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Cisco Involved In Brazilian Offshore Tax Imbroglio

by Leroy Baker,, New York

17 October 2007

Cisco Systems, the world's largest maker of computer networking equipment, has been mentioned in connection with an offshore supply line which the Brazilian authorities claim has led to the loss of hundreds of millions of dollars in Brazilian import duties.

The Brazilian federal police department issued a statement on Tuesday confirming that raids had taken place on a number of companies in connection with the allegations, and that 650 agents had executed 93 search warrants and arrested 40 people.

The police statement did not name Cisco as a suspect in the investigation, but alluded to a "multinational American company, which is a leader in the industry of selling technological services and equipment for corporate networks, Internet and telecommunications".

A statement by Cisco confirmed that at least one of the raided firms is a Cisco reseller in Brazil. As part of this effort, Brazilian authorities visited and temporarily closed Cisco's offices in Sao Paulo and Rio de Janeiro, the statement read.

According to the Brazilian authorities, the raids were the culmination of a two year investigation into a tax fraud ring, which allegedly created companies in Brazil and the US to ship products to Brazil via offshore jurisdictions, including the Bahamas, the British Virgin Islands and Panama. These companies are said to have dramatically under-declared the value of these goods, and in the process, ducked over US$800 million in taxes. A number of Brazilian federal tax officials are also thought to be under investigation for their part in the alleged fraud.

Cisco confirmed that "a small number" of its staff have been detained as a result of the raids, but that no formal charges have been brought. It also stressed that it is "cooperating fully with the Brazilian authorities" but declined to comment in detail on the case until the full facts have been established.

"Cisco's core principles include compliance with the laws and regulations of all the countries in which it does business. We are currently in the process of establishing what exactly has happened in Brazil and determining how this investigation pertains to Cisco," the statement explained.

The company also emphasised that Brazil represents only a tiny fraction of its overall sales, and that it does not conduct business directly in the country.

"Cisco does not have a direct sales operation in Brazil. Rather, we sell our products through multiple 1-Tier partners. Business continues in the region through these partners," the company concluded.

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