Brazilian Oil Company Borrows Money From Local Bank To Pay Taxes

by Mike Godfrey, Tax-News.com, Washington

01 December 2008

A state-run oil company in Brazil has announced that it has had to borrow funds from one of the country's banks in order to meet tax demands.

Petroleo Brasileiro (Petrobras), one of Brazil's largest state-controlled energy firms, announced that it had to borrow around BRL2bn (USD877.6m) from state-owned bank, Caixa Economica Federal, just over a month ago following revelations that it had hit a phase of temporary financial difficulty after being charged for what it described as "unforeseen" taxes.

Petrobras resorted to borrowing funds from the bank after record profits obtained throughout the earlier half of 2008 resulted in a BRL11.4bn tax bill at the end of October. However, despite breaking profit records this year, the bill was over 5% more than the company could afford to pay with September's cash reserves.

Protest to the tax bill was quickly lodged, with officials complaining that Petrobras should not have to pay the full amount as it had been calculated on the strengthening of the dollar and not actual takings for the period shown.

Petrobras has since defended its decision to borrow the money, stating that the company is not in trouble, but simply suffering from short-term financial difficulties caused by an increase in expenditures.

Despite this reassurance, however, shares in Petrobras immediately fell.

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