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

By Jeb Blount

RIO DE JANEIRO (Reuters) - Brazilian miner Vale SA 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.

As the biggest supplier of iron ore, the main ingredient in steel, Vale provides between a quarter and a third of the world's seaborne iron ore exports. It is also the No. 2 producer of nickel and a major miner of copper, gold and fertilizers such as nitrates and potash.

The decision to pay comes as Vale seeks to streamline operations, sell money-losing units and focus on Brazilian iron ore output to deal with a slowing of global demand for major commodities.

Brazil's government, for its part, has worked for more than a decade to increase tax collection to pay debt, finance social programs and fund a rapid expansion of government employment. This need has become more urgent as the economy weakens, revenue rises more slowly than spending, and key budget targets risk being missed.

LEGAL DEBATE

Other Brazilian multinationals face similar, but much smaller, tax assessments and have also opposed the payments.

These companies include the likes of steelmakers Cia. Siderurgica Nacional and Gerdau SA , meat packer JBS , food processor BRF SA and chemical company Braskem SA .

Several cases launched by other companies and Brazil's National Industrial Confederation (CNI) challenging the tax regulations used to assess Vale's tax bill are being debated by Brazil's Supreme Court and its Superior Justice Tribunal, the country's next highest court.

Decisions in those cases could be reached in the coming weeks and months. But the government's offer of a discount to Vale - primarily through a 21.9 billion real cut in fines, interest and related fees - was set to expire this week.

CEO Ferreira said Vale will be attentive to future tax rulings.

"If in the future there are decisions about the constitutionality or legality of the tax decisions and if those decisions apply to Brazilian companies generally, we will not hesitate to halt payments and seek a rebate for those taxes already paid," he said on the conference call.

Vale's effective tax rate will be about 23 percent this year, compared with 18 percent in recent years, and stay at the 23 to 25 percent level in the future, company officials said.

Whatever the courts decide, Ferreira said, a Presidential decree under review by Brazil's congress will scale back Brazil's authority to assess taxes on overseas profits.

Among the measures in the decree, due to take effect at the start of next year, is a provision allowing taxes on overseas units to be spread over five years.

($1 = 2.3237 Brazilian reais)

(Reporting by Jeb Blount; Editing by Gary Hill and Kenneth Maxwell)

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