law and the Commercial Code. These modifications are focused on increasing the information which corporations must deliver to both, their own shareholders, and to the regulator in charge of supervising them. Among these modifications include: ensuring adequate oversight of markets that allow for more fluid operations; modifying the legal presumptions of access to privileged information; protecting minority shareholders by increasing their control, which as a result, reduces the asymmetry in system information management through improved communication and informative transparency; and specifying the responsibilities of the board of directors by promoting the designation of independent directors and an increased demand in finalizing transactions with related parties. The objective of this is to raise market transparency levels, as well as, investors’ trust. Overall, this law aims to improve companies’ trust, investment, financing and value with the objectives of improving performance and moving towards a more modern and globalized economy.

There are many tasks and challenges this country has to face in regards to corporate governance, especially in matters relating to information asymmetry, on how company boards are directed, the treatment of shareholders (both minority and majority), and inner control systems, among others. These matters are not solely resolved through a legal framework, but through cultural changes in a corporation’s inner practices.

María Fernanda Russi

Associate, Bussines Group

mfrussi@az.cl

Our Intellectual Property Group has been enhanced by the return of Ariela Agosin, Master of Laws in the U.S., with a concentration in matters of Intellectual Property and Brand Protection. Ariela has been a part of AlbagliZaliasnik since 1998 and has served as Of Counsel, leading our office in Miami since 2005. With the reinstatement of Ariela we will be strengthening our practice areas of Intellectual Property, Advertising Law, Patents, Copyrights, Information Technology, Licensing and Litigation.

With her vast experience, she will lead the IP Group along with Rodrigo Albagli of AlbagliZaliasnik.

Consequent to the internationalization of our customers’ business and the extensive presence of foreign clients in our portfolio, we also continue to enrich our International Group led by Jesse Smith.

Similarly, we are proud to announce that Andres Grunewaldt has been awarded the “Bicentennial Scholarship” and admitted to Duke University in the United States for a Masters in International Law and Intellectual Property. As of July 2010, Andres will lead the operations of AZ in the U.S., as our new Of Counsel there.

Finally, we thank you for your trust and want to reiterate our commitment to continue growing in all areas as well as to give the absolute best service.

Contacts:

Rodrigo Albaglo

ralbagli@az.cl

Ariela Agosin

aagosin@az.cl

Andres Grunewaldt

agrunewaldt@az.cl

Jesse Smith

jsmith@az.cl

After a long and intense congressional debate that began in 2007, the Chilean government has announced the promulgation of a law amending important and sensitive subjects covered in our current Intellectual Property Law No. 17,336.

The changes that will soon go into effect can be divided into three groups: the establishment of a new framework of exceptions and limitations to copyright and related rights, the incorporation of new offences, increased penalties and the consecration of new tools intended to prosecute crimes against intellectual property, and an extensive chapter on the liability of Internet Service Providers (ISP).

With regards to the first group, the amendment seeks to find a balance between the rights of the owners of the works and the right of public access to them, increasing the range of exceptions. For example, extending the framework of action for libraries and nonprofit archives in terms of the reproduction, translation and digitization of a particular work allows for it to be used for criticism, illustration, teaching or research purposes and also expands the use of works that aim to benefit a person with visual or hearing impairment.

Regarding IP crimes, it establishes a new framework of civil and criminal penalties for copyright violations by introducing new mechanisms and tools of procedure for cases of use outside the legal framework, especially in cases of piracy, increasing prison sentences and fines, which in the case of repetition can reach up to US 140,000.

Lastly, an extremely important chapter is concerned with regulating the liability of internet service providers, where content is present in a web page that infringes on intellectual property. In this case, after many discussions, the system that was opted for was one in which only under a court order will it be possible to block a website. In addition, the ISP must meet certain requirements in order to be exempted from liability for illegal content that customers are able to put on to the Internet.

In short, this is the most serious reform that Intellectual Property Law has undergone since its publication in 1970; creating a completely new scenario from hereon out in terms of copyright protection.

