Vale offered chance to settle $14bn tax dispute
An employee stands at the Alunorte aluminum refinery, owned by Cia Vale do Rio Doce, in Barcarena, Brazil©Bloomberg An overhaul of Brazil’s tax amnesty scheme is set to allow Vale to almost halve a $14bn claim against it while potentially ending a dispute that has scared investors away from the iron ore producer’s shares. Vale has until the end of next week to accept the terms of the government’s so-called Refis programme, which would allow it to slash the tax charge to around $8.5bn and pay it back over 15 years, say tax lawyers and analysts.
Rio Tinto may raise stake in Oyu Tolgoi Underwriters of Barrick Gold equity issue left with unsold stock Brazil’s tax authorities claim Vale owes around $14bn in unpaid taxes on profits from the sale of foreign subsidiaries from 1996 to 2008. Vale says it followed the law and has been fighting the claims in the courts. Concerns about the liabilities – equivalent to about three times Vale’s 2012 net profit – are a key reason why Vale trades at a discount to fellow miners such as Rio Tinto, said Rui Dias at Banco Espírito Santo. “It has been a big cloud over the stock,” he said. However, Brazil’s government last week eased the terms of its Refis to encourage companies to settle disputes out of court and pay 20 per cent of their alleged debts immediately. The government is under pressure to plug a widening budget shortfall as presidential elections loom next year. Although Vale and others still believe they could win in court, the improved terms of the settlement offer mean they will be less likely to take the risk, says Luiz Roberto Peroba, tax partner of Pinheiro Neto, a Brazilian law firm. “It’s not that companies are saying they made a mistake so they will pay . . . but the discount being offered is good – and if they pursue the issue and lose, they will have to pay the full amount,” he said. Vale is also likely to settle in order to ease relations with the government, which it relies upon for the mining licences it needs to increase its domestic production, said Mr Dias. “If they join the Refis programme . . . they avoid having to go through the courts for the next few years and they will also avoid having to enter further confrontations with the government,” he said. The upfront payment – likely to be around $1.7bn – would be covered by cash raised through recent divestments such as the $1.8bn sale of its shares in the Norwegian aluminium producer Norsk Hydro last week, analysts said. Vale declined to comment.