Chilean companies had freely exploited the valuable…

Chilean companies had freely exploited the valuable saltpeter deposits in Bolivia’s Atacama province until 1878, when Bolivia levied an export tariff.

Bolivia had signed a secret treaty of defensive alliance with Peru in 1873, which forbade Bolivia from signing a border treaty with Chile, without consulting with Peru.

However, in 1874, Chile and Bolivia signed a border treaty, which replaced the previous treaty of 1866.

One of its points was not to impose new taxes on individuals, industries and Chilean capital for twenty-five years.

For Bolivia, the contract of 1873 between the government and "Compañía de Salitres y Ferrocarriles de Antofagasta" is not yet in force, because, according to the Bolivian constitution, all contracts with the Bolivian government have to be approved by Congress.

According to the Bolivian version of events, the contract with the saltpeter company is incomplete so the congress, to approve the contract, decides to enforce a tax of ten cents, which does not violate the treaty of 1874, since the contract is not yet in force at this date.

Bolivia suspends the tax in deference to the government of Chile, but following a note from the Chilean foreign minister, it reactivates the tax law, then cancels and closed the “Compañía de Salitres”.

Faced with a looming conflict with Chile, Bolivia decides to claim support under the agreement signed with Peru, and the treaty becomes effective with the Chilean occupation of Antofagasta, on February 14, 1879.

According to the Chilean version of events, the tax of ten cents violates the treaty of 1874,since according to this, new taxes should not have been imposed on Chilean companies operating in Bolivia.

At the breaking of the boundary treaty by Bolivia, and the cancellation of the contract of the “Compañía de Salitres y Ferrocarriles de Antofagasta”, Chile seizes Antofagasta, at this time in Bolivian territory, whose sovereignty had been ratified before 1866.