Vale S.A. : Contestation over unpaid royalties

Tax Avoidance in Brazil

In a dispute over unpaid royalties, Vale S.A. and the Brazilian authorities finally reached an agreement. Vale, the world´s largest iron-ore producer and the second biggest nickel-producer, had to pay around 4 billion Brazilian reais (approximately 2,22 billion $). This request of the Brazilian authorities initially concerned royalties for the period from 1996 to 2002 and was related to profits of Vale´s non-Brazilian subsidiaries and affiliates. However, according to the Mines and Energy Minister Edison Lobao, the amount of the fine has reached this year 7 billion reais including penalties and interest.

A working group was set up by the representatives of the two parties in March 2012 in order to try to avoid a potentially endless and contentious court battle. Indeed, Vale did not wish to pay the entire amount of the fine and tried to pursuit all legal avenues. Thus the validity of the database of the Mining Department had been questioned and the company had also put forward the argument that the taxation of its foreign-sourced incomes was against the Brazilian Constitution as a double taxation. This was rejected by the Federal Regional Tribunal.

However, a settlement was finally found in July between the company and the authorities. The final fine will amount to more than $ 2 billion, instead of the $ 4 billion initially planned. In any case, Vale is massive enough to face this kind of fine. Indeed, its profits reached $ 17 billion in 2010.

Please find more information via the following links:

Bloomberg

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