Petrobras Sees Dutch Tax Benefits for African OperationsRodrigo Orihuela and Peter Millard
Petroleo Brasileiro SA is expanding in the Netherlands, where the world’s most indebted oil company can reduce taxes and costs, said two people briefed on the plan.
Petrobras, as Brazil’s state-run producer is known, is relocating staff ranging from geophysicists to financial administrators to Dutch offices that will handle its African joint venture with Grupo BTG Pactual SA, said the people, who asked not to be identified as they aren’t authorized to speak publicly. Until now, African operations were handled locally and from Rio de Janeiro, and the Dutch unit didn’t have active business operations, one of the people said.
In the Netherlands, one of 30 countries with which Brazil has double-taxation agreements, Petrobras would pay a 25 percent tax rate compared with 35 percent in Brazil and 40 percent in the U.S., according to KPMG data. That advantage could be applied to African operations that last year posted results before income tax expenses of $1.96 billion as Petrobras seeks to rein in overseas costs and retain an investment-grade credit rating as it develops reserves off the coast of Brazil.
“In Holland, companies with certain corporate structures and under certain circumstances have significant tax reductions on income,” Rodrigo Jacobina, a Rio de Janeiro-based partner at law firm Doria, Jacobina e Gondinho, said by phone.
PO&G, as the African venture is known, “is based in Holland and, therefore, may hire locally to supply the company’s needs,” Petrobras’s press office said in an e-mailed reply to questions. The Rio-based company declined to provide details on staffing numbers.
BTG’s Sao Paulo-based press department declined to comment in an e-mailed response to questions. Under terms of the agreement announced June 14, the bank led by billionaire Andre Esteves will take a 50 percent stake in Petrobras’s assets in Angola, Benin, Gabon, Namibia, Nigeria and Tanzania and the two will form a venture to explore and produce oil and gas.
The venture had 140 million barrels of proven reserves on Dec. 31, Petrobras said in an U.S. regulatory filing.
Building a corporate presence in the Netherlands comes as Brazil’s biggest exporters including iron-ore miner Vale SA and brewer Cia. de Bebidas das Americas fight government attempts to tax profit of their foreign subsidiaries. The U.S. and Brazil don’t have double taxation accords.
Whether companies such as Petrobras should pay taxes on foreign dividends is “an issue that is being discussed” currently by the Supreme Court, Jacobina said.
It is common for oil companies to rent offshore drilling and production equipment from subsidiaries in the Netherlands, said Auro Rozenbaum, an equity analyst at Banco Bradesco SA.
“They lease the platforms from companies based in Holland,” Rozenbaum said by telephone from Sao Paulo. “They do this to avoid taxation.”
Petrobras’s shares have lost investors 22 percent in U.S. dollar terms in the past year, making it the worst performer among global producers with a market value of at least $40 billion tracked by Bloomberg. Shares fell 1.3 percent to 18.56 reais at 2:57 a.m. in Sao Paulo. The company had total debt of $112 billion at the end of last quarter, the most among global producers.
The $1.5 billion BTG deal is part of Petrobras’s plan to sell assets to help finance about $47 billion a year of investments through 2017. The company is scaling back operations abroad and curbing cost growth in Brazil as it develops the largest group of crude discoveries in the past decade and builds refineries. Chief Financial Officer Almir Barbassa said Aug. 12 it would accelerate asset sales during the second half of this year.
Apart from the Africa sales, Petrobras has announced sales in Brazil, Colombia and the U.S. for a total of about $2.5 billion. On Sept. 13 it said it would sell oil blocks and pipelines in Colombia to Perenco UK Ltd. for $380 million.
Brazil’s state-run producer has also agreed to sell minority stakes in Gulf of Mexico oil fields for $185 million, a stake in a petrochemicals company for 870 million reais ($391 million), and a 20 percent stake in a power company in Brazil’s Rio Grande do Norte state for 38 million reais. The sales are subject to regulatory approval.
“This suggests a more practical and dedicated focus on maximizing portfolio returns,” Bank of America Corp analyst Frank McGann said in a Aug. 18 note to clients. “We are encouraged that Petrobras is now taking a broader view towards its portfolio.”