Importance of your ¨.cl¨ Domain
The ¨.cl¨ domain is the extension that groups all domains registered through Nic Chile.  To date there are more than 270,000 ¨.cl¨ domains registered, a number which greatly surpasses other countries in the region, which demonstrates that when searching for a service, product or company in Chile, internet users prefer the ¨.cl¨ domain over other global extensions such as ¨.com¨ or ¨.net.¨ Presently, having a ¨.com¨ instead of a ¨.cl¨ domain can be less effective in spreading your content to other internet users, possible consumers or clients in Chile.

Registering your ¨.cl¨ Domain
Anyone can file an application for a domain name that is available at that time at Nic Chile. There is a 30 day deadline after every new application in which a third party can apply for the same domain name, which begins an assignment dispute proceeding which can ultimately result in arbitration. Nic Chile does not carry out any sort of examination to verify if new applications conflict with an existing trademark or another party’s rights; therefore it is important to have a good monitoring service for your trademarks and domain names in order to know when conflicting applications arise.

If there are no third party applications filed during the next 30 days of the first application, then the domain is registered to that solicitor.  The first registration is valid for two years and can be renewed for registration periods of two to ten years.

Assignment Disputes
In case there is more than one application for the same domain name, a domain assignment dispute arises. The first step is the mediation hearing held before Nic Chile, in which both parties are requested to appear in the presence of a mediator. The hearing is not binding but helps the parties understand each others intentions and is an important step to start negotiating a friendly agreement to settle the case before arbitration.

Any agreement reached by the parties has to clearly state who will be the sole owner of the domain name. In order to obtain dismissal on behalf of one of the parties, the agreements can vary and are by no means restrictive, as an example the agreements can include financial compensation or limitation of the use of the domain in regards to the business sector, line of products or services of the other party.

If no agreement is reached, an arbitrator is named, who will finally decide who the owner of the domain will be; in doing so he will have to hear the arguments of both parties and decide who has a better right over the domain. An arbitration proceeding always includes arbitration fees which can range between CLP 500.000 and CLP 1.100.000. Payment of arbitration fees fall exclusively on the party who has subsequently presented their application, also known as the second applicant, or between all parties if there are multiple applications competing for the same domain.  Initially, the first applicant of the domain should not be charged with any fees, notwithstanding that the arbitrator may include payment of costs to the first applicant in his ruling if he so deems.

The arbitrator is free to rule in the manner which he considers to be fair in connection to the arguments and evidence that were brought to his consideration during the case. This is where trademark registrations are important, because they are highly recognized as an important piece of evidence in case the domain name is identical or similar to a registered trademark in Chile or abroad. Being the owner of a trademark and the solicitor of that same domain name in dispute does not in any case assure a successful ruling in the arbitration, but it is considered crucial information in the moment the arbitrator renders a ruling.

Cancellation Actions
The last form to protect your acquired rights in the area of domains is through a cancellation action.  A cancellation action of a domain is given when a third party who claims his rights are being violated by a registered domain, initiates a cancellation action with the intention of annulling the domain’s ownership.  In contrast to the previous disputes in assigning a domain name, here we are confronted by an existing registered domain where the deadline to present new applications has expired.  The process of a cancellation action is very similar to domain disputes, since a developed mediation before Nic Chile already exists and subsequently an arbitrator will be assigned in case an agreement was not previously reached.  The important difference between the two is cancellation actions require the revoking party to prove that the actual owner of the domain had initially registered this domain in the past acting upon bad faith which caused damage to their rights. 

Due Protection of Your Rights
In today’s society, it can be concluded that the existence of a web domain equivalent of its products, services or company can be damaging to other owners of similar domains. Currently, more people have access to the internet which is an important tool when researching, searching for businesses, buying products or contracting services.  In this arena, the extension ¨.cl¨ has proved to be a leader in Chile over other global extensions when searching for Chilean companies or other information about Chile.  Because of this, it is recommended to file and register all names linked to your trademarks and your services in order to prevent potential harm to them.  Apart from filing our clients’ domain names, Albagli Zaliasnik provides a strict monitoring service of trademarks and domain names in order to protect against new or damaging applications.  Do not hesitate to contact us for more information regarding the proper protection of your domains or your rights online.

On October 20, 2009 Law No. 20.382 was published, amending the Commercial Code, the Corporations Act and the Securities Act, perfecting the corporate governance regulations. The Law will take effect beginning January 1st, 2010 and it is a very important part of the commitments of our country for its admission to the OECD.

