Tax Affects Stock Market Merger In Latin America

by Mike Godfrey, Tax-News.com, Washington

28 September 2010

Chile, Peru, and Colombia are on schedule to reach the first stage of consolidation of their markets in stocks and depositary trusts by November 22, but have faced challenges in the integration process, including tax administration.

In November, ‘intermediate routing’ commences, which gives market participants in each country the possibility of trading in all three securities markets through the appropriate regulatory bodies. From December 2011, it should become possible to trade directly in the markets with standardized market systems.

Stock markets will continue to operate under the auspices of the relevant regulatory body in each country, but trading and investing transaction costs should be reduced, market liquidity improved, exchange rates stabilized, and conflicting tax laws removed.

The capital gains tax was introduced in Peru last January and is threatening to complicate integration. Lima Stock Exchange President Roberto Hoyle told Bloomberg that greater clarity was needed in this respect. “Peru’s government needs to make it simpler... to pay the 5% tax through the exchange instead of individually filing returns,” Hoyle said. “The Lima Index has grown 24% over the past two months, so it’s shown it can absorb the tax,” Hoyle added.

The Peruvian government removed stock market exemptions from capital gains tax in January 2010, despite claims from the president of the Lima Stock Exchange that such a move would adversely affect expansion plans for the market.

This resulted in a levy of up to 30% on institutional traders, and a 5% tax on private traders.

Last year, stocks traded on the exchanges of all three countries almost reached USD56bn in total. Chile traded USD34.7bn, followed by Colombia with USD16.5bn and Peru a little more than USD4bn. According to Bloomberg, stock exchanges in both Argentina and Panama have shown interest in joining the grouping.

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