RIO DE JANEIRO, April 11 (Reuters) – A Brazilian Supreme Court ruling on Wednesday will trim global miner Vale SA’s 30.5 billion real ($15.5 billion) disputed tax liability by about 5 percent while leaving the bulk of the debt up to future decisions by Brazil courts, company documents show.
The court’s complex and incomplete decision on the constitutionality of Brazilian tax rules for foreign subsidiaries only resolved related Brazilian tax assessments on Vale for the 1996-to-2001 period.
That period makes up most of a 1.5 billion real tax bill, plus interest and penalties, that Vale received in 2007 for the profits at foreign units in 1996-2002, according to Vale filings with securities regulators.
The rules being challenged came in effect in 2001 and cannot be applied retroactively, the court said. Vale general counsel Clovis Torres called the decision a “great victory” late Wednesday. He said it would make a significant dent in the company’s tax liability.
The other 29 billion real of Vale liabilities under the 2001 regulations remain unresolved by the courts after more than a decade of litigation. And while Vale has the biggest tax debt under the 2001 rules, other companies also face assessments.
Vale preferred shares, the company’s most traded class of stock fell 1.6 percent to 32.40 reais in Sao Paulo on Thursday, on track for its lowest close in more than a week. On Wednesday, they fell 3.5 percent. Vale is down 21 percent this year.
Leaving the case unresolved, the court raised the regulatory and political risk not just for Vale but also for other rapidly globalizing Brazilian multinationals such as meat packer JBS SA , aircraft maker Embraer SA and construction giant Odebrecht SA.
“The best thing we can say for Vale about the ruling is that it is inconclusive,” mining company analysts Filipe Hirai and Karel Luketic BoA Merrill Lynch in Sao Paulo wrote in a note to investors late Wednesday. “The ruling was a negative surprise, but not conclusive for Vale.”
Vale’s press office said on Thursday it is still trying to determine what part of the 1996-2002 assessment applies to the period before the rules were made in 2001.
TAX TIMING LOSS
Vale also lost a key point.
The Supreme Court challenge stems from a 2001 decision by Brazil’s tax authorities to change the way taxable income from foreign units is determined. At the time, the expansion of Brazilian companies abroad led to concerns that they would use foreign subsidiaries to evade Brazilian taxes needed to fund the country’s schools, health care, roads and other infrastructure.
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