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Today’s Top Headlines

Vale Posts Brazilian Back Tax Case Collateral

by Mike Godfrey,, Washington

12 March 2012

Vale, the world's second largest mining company, has clarified that despite being required to pay USD915m in judicial deposits, it remains confident of a favourable ruling in the tax case with Brazilian authorities over back taxes, worth BRL25bn (USD13.9bn) as it continues to pursue all legal avenues.

The case relates to back taxes which the Brazilian authorities have been pursuing for almost a decade. The company's argument, that the taxation of its foreign-sourced income amounts to double taxation and therefore contravenes Brazil's constitution, was previously dismissed by the 2nd Federal Regional Tribunal, upholding a previous ruling that the overseas operations income of Brazil-based multinationals should be taxed in Brazil even if such income is also taxed in another country.

The company is now pursuing a legal decision from the Superior Court of Justice on the professional advice that it is likely to be successful in receiving a favourable decision on the precedent of other cases.

Vale confirmed that the Brazilian tax authority is pursuing a total of four payments in relation to its non-Brazilian subsidiaries and affiliates:

  • Taxes of BRL992m, plus interest and penalties of BRL2.1bn, for the period 1996 - 2002;
  • Taxes of BRL4.08bn, plus interest and penalties of BRL6.78bn, for the period 2003-2006;
  • Taxes of BRL5.7bn, plus interest and penalties of BRL7.5bn, for the year 2007; and,
  • Taxes of BRL1.6bn, plus interest and penalties of BRL1.9bn, for the year 2008.

The allocation of USD915m in collateral relates to taxes the Brazilian tax authority is pursuing for 1996-2002.

The company stated on March 6 that: “In order to discuss any tax liability in the Brazilian courts, the taxpayer must post bond or some form of security with the court. This does not represent a judicial loss or defeat. It is the initial step for the discussion of tax assessments at the courts.”

The company added that: “The requirement to post a bond or some form of security with the court, and, depending on the nature, amount and scope of such bond, may have a significant financial impact. Vale has evaluated as not probable the loss of the legal proceedings relating to this matter, and accordingly has not established any provision.”

Concluding, Vale announced that the injunction it gained on January 30, 2012, to “suspend the effects of the unfavorable rulings related to taxation on foreign subsidiaries earnings” in relation to the two cases relating to 2003-2006 and 2007, has been suspended by a decision on March 6, 2012. Vale said it would pursue an appeal on this matter to seek to have the injunction reinstated. The injunction was sought by Vale to return the proceedings to the Board of Tax Appeals.

TAGS: court | compliance | tax | tax compliance | tax avoidance | mining | interest | law | group taxation | tax authority | multinationals | Brazil | penalties

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