CAREY & CAREY, THEIR VIEWS ONCHILE: “Raising income tax is not only a lawful tool, but one much better than taxing capital”

Carey received the Best Law Firm of the Year award for Latin America from Chambers Latin America. Here, its partners Jorge and Jaime Carey-Tagle, also directors of companies, tackle local current affairs. They formulate their doubts about the tax on patrimonial wealth; they say that mining must contribute that which is fair and reasonable; warn about the impact of a lack of security in business, and defend the option to choose in terms of pension savings.

By Jessica Manticorena – El Mercurio – Economía y Negocios

The adoption of the Anglo-Saxon model and a necessary share of luck. Those have been the keys to explain the growth of Carey y Cía., the biggest law firm in the country, both in terms of its size and of the accolades it has accumulated over its longer than 100 years’ history.

Carey recently received the Best Law Firm of the Year award for Latin America from Chambers Latin America, the prestigious regional publication of Chambers & Partners. Carey had already received this same prize in 2012 and, up to date, it is the only law firm in the country to have been awarded it.

“It is a great honour to have once again received this award, because there are good law firms all throughout Latin America. We are very proud, this is the result of great teamwork by the more than 500 individuals who work at our law firm, and of the trust our clients place on us on a daily basis,” underscores  Jaime Carey-Tagle, managing partner at Carey y Cía.

His brother Jorge, main partner, adds: “We are competing with enormous firms from Brazil, Argentina, Mexico, etc. For Chile to have been awarded this accolade for a second time is a great achievement, one that has made us proud and grateful, but which has also humbled us, as we feel we must continue to work in order to keep the position we have managed to reach in Latin America.”

The award was received by Jaime Carey, Pablo Iacobelli, Ricardo Reveco, Patricia Silberman, and Francisco Guzmán, in a ceremony held in Miami, on Friday October 28th. The firm currently boasts 270 lawyers, 41 of which are partners. With a longer than centenary history, the path covered by Carey y Cía spans from advisory services to creditor banks of Chile in the renegotiation of the foreign debt, back in the 80s, to the legal work with Chinese company Sinovac in Chile as of late, in the context of the pandemic.

“[I hope] politicians manage to reach an agreement on reforms that last”

Beyond the award received, the focus at Carey is the environment to do business that currently prevails in Chile, although they underscore that, when compared to other countries in the region, Chile continues to be well positioned.

They say it from the standpoint of a legal counsel to Chilean and foreign investors, and also, from the position of board members they hold in various companies in different industries. Jorge is part of the boards of directors of Masisa, Provida, Quebrada Blanca, and Cemento Melón, while Jaime chairs the board of Metlife.

“Chile is in Latin America, this is neither Europe nor the U.S., and bearing that in mind, Chile continues to be a country at which foreigners look respectfully. Although one should distinguish between investors already in Chile, and those who are not,” 

Jorge adds. Despite that appreciation, he says, “this menacing thirst for reform every four years is worrying; there is this feeling that the choice is not for long-term State policies, and that affects trust, the desire to invest, and the rules of the game. I hope politicians manage to reach an agreement on reforms that last over time.”

Legal uncertainty in environmental matters, red tape, and a lack of certainty also worry and hinder, adds Jaime. “There are Chilean investors who are nowadays willing to take their equity elsewhere, and some of them have already done so; there was, some time ago, a spirit of enthusiasm and credibility towards the country, but now there is uncertainty and a sense of insecurity that has pushed family offices,  business people, and investors to assess living overseas or stopping domestic investment. That did not happen before.”

Insecurity, Jorge warns, has a harmful effect on business because it inhibits business people or those who have some net worth from investing in the country. “For example, before, there were pension funds from Canada, Australia, the U.S., and New Zealand, which invested in forests in Chile; today, they not only do not buy, but also, those who did purchase, cannot harvest because they have been invaded,” states the, also, board member of Masisa.

Tax on equity and wealth: “You are crossing quite the complex line”

The reforms currently in Congress, such as the tax reform, are another red flag, they warn at Carey, especially that associated to taxing net worth and wealth. “When you tax capital, what a person has accumulated after taxes, and which remains, as well, subject to a potential tax on inheritance, you are crossing quite the complex line, as you are creating a profound disincentive for savings, encouraging people to artificially dispose of assets while alive. You need to tax earnings; taxing stock, capital, is deeply regressive and a disincentive for investment. It’s a bad policy,” states Jorge.

