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Vale Said to Wait for Court Before Tax Dispute Decision

Vale SA, the Brazilian iron ore miner fighting a $14 billion tax claim on its foreign units, will wait for a court ruling before deciding on a settlement offer, said a person with direct knowledge of the case.

The government offered to allow Vale to pay the tax in installments over 15 years, five years more than a previous option, the person said, asking not to be named because the talks are private. Vale is expecting that an Oct. 22 ruling by the Superior Court of Justice will uphold the company’s view that profits from foreign units can’t be taxed in Brazil if they already pay abroad, said the person.

Brazil’s biggest exporters including Vale and brewer Cia. de Bebidas das Americas are fighting a total of 75 billion reais ($34.4 billion) in tax claims on the profits of foreign subsidiaries, the country’s tax agency said yesterday. The companies were offered a chance to settle last month when Congress passed legislation that scraps fines, interest and legal costs if firms pay the claims in one tranche or discounts if they opt to pay in installments.

The South American country is asking Vale, the world’s third-largest mining company, to pay 30.5 billion reais in taxes for 1996 to 2008, the company said April 2 in a U.S. regulatory filing. The Rio de Janeiro-based company expects Brazil to file additional claims for the years after 2008.

Vale shares rose for the first time in four days in Sao Paulo yesterday, gaining 0.3 percent to 30.56 reais at the close. The stock declined 25 percent this year, almost doubling the 13 percent drop in the Brazilian benchmark Ibovespa index.

No Decision

Vale’s potential liability, which may reach 47 billion reais including interest and penalties, has hurt its stock price, Goldman Sachs Group Inc. analysts led by Marcelo Aguiar said.

“We expect Vale’s near term stock performance will decouple from its operating performance,” the analysts said in a note to clients yesterday. “Although settlement of this issue would remove an overhang, in our view it could be viewed negatively.”

Vale has until Nov. 29 to make a decision and inform the government, the company’s press office said yesterday. Brazil’s Finance Ministry declined to comment in an e-mailed response.

Vale may decide to cancel the legal fight and agree with the government’s proposal to settle out of court by adhering to the installment payment program, newspaper Valor Economico said Oct. 9, citing sources it didn’t name.

The case number is REsp 1325709.

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: James Attwood at jattwood3@bloomberg.net

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