Vale to pay $9.6 billion Brazil tax bill after big discount

Wed Nov 27, 2013 8:39pm EST
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By Jeb Blount

RIO DE JANEIRO (Reuters) - Brazilian miner Vale SA (VALE5.SA: Quote) said on Wednesday that it agreed to pay 22.325 billion reais ($9.61 billion) in taxes on profit from overseas operations, accepting an offer from Brazil's government that cuts a disputed back-tax bill in half.

The world's largest producer of iron ore will spread payments over 15 years with 5.965 billion reais, or 27 percent of the total, due this month. The agreement came as Vale neared a deadline of Friday to either accept the government's discount offer or see it vanish.

The remaining 16.36 billion reais will be made in 179 monthly payments, Vale said in a statement. Without the discount, Vale estimated its disputed tax bill at 45 billion reais ($19.4 billion).

While Vale agreed to end lawsuits contesting the payments for the 2003-2012 period in exchange for the discount, Chief Executive Officer Murilo Ferreira said the company still considers the Brazilian assessment unfair "double taxation".

Brazil, Vale says, is charging tax its subsidiaries already paid to foreign governments. With units in more than 30 countries and mines in countries as diverse as Canada, Peru, Australia, Mozambique and the French territory of New Caledonia, it is Brazil's most international company.

"We have made this decision because it offers us significant discounts," Ferreira said on a conference call. "But we have a good cause and in no way giving up on our legal theories."

As a result of tax credits, the cash impact on Vale's 2013 profit will be 20.7 billion reais, the company said. Future payments will be adjusted for inflation using Brazil's benchmark Selic rate, which Brazil's central bank raised a half percentage point to 10 percent on Wednesday, its highest level since March 2012.

The tax payments will be made out of the company's cash flow and will not affect the payment of dividends under the company's current dividend program, Ferreira said.   Continued...