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Vale Says It Plans to Challenge $17.4 Billion Tax Claims

Vale SA (VALE3), the world’s largest iron- ore producer, plans to challenge unpaid tax claims in Brazil of as much as 30.7 billion reais ($17.4 billion) after losing an appeal to keep the dispute at an administrative level.

The company, based in Rio de Janeiro, lost an injunction for claims of 9.8 billion reais plus interest related to tax liabilities on its non-Brazilian domiciled units to be treated as an administrative dispute, Vale said in a statement late yesterday. The decision follows a similar ruling, which prompted Vale to say March 5 that it will put up 1.6 billion reais in collateral to challenge the dispute in court.

“Vale will file the necessary appeals to protect its interests,” the company said in yesterday’s filing, without saying if it will increase the amount. Including interests and penalties, the claim may reach 24.1 billion reais, or about 78 percent of the total dispute, Vale said.

Vale, Brazil’s biggest exporter, is fighting tax claims amid growth in its shipments and rising minerals prices. The government is seeking tax payments on foreign operations profit from 1996 to 2008 and additional unpaid royalties from operations in Brazil, according to an April 28 filing with the U.S. Securities and Exchange Commission.

Increasing Risks

Vale’s potential tax liabilities will continue to threaten the stock, Banco Santander SA (SAN) analysts Felipe Reis and Alex Sciacio in Sao Paulo said in a research note today, where they downgraded their rating on Vale to “hold” from “buy.”

“Our perceived risk related to Vale’s tax contingencies increased significantly recently due to the sequential losses in the company’s ongoing discussions with Brazilian tax authorities,” the analysts said.

Since 2003 Vale has been challenging Brazilian taxes levied on its foreign subsidiaries’ net income. Vale has received four tax claims for a total of 30.7 billion reais including interests and penalties as of Dec. 31, the company said in yesterday’s filing. Brazilian tax authorities may also file claims for the period starting in 2009, Vale said.

The company said it didn’t make provisions to cover potential losses related to the dispute because it expects a favorable decision.

Tax Defense

“Vale will continue to take appropriate legal action to challenge the tax assessments, employing all available means to ensure its rights to defend itself,” the company said, adding it is “confident on obtaining a final favorable ruling.”

The mining company said Jan. 30 it obtained an injunction blocking a court decision it must pay 9.8 billion reais for taxes on overseas unit profit.

Vale fell 0.05 percent to 40.15 reais in Sao Paulo, its lowest level since Jan. 16.

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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