Exxon and Chile's government clashed after the US giant agreed in May to sell its copper mining unit, Disputada de las Condes, to South African miner Anglo-American, in an offshore transaction that would be exempt from the country's capital gains tax.
Chile, the world's top copper producer, wants Exxon to pay taxes on the profits from the sale.
The tax could be anywhere between $30 and $300-million.
The government of socialist President Ricardo Lagos also wants Exxon to recognize an option held by state-owned miner Enami to buy back up to 49% of Disputada.
Enami acquired the option in 1978 when it sold Disputada to Exxon for $98-million.
Both issues have held up the Exxon-Anglo deal.
"I would say there are no advances that I could tell you of, other than that conversations continue on both issues," Mining Minister Alfonso Dulanto told reporters last week.
Dulanto, who met top Exxon executives a week ago, said he was optimistic, but that an agreement could take some time. "Clearly, our intent is to bring the results of these talks to the (Chilean) president as soon as possible," Dulanto said.
Exxon has declined to comment on the talks.
The company has been at the hub of a controversy in Chile in recent weeks over the tax obligations of foreign mining companies.
The country holds 40% of the world's reserves of the metal, and copper is a key income generator for the state.
In the past decade, eight of the largest 10 foreign mining companies in the country have not paid income tax, according to a government study.
The average annual profit ratio among these companies was 15,8% from 1997 to 2001, it said.
Exxon's Disputada has declared financial losses during its 24 years of operations in the country and therefore has never paid income tax.
Critics allege that local units of multinationals like Exxon elude Chilean taxes by taking out debts at above-market rates with sister subsidiaries based in tax havens, such as Bermuda and Bahamas.
Interest payments and other tax loopholes artificially depress their earnings reports, they say.
"I don't think anyone can believe that a company like Exxon would hold onto a bad business for 24 years because that would mean they came here to do charity work," Senator Jorge Lavandero said.
Chile has received $16-billion in direct foreign investment in mining in the last 10 years.
President Lagos has rejected proposals for a royalty tax on copper production, but is seen as wanting current tax rules to be more strictly enforced.
Analysts say the outcome of the Chile-Exxon controversy could be more transparent tax planning by miners in Chile and slightly higher costs in the long run.
"We think the debate over royalties and the investment platform bill will serve to catalyze the industry into being less aggressive in future tax planning, and to seek ways to build a more positive industry image among the populace," UBS Warburg said in a report this week. – Reuters.
Edited by: Martin Czernowalow
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