Bloomberg News

Vale Says Court Suspends Collateral Payment in Tax Case

March 15, 2012

Vale SA (VALE5) said a Brazilian court freed it from making collateral payments as part of a dispute over 30.7 billion reais ($17.1 billion) worth of taxes claimed by the government.

The ruling from the Superior Justice Tribunal, which overturned claims including a 1.6 billion-real guarantee payment, suspends all collateral requests until a final ruling on the case, the Rio de Janeiro-based company said late yesterday in an e-mailed statement.

Vale, the world’s largest iron-ore producer and Brazil’s biggest exporter, has been challenging taxes levied on its foreign subsidiaries’ profits since 2003. The ruling means it won’t need to make guarantee payments on four claims from the Finance Ministry’s revenue service, allaying investors’ concern the dispute will cause losses, Barclays Plc analysts led by Leonardo Correa said.

“The processes should continue to be judged at the judicial level and could still take years to be finalized,” the Sao Paulo-based analysts wrote in a note to clients today. “Vale still has many arguments against these liabilities, which leaves the company comfortable about a positive outcome.”

Vale rose 0.9 percent to 41.45 reais in Sao Paulo. The stock climbed 9.6 percent this year, less than the 19 percent gain in Brazil’s benchmark Bovespa stock index.

The government is seeking tax payments on profit from foreign units from 1996 to 2008 and additional unpaid royalties from operations in Brazil. Tax authorities may also file claims for the period starting in 2009, Vale said last week.

No Provisions

Vale, whose bid to keep the dispute outside the courts was rejected by the government, said last week it didn’t make provisions to cover potential losses because it expects a favorable decision.

The decision on Vale comes as the country’s Supreme Court is scheduled today to make its final ruling on a separate case against the government’s right to tax foreign units of Brazilian companies filed by the country’s National Industry Confederation. Justice Joaquim Barbosa is the only member of the court that still needs to vote on the case, the Supreme Court’s press office said in an e-mail March 13.

The Supreme Court decision may affect the individual disputes involving companies such as Vale, Deutsche Bank AG said.

“The outcome of this case may be a key development for Vale,” Deutsche Bank analysts including Rodrigo Barros said in a research note March 13. “The final voting on the leading case could have an important effect on the outcome of future decisions on individual tax disputes between companies and the government.”

A Vale official in Rio, who declined to be named according to corporate policy, said the company won’t comment further than yesterday’s statement.

To contact the reporter on this story: Juan Pablo Spinetto in Rio de Janeiro at jspinetto@bloomberg.net Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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