Brazilian court favours Vale in double taxation dispute with government

24 April 2014 (Last Updated April 24th, 2014 18:30)

Brazil's Superior Justice Tribunal, the last court of appeal before the Supreme Court, has ruled in favour of Rio de Janeiro-based mining company Vale in the $10bn foreign taxation dispute with Brazilian Government.

Brazil

Brazil's Superior Justice Tribunal, the last court of appeal before the Supreme Court, has ruled in favour of Rio de Janeiro-based mining company Vale in the $10bn foreign taxation dispute with Brazilian Government.

In 2013, Vale was forced to sign an agreement to pay Brazilian tax authorities $10bn as part of settlement with the Brazilian Government for profits the company earned from overseas units between 2002 and 2013.

According to Vale and other Brazilian businesses, in spite of paying the tax to foreign governments, the Brazilian Government was claiming tax on subsidiaries and forcing them to pay twice.

The practice of double taxation has affected Vale's business, as competitors do not pay double tax in their countries.

According to reports, Vale initially paid $2.6bn and would pay the remaining $7bn over the next 15 years. Following Vale's lawsuit, the Brazilian Appeals Court ruled that Brazil has tax treaties with Belgium, Luxembourg and Denmark, and hence the government cannot tax the profits of Vale in those countries.

"The new rules brought in as part of the November tax deal with Vale aim to expand taxation of Brazilian companies overseas."

The court, however, allowed the Brazilian Government to tax the profits of Vale in Bermuda, where Brazil has no relevant tax treaty.

Additionally, the ruling involves the double taxation of Vale through a tax on the increase in the value of its equity in four Belgian, Danish and Luxembourg-based units.

Brazil's finance ministry said it plans to appeal the ruling and that the court's decision will not have any impact on Vale's $10bn November tax settlement.

The ministry also stated that in November 2013, Vale had agreed to end lawsuits regarding collection of taxes on foreign units between 2003 and 2012, and accepted not to receive any rebate for those assessments.

Brazil Finance Minister Guido Mantega said the new rules brought in as part of the November tax deal with Vale aim to expand taxation of Brazilian companies overseas.

"The Supreme Court will look at the new legislation that was approved by Congress, the result will be that more companies will pay," Mantega said.

Vale tax affairs director Octavio Bulcao told Bloomberg: "We will discuss whether we will ask for money back from payments we already made, if we are going to ask to suspend installments payments."


Image: Vale's Carajás mine is located in Pará state in Northern Brazil. Photo: courtesy of NASA Earth Observatory.

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