Chile lawmakers launch AFP merger probe

Chilean lawmakers will investigate the merger of AFPCuprum and newcomer AFP Argentum – both controlled by US insurance and financial services group Principal – and its tax implications.

A lower house commission headed by congressman Fuad Chahin will launch a probe into the transaction, which was approved by the local pensions regulator SP – whose role will also be investigated – and carried out under an older tax law, which was changed under last year's reforms.

Controversy was sparked by the use – allowed in the older tax law – of the goodwill depreciation mechanism to reduce the taxable base, which was eliminated by the tax reform. Changes to rules regarding the use of the goodwill mechanism started to be implemented on January 1, 2015.

A focus of the investigation would be on the creation of AFP Argentum which Chahin considers to be solely for the use of the goodwill depreciation mechanism, as it has no activities related to those of a pension fund.

The merger could reduce AFP Cuprum's tax bill by US$130mn, according to Chahin.

AFP Cuprum defends the merger on the grounds that it was carried out in accordance with the tax law still in force until December 31, 2014. According to local paper Diario Financiero, another 33 companies initiated merger processes during the period between the announcement of the changes to the law and its entry in vigour, among them AFP Provida, controlled by US insurance giant MetLife.

Pictured: Congressman Fuad Chahin at a session in Chile's lower house.