Vale Wins Appeal Against Tax Claims on Overseas Profit

Vale SA won an appeal against Brazilian government tax claims, paving the way for the biggest iron-ore miner to seek a rebate from a $10 billion settlement.

Brazil’s Superior Justice Tribunal justices voted 3-1 in in Brasilia yesterday in favor of Vale’s appeal against taxes the government claims for profit from overseas units in 2002 and 2013. Vale gained as much as 2.9 percent after the ruling yesterday and declined 2.3 percent to 27.50 reais at the close in Sao Paulo today.

The ruling revives Vale’s decade-long dispute against levies claimed by Brazil that led the company to pay 22.3 billion reais ($10 billion) in a settlement for the 2003-2012 period in November. Vale’s chief counsel Clovis Torres said a successful appeal would lead the company to seek a rebate.

“The court’s decision is very clear: if today’s decision is maintained, profits in countries that have tax agreements with Brazil will be protected from any additional taxes,” Torres said in an interview from Rio yesterday. “We will now study the possibilities to take a decision. We maintain the idea of recovering what we paid in case of a positive ruling.”

Vale Chief Executive Officer Murilo Ferreira said Nov. 27 that a favorable decision could allow the company to suspend payments on the settlement and seek rebates for payments it has already made.

The government can still appeal the decision at the Supreme Federal Tribunal, or STF, the country’s highest court. The Superior Tribunal, or STJ, is the second highest.

Government Appeal

The Finance Ministry said in a statement it will appeal the ruling and that Vale renounced “irrevocably” to the judicial fight for tax claims in the 2002-2012 years as part of the settlement agreed in November with the government.

“Vale would need to win the case in the Supreme Court to potentially halt payments,” Citigroup Inc. analysts Alex Hacking and Thiago Ojea wrote in a note to clients yesterday. “This will likely take another two to four years to resolve.”

While the ruling is positive for Vale, the government may still find new ways of making the company pay additional taxes, said Andreas Bokkenheuser, an equity analyst at UBS AG with a neutral recommendation on Vale shares.

“We worry that if the courts ultimately rule in favor of Vale, the government may find another way to increase state revenues,” he said in e-mailed comments. “The potential downside is that the overhang risk returns.”

Vale will continue to weigh up its options, tax affairs director, Octavio Bulcao, said after the ruling in Brasilia.

“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,” Bulcao said.

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