Brazil court upholds $14 bln tax ruling vs Vale

A Brazilian court upheld a ruling requiring mining company Vale to pay 25bn reais ($14bn) in back taxes on overseas profits, raising the risk of double taxation on Brazilian companies' foreign earnings.

The ruling by the 2nd Federal Regional Tribunal, an appeals court, follows a lower court decision ordering the foreign units of local companies to pay income tax in Brazil even if those units pay taxes where they are based.

Vale says the ruling amounts to double taxation, which is banned by Brazil's Constitution.

The finance ministry, which has been pursuing the case for eight years, said the appeals court ruling sets a precedent and removes grounds for a successful appeal.

Vale said in a market filing in response to the decision, "The mater of foreign profits has not been defined yet, and it will still be subject to appeal to the Superior Court of Justice and to the Supreme Court of Justice."

Vale said it was considering its legal options and that the appeals court decision has "no immediate economic and financial impact" on the company.

If the decision is upheld, it could open the door to cases against other Brazil-based companies that have tax liabilities on foreign earnings.

It could also mean Vale faces past tax liability to the government greater than the company's first-half profit of 21.6bn reais.

Vale, the world's No. 2 mining company and the world's biggest iron ore producer, on Monday slashed its capital spending budget for 2012 by 11% and pushed back its largest iron ore project by two years in the face of falling commodities prices and environmental delays.

The price of iron ore has fallen 20% this year, nickel has lost nearly a third of its value, and copper is down more than 20%. Vale is the world's largest iron ore exporter and a major and growing producer of copper and nickel.

Vale shares on Sao Paulo's BM&FBovespa exchange were up 2.8% to 39.93 reais, while the benchmark Bovespa stock index of the BM&Bovespa's most-traded shares rose 4.1%.

Vale shares have suffered as the weak outlook for iron ore prices, coupled with the impact of the tax dispute, could hurt earnings.

(Published by Reuters - November 30, 2011)