Brazilian Tax Cuts Likely To Guarantee Billions In Foreign Investment

by Mike Godfrey, Tax-News.com, Washington

31 October 2005

Several major foreign companies operating in Brazil, including chip maker Intel, are expected to benefit from a package of tax cuts designed to cut costs for exporting industries, which was passed by the national Congress last week.

The measures, approved by the Senate on Thursday, and the lower house on Friday, will cut social security taxes on equipment purchases by companies that export at least 80% of their output by about 3.3 billion reals (US$1.4 billion) for a period of three years. Under current law, only firms selling their products domestically are entitled to a tax rebate.

It has been estimated that the tax break will reduce the cost of investment in new plant by around 11%, and it is likely to guarantee billions of dollars in investment in the country's steel, paper and computer industries by the likes of Cia. Vale do Rio Doce, the world's largest iron-ore producer, Shanghai Baosteel Group Corp. China's largest steelmaker and International Paper Co., the largest US paper maker, according to Bloomberg News.

Oscar Clarke, president of Intel's Brazilian unit, told Bloomberg in an interview that the tax cut will boost the company's sales by as much as 60% in 2006. If Congress had rejected the measures, sales would only have increased by about half as much, he added.

The tax package also cut taxes for companies in the construction industry and on the sale of real estate.

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