Vale legal risk jumps to $22.4 bln on tax cases | G7Finance.com ...

Thu Feb 16, 2012 4:14pm EST

* Vale non-provisioned contingency jumps five-fold

* Most of jump related to double-taxation cases

* Brazil double taxation hurts Vale, others overseas

By Jeb Blount and Sabrina Lorenzi

RIO DE JANEIRO, Feb 16 (Reuters) ? Vale SA,
the world?s No. 2 iron-ore producer, raised its outlook for
legal losses nearly five-fold to $22.4 billion as courts moved
closer to allowing Brazilian tax authorities to levy overseas
investments.

The potential losses, reported late Thursday in the notes of
the company?s financial accounts, refer to unprovisioned
contingencies. The contingencies are related to lawsuits where
Vale?s lawyers believe the Rio de Janeiro-based company faces
?reasonably possible but not probable? losses.

The bulk of the increase is related to a $14 billion
Brazilian court ruling in November requiring Vale to pay
Brazilian income taxes on profits of foreign subsidiaries even
if the foreign unit already paid taxes to the overseas tax
authority and other related ?double taxation? cases.

Vale has appealed the ruling. Double taxation is outlawed in
many countries. Vale is Brazil?s most international company with
operations and offices in dozens of countries in South and North
America, Asia, Africa and Australia.

?If Brazil were to win this ruling and Vale would have to
pay, it would be a danger not just to Vale but to many other
Brazilian companies as well,? said Felipe Reis, metals and
mining company analyst with Banco Santander in Sao Paulo. ?Some
of them would not be able to pay the costs involved.?

The amount at risk threatens Vale, the world?s leading iron
ore producer, with losses nearly 50 percent greater than its
entire fourth-quarter sales of ore, nickel, copper, silver,
railway and ship transport capacity and other metals and
services.

The lawsuits and contingency accounting come as the
government of President Dilma Rousseff seeks to increase its
control of the country?s natural resources.

Earlier this year the government used its large indirect
stake in the company, Brazil?s largest exporter, to oust Roger
Agnelli, the architect of Vale?s international expansion to
Canada, Africa and Asia, as chief executive.

Agnelli resisted government pressure to build more
steelmills and ships in Brazil.

His replacement, Murilo Ferreira, 58, has taken a more
conciliatory tone with the government and said on Thursday that
the company was in discussions to resolve the tax issue and
ensure that it will not be hurt by legislation, expected within
months, changing Brazil?s mining code for the first time in
nearly a half century.

Ferreira also said he expects the company to win the tax
cases and not have to make the giant payments.

Vale preferred shares, the company?s most-traded class of
stock, reversed early losses to gain 0.67 percent to 42.36 reais
in Sao Paulo. The benchmark Bovespa index of the Sao Paulo
exchange rose 1.18 percent.

Source: http://g7finance.com/g7finance-news/vale-legal-risk-jumps-to-22-4-bln-on-tax-cases/

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