In essence, the new law is aimed at improving levels of transparency and information that companies must provide to their shareholders, to the Securities Commission and to the market in general, so as to allow better and greater control and to protect minority shareholders interest.
 
The main contributions of this new legislation are highlighted in the following:

1- Information and Transparency:

It is set upon the board of the company, the obligation to define the procedures, accountability mechanisms and responsibilities to ensure the market a quick and opportune information, so as to reduce any information asymmetry.

Shareholders, as far as they control 10% or more of the company, as well as chief executives, are obliged to inform the Securities Commission and the stock market, not only of the transactions of their stocks, but also operations on contracts or other securities whose price or outcome is dependent or conditioned upon its stock price.

The law also incorporates a special section for transactions of public offering securities, which allows the imposition of restrictions, absolute or temporary, to the acquisition or disposal of such securities, an issue that must be regulated by the Board and informed to the Securities Commission.

In a similar vein, stockbrokers and security dealers must define and communicate their own monitoring procedures  for the proper handling of information to which they have access and which might affect supply or demand of securities transactions in which they participate.

The chief executives are also incorporated in the list of related parties and are required to report their position in securities of entities of the corporate group to which they belong.

2- Inside Information:

Directly related to promoting transparency and symmetry of information available to the market, the new law includes an explicit ban on selling securities while in possession of inside information, making an explicit distinction between the presumption of possession of information (applicable to those who are part of the administration) and the presumption of access to information (applicable to outsiders).

Provision is also an aggravating offense to Article 61 of the Securities Act, in terms of increased punishment for the crime of disseminating false or misleading information, even if advantages or benefits are not pursued, when the perpetrator of the crime might possess or have access to inside information, in which case the penalty of inability to serve as director, manager, liquidator or administrator of companies under the control of the Securities Commission also applies.

3- Public Offer of Stocks (OPA):

The mechanism of public offer of stocks is perfected, incorporating the obligation of the controller, who because of a takeover bid has acquired over 95% of the stocks of the company, to acquire the shares of the remaining 5%, if they so require, by exercising their right of withdrawal.

In contrast, the figure of the squeeze – out, of wide application in more developed financial markets, is now incorporated and the Controller who, product of a takeover bid acquires over 95% of the stocks of the company, may force the remaining 5% to sell their shares, provided that this provision was laid out in the bylaws.

4- Supervision and Control of the Administration:

(a) Creation the figure of the Independent Director, mandatory for any corporation that trades their shares and complies with the requirements to have a Directors Committee (UF 1.5 million of market capitalization and over 12.5% of its shares held by minority shareholders). In order to define the concept of the independent director, the factors that make them lose such quality and disable a person for this position are detailed.

(b) Restate the role of the Directors Committee, which shall consist of a majority of independent directors and increase their powers of supervision and control within the company.

(c) Raise the requirements, restrictions and incompatibilities for the Auditing Companies and higher technical standards imposed on their reports, so that they are obligated to attend shareholders’ meetings to explain the content of their opinions. Particular emphasis is placed on the need for auditing firms, their partners and teams to have full independence from the audited entity, establishing also a lack of independence assumptions that make them unsuitable to perform their duties.

5- Shareholders’ meeting:

Finally, the law provides a set of rules that empowers shareholders, improving their levels of information and facilitating the exercise of voting rights, even allowing, with the permission of the Securities Commission, electronic devices to remote voting.

There are, however, certain restrictions imposed on the exercise of voting rights to security dealers or brokers that hold securities in custody, in terms that they can only vote if they have been specifically authorized by the stock owner and they can only do so through their representatives or lawyers, but without the possibility of delegating to third parties.

The new law incorporates the possibility of establishing a formal stock options or compensation plans for employees of closed corporations for up to 10% of the amount of capital increases that are agreed upon and establishes the requirement to obtain board approval for transactions with persons related to or in an apparent conflict of interest.

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The new law clearly represents an important step forward in the line of revealing relations between issuers and the general public, seeking to avoid the recurrence of certain situations seen in recent times, so as to avoid adverse affects in the trust in the market within the system.

Alvaro Rosenblut

Partner AlbagliZaliasnik Attonrneys