In turn, Jaime adds that “taxing earnings is different from taxing equity. If someone has 10 apartments that add up to the amount at which it (the tax) is first applied, it could happen that someone has no liquidity to pay that tax. And they have to start selling assets to be able to pay it.” It would, he says, be less detrimental to rightly raise the corporate tax, to companies, as formulated by Ricardo Mewes, the leader of the commerce trade association and consensus candidate to lead the umbrella association CPC. “It is the lesser of two evils, although other effects, such as a non-incentive to growth or investment, must be assessed all the same.” On this matter, Jorge adds: “Raising taxes is not, per se, a bad thing, but it has to be reasonable. The question is: if you continue to raise the income tax, are we crossing the line or not? What Mewes states may be right (…). Clearly, raising income tax is not only a lawful tool, but one much better than taxing capital,” he says.

As a Chilean, I always prefer to be given the chance to choose. If they want to create a State-managed entity, it’s ok, but to take the task away from private pension fund managers, when they have performed well at that…”

As regards the pension reform, given they both hold governing positions in companies associated to the matter –Metlife and Provida-, they choose to make only a comment on the generalities. “As a Chilean, I love it that we have the chance of choosing, and I hope Chileans may have the ability to decide whether we want a highly-qualified private entity such as the current ones, to manage pensions, and for us not to be forced to hand that to a State instrumentality. I always prefer to be given the chance to choose. I would like not to be deprived from that possibility of choosing. If they want to create a State-managed entity, it’s ok, but to take the task away from private pension fund managers, when they have performed well at that…,” says Jorge.

On the royalty on mining, the lawyer and board member of [miner] Quebrada Blanca is emphatic: “We have a world-class mining industry, and we have to look after it. It must contribute that which is fair and reasonable. One would expect the royalty to be reasonable, and for it not to kill the hen of the golden eggs. There is no point in us having copper underground if nobody is going to make an effort in exploring for it, finding it, processing it, shipping it, selling it, competing with others. But if every year you are thinking a new Government will come along and will increase the royalty, you cannot plan long term investments. Marcel is a tremendous Finance Minister, but we have spent quite some time on this matter, and it is disruptive.”

Carey’s future: “Although we have received many an offer of integration, we made the decision long ago to remain independent”

Amid the ever-growing numbers of international law firms arriving in the country, at Carey they are unwavering in their defence of the independence of the firm, which was founded in 1905. “Although we do have some affinity with law firms around the world and we have indeed received many integration or association offers from important international law firms, we made the decision long ago to remain independent and continue to be a strong Chilean firm,” says Jorge.

As per their bylaws, at Carey, partners must retire at 70 years old, unless at least 80% of the partners, in a vote by secret ballot, renews their partner condition for up to 2 years, which has been the case with Jorge. He himself explains that the internal governance system, shaped in the organization model of international firms based in London and New York, has been paramount for Carey’s success. “We were the first law firm in Chile to become institutionalised, in the late 80s, to go from being a firm that operated with quite some informality, to imposing a well-defined and regulated model,” explains Jorge Carey. Thus, they regulated the manner in which a lawyer can join the firm, when that lawyer can be promoted to partner, internal governance, including how earnings are to be distributed, the cases in which a partner may be expelled, when they should retire, etc.

In 1970, the firm comprised nine lawyers. In 1977 they had dropped to four, on account of a decline in the number of clients, triggered by the Government of President Allende, they point out. In 1980, they again reached nine; and by 1990 there were 14; while in 1995 there were 19 and in 2000 they had increased to 74. Today, the firm has 270 lawyers. “Here we see a great leap as a consequence and reflection of the explosive economic growth Chile underwent during those years. We would not have been able to do so had it not been for the infamous and vilified 30 years,” says Jorge Carey.

At the time of that expansion, luck also played a role, they admit. “I believe the greatest lucky strike came about at the end of the 70s and the beginning of the 90s, when many foreign banks landed in Chile to massively lend money. At the time, there were only two firms that were capable of catering to their needs. Due to the contribution of prior generations of lawyers, given our few lawyers were bilingual, and because they had studied and worked overseas, we were ready, and we leveraged this opportunity, which often comes around only once in a lifetime The numerous banks that chose to come to us were then followed by their clients, i.e., the multinational companies that landed in Chile to purchase Public Sector assets that were being privatised, and the degree of legal sophistication that sort of job gave us allowed us a significant growth in our domestic client base,” adds Jorge Carey.

Besides being the legal counsels of the creditor banks of Chile in the renegotiation of the foreign debt resulting from the 1983 financial crisis, Carey was also part of other milestones, for example, when ADRs were opened in the U.S.A., and more recently, with the arrival of Sinovac in Chile, when they became the legal counsels for the Chinese giant.