Vale Scores Victory In Brazilian Tax Appeal

by Mike Godfrey, Tax-News.com, Washington

01 February 2012

Vale, the world's second largest mining company has won an injunction is a long-running court battle against the Brazilian tax authority relating to claims for billions of dollars in back taxes said to be due on its foreign-sourced income.

In a statement posted on the company's website on January 30, Vale said announced that it has obtained an injunction "suspending the effects of the unfavorable rulings related to taxation on foreign subsidiaries earnings".

The injunction means that the legal proceedings will return to the Board of Tax Appeals (CARF) for judgement. However, the company said that no specific deadline has been set for the resolution of the dispute.

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.

On January 25, Vale disclosed that it received "unfavorable rulings... at the administrative level concerning income tax on foreign subsidiaries earnings" amounting to BRL9.8bn plus interest and penalties, which is equivalent to USD5.6bn.

As well as questioning whether the previous rulings contravened the nation's constitution, Vale is also attempting to clarify the scope of the definition of 'foreign profits' under Brazilian tax law.

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