This work shows the tax effects of Law 19,705, which regulates Public Offerings for the Acquisition of Shares (OPAs) and establishes the Corporate Governance regime, starting with an analysis of Title XXV of Law 18045, introduced by Law 19,705, but focusing on exclusively in relation to the Public Offers for the Acquisition of Shares and then showing the tax effects that they entail.
1. History of Law No. 19,705, regarding OPAS
The events that occurred in 1996 and 1997, in which there was a great demand to take control of different companies, generated the need for a legal body to regulate these events. This situation directly affected minority shareholders, since there were inequities in the payment of share prices by the “people” who were in charge of its corporate governance. one
One of the most emblematic cases and that monopolized public opinion regarding the takeover of a company, is the Chispas case and that after this the Chilean corporate world was not the same, according to the lawyer Cristóbal Jimeno Chadwick, In the opinion area of the newspaper La Segunda On Line2, this case opened the doors for the regulation of these situations and that, as a good Chilean, things must happen for us to do something, a bill was started to solve it.
In the aforementioned case we find a series of rather ethical "irregularities", so to speak, some of these are:
- Use of privileged information in personal favor (this, by the main executives of Enersis, when selling the company to Endesa), Abuse of corporate governance, in the sense of not ethically complying with the direction of the business3, and The award for control of the The company would be distributed only among the shareholders of one type of share, class B, this type of share only represented 0.06% of the total capital stock but the peculiarity of this class was that it could choose 5 of the 9 members of the board of directors, Therefore, the controllers of the Chispas companies (Chispas uno, Chispas dos, Luz y Fuerza, Los Almendros and Luz), owners of class B shares, reached an agreement with Endesa that the price of this class of shares was 33.3% of the total sale, which amounted to US $ 500,000,000.
The objective of the bill sent to Congress by the President, on January 5, 1999, in relation to the matter, which summons me in this work is:
- Improve and perfect the regulation on takeovers of public limited companies that make public offerings of their shares Establish a regulatory framework - nonexistent to date - through the incorporation of a new title, on Public Offerings for the Acquisition of Shares (OPAs), in such a way as to establish an organic and harmonious system that solves inequities that the market, through the economic laws of supply and demand, has not been able to overcome; Classify illicit behaviors that today do not have a criminal sanction and that Due to their seriousness, they need to be elevated to the category of criminal offenses, as well as to improve some behaviors related to privileged information; Improve the provisions around takeover bids, in such a way as to have greater clarity and certainty in their application.
In summary, the Undersecretary of Finance at the time, Mr. Manuel Marfán, in the first report of the finance commission carried out within the framework of the discussion of the bill4, it objectifies the following points:
- Objective definition of an OPA The circumstances that must occur in a change or increase in control of a company for a tender offer to take place, The fair and equitable distribution of the control premium incorporated in the share price, The transparency of information to avoid asymmetries, discrimination or abusive use of privileged information, enable Pension Fund Administrators to participate in a takeover bid for the benefit of their affiliates Regarding corporate governance, the organizing element is to achieve a transparent, informed interaction and safeguarding public faith, in the relationship between controlling shareholders, minority shareholders, directors and executives of a corporation.
Then, like any bill, it was on the table for a little over a year to be approved by the President of the Republic on 11/28/2000, publishing it in the Official Gazette on December 20, 2000, maintaining the spirit of the aforementioned project.
2. What is an OPA?
Law No. 18,045, as amended by Law No. 19,705, hereinafter the updated law, defines an OPA or Public Offer for the Acquisition of Shares as “… one that is formulated to acquire shares of public limited companies that make a public offer of their shares or securities. convertible into them, that by any means offer their shareholders to acquire their securities under conditions that allow the offeror to reach a certain percentage of the company and within a specified period ”(Art. 198, updated Law), in simple words, a OPA is an operation carried out in the stock market through which a company publicly expresses its desire to acquire part or all of the securities of a publicly traded company. The operation is aimed at all those who own shares of the company,to which a specific purchase price is offered for each of the securities in a specific time5. In addition, this law seeks to provide investors with options and maximum information, so that they can sell if the new controller does not like them, and that there are equitable conditions for all shareholders of the company in dispute6.
The takeover bids initially started in the eighties in the US, they were characterized by trying to acquire a company as quickly as possible, by different means pressuring shareholders to sell their shares as soon as possible, these pressures meant that shareholders made decisions in many cases wrong, associated with the lack of information and the inexistence of equal treatment4.
