Vale’s Tax Claims Given Out-of-Court Chance by Brazil Senate

Sept. 12 (Bloomberg) -- Vale SA, the mining company fighting more than $13 billion in foreign units’ back tax claims, was given the chance to settle out of court after Brazil’s Congress approved renegotiation legislation.

Senators late yesterday approved regulation that scraps fines, interest and legal costs if companies pay outstanding tax claims on foreign units in one tranche. The bill, which passed Brazil’s lower house Sept. 9 and now goes to President Dilma Rousseff for her signature, also entitles companies to a 50 percent reduction on interest and other discounts if they opt to pay the debt in installments.

Brazil’s biggest exporters including Vale, beermaker Cia. de Bebidas das Americas and steelmaker Gerdau SA are fighting a total of 86 billion reais ($38 billion) in tax claims on profit generated by foreign units and subsidiaries, the finance ministry said in March. The country is asking Vale, the world’s third-largest mining company, to pay 30.5 billion reais of the tax for 1996 to 2008, the company said April 2 in a U.S. regulatory filing. Vale expects Brazil to file additional tax claims for the years after 2008.

“This is very important to boost Brazilian companies,” Senator Gim Argello, sponsor of the bill, said yesterday in a phone interview from Brasilia. “In a time of crisis, government should give up on tax collection so that companies can generate more profit abroad.”

‘Potential Settlement’

Vale hasn’t decided whether it will accept the new tax option and has until Nov. 29 to make a decision and inform the government, the Rio de Janeiro-based company said in an e-mailed statement. Vale added 0.4 percent to 33.08 reais at 2:31 p.m. in Sao Paulo.

Vale’s potential liability may be as much as 47 billion reais if all the tax claims and penalties are included, according to Grupo BTG Pactual analysts Edmo Chagas and Antonio Heluany.

“Our concern is that a large cash disbursement may be paid upfront to end the tax dispute,” the analysts said in a research note today. “Conversations are ongoing about the potential settlement with the government.”

The company has been fighting the claims for more than a decade. The dispute may be extended after Brazil’s Supreme Court decided in April to reassess a similar case used as a precedent.

To contact the reporters on this story: Mario Sergio Lima in Brasilia Newsroom at mlima11@bloomberg.net; 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