3. Who should carry out the OPA?
According to Article 199 of Law 18,045, the following “acquisitions of shares” must be submitted to the OPA process:
- Those that allow a person to take control of a company If as a result of any acquisition of shares, the person acquires two-thirds (2/3) or more of the shares issued with voting rights,
By attempting to take control of a company, which, in turn, is the controller of another that makes an offer of its shares and that also this transaction of taking control represents a value equal to or greater than 75% of the Consolidated Assets of the societies. The acquirer must make an offer to the shareholders of the controlled company (for greater clarity see Figure Nº 1)
It is not obliged to carry out an OPA in the following cases:
- Acquisitions from capital increases Acquisitions of shares, sold by the controller of a company provided that the shares:
a) They have a stock market presence,
b) The purchase price is paid in money, and
c) The price is not substantially higher than the market price.7
- In cases of merger Acquisition due to death Acquisition due to forced disposal8
4. Main characteristics of law 19,705 regarding the OPA process
1. It encourages the massification of stock transactions among minority shareholders,
2. As an exception, it regulates the distribution of the premium for control of the company that the offeror wishes to acquire,
3. It establishes the framework in which a takeover bid must be carried out (art. 199º updated law),
4. Provides freedom to minority shareholders to participate or not in an OPA,
5. Regulates the delivery of information on the offers made by the different companies interested in acquiring control of another, and
6. Exempts certain acquisitions of the OPA process.
5. Process or operation of a takeover bid
It all begins when a company makes a public Offer of its shares, then the person who publishes a notice informing the start of the acquisition offer, which must be published in at least 2 newspapers, acquires the quality of offeror of the shares offered of national circulation, the minimum content of the notice is regulated through art. 203º of the updated law and also by the General Norm (NCG) No. 104/01, which repealed NCG No. 608/86, in addition this offer may be directed to all shareholders of a company or to a series of shares in particular.
After publishing the notice of initiation of the offer, the acquirer must make available to the interested parties a prospectus indicating the conditions of the offer, this must be sent the same day of the publication of the offer to the SVS and the Stock Exchange of Securities.
The validity of the offer may not be less than 20 days or more than 30, this period may be extendable only once in no less than 5 and no more than 15 days. It should be noted that the offers are irrevocable, but the bidders may establish causes for the expiration of their offer. However, the bidders may modify their offers, as long as the price is improved or an offer is made to acquire a greater number of shares, these modifications will also favor those who have accepted the initial or previous offer.
The acceptance of the offer is totally or partially retractable, until before the third day after the offer has ended, the withdrawal must be submitted in writing to the offeror. On the third day after the end of the offer, the offeror must publish in the same newspapers that the notice of initiation of the offer was published and with the same formalities, the result of the offer9, if this publication is not made, the shareholders may withdraw of your acceptance.
6. OPAS and its tax effects
Regarding the tax effects generated in the following years, the publication of law 19,705, it should be noted that on November 7, 2001, law 19,768 was published, which modifies the current article 18 ter. of the Income Tax Law (LIR). The current article, mentioned above, fully exempts from taxes the highest value obtained from the sale of shares of publicly held companies that comply with being sold in a stock exchange in the country or in another exchange authorized by the Superintendency of Securities and Insurance or in a tender offer process.
The shares that are sold must meet the following requirements:
- They must have a stock market presence10 They must have been acquired in:
- An OPA A Stock Exchange A placement of first issue shares.
- They must have been acquired after April 19, 2001 inclusive or if they were acquired before that date, they must have the procedure established in Exempt Resolution No. 55 of December 21, 2001 and have paid the single tax on the highest value that hypothetically could have received the investor between the date of acquisition of the shares and April 19, 2001.
In addition, in the case of the sale of a share package that allows the acquirer to control a company, the tax exemption will be applied if and only if it is carried out in a process of Public Offer for the Acquisition of Shares or if it is carried out on a stock exchange. of the country, the sale price of the shares may not be substantially higher than the market price.
7. Conclusions
First, that the application of a regulation to the OPA processes greatly helps minority shareholders, because through the amendment to law 18.045 they are given a series of rights that they can exercise in favor of their personal interests..
Second, that law 19,705, in addition to establishing the regulations for takeover bids, creates the figure of these, generating confidence in the stock market, because it also regulates the information that is managed by the senior managers of the companies, encouraging Corporate Governance with emphasis on business management ethics and Corporate Social Responsibility (CSR), and
Third, that the tax effects that the creation of the OPAs figure entailed, with the tax exemption established in article 18 ter., Greatly incentivize stock market transactions in this market, in addition to motivating the entry of foreign capital by the creation of takeover bids in foreign markets by Chilean companies, which are governed by Title XXVI of the updated law, this framed in the effort of Chile to build a nation open to today's globalized world and with a view to becoming a commercial platform for Latin America.
8. References
1. The History of Law No. 19,705, Library of National Congress, Internet page: http://www.bcn.cl
2. Cristóbal Jimeno Chadwick, La Segunda Online, exact page:
3. Internal Tax Service, On Line News, exact page:.
4. Report of the Finance Commission, ordinary session No. 31 of the Chamber of Deputies, 08/17/1999, website http://www.bcn.cl.
5. Portal Terra, in the section My Money >> Your Investments >> Stock Market, exact page:
6. Bustos, Jorge. El Mercurio, March 9, 2005, interview: There are things that can be improved from the OPA law. Website:
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7. For more information on the market price and a price substantially higher than this, go to article 199º letters i) and ii) of Law Nº 18,045.
8. Forced alienation is understood as that decreed by a judge, in order to liquidate the property and pay the plaintiff.
9. Article No. 212 Updated Law.
10. For more information on stock market presence, go to the website:
