Recently, Brazilian Miner Vale S.A. (VALE) announced that it has received a demand for payment in respect of part of a tax assessment for the years (1996 – 2002). The assessment includes discussion on corporate income tax and social contribution on profits of non-Brazilian subsidiaries and affiliates.
Vale has planned to take appropriate legal action to secure R$ 1.6 billion ($920 million) in assets for challenging the tax assessments in the judicial system. The company expects to pursue all available means to ensure its right to defend itself and put forward their right to owe back taxes.
Last year, Vale announced that the government was pursuing the company for back taxes. Back in January 2012, the world's largest iron ore producer announced its plan to appeal a series of claims on back taxes that could cost the company R$ 9.8 billion ($5.6 billion). However, the taxes are still under dispute involving earnings from foreign subsidiaries.
Challenging the unjustified assessments, Vale has already taken appropriate legal action seeking for an injunction to continue the administrative proceedings. The company has not obtained a favorable ruling as of now.
Brazil-based Vale S.A. is one of the world’s largest producers and exporters of iron ore and pellets. However, the mining companies, including Vale are currently finding sustainable growth difficult, given the major challenges facing the industry. Such challenges include rise of resource nationalism, politicized landscape, governmental delays on permits and tight environmental regulations and policies.
Adding to the woe, taxation has become a serious issue for the miners. Income tax rates, mining tax rates and mining royalty rates levied on mining companies by various governments have significantly threatened the top-line results for quiet some time. However, even under such pressurized environment, Vale keeps improvising its competitiveness against rival companies like RIO TINTO plc (RIO) and BHP Billiton Ltd (BHP).
Currently, we maintain a Neutral recommendation on the company.Vale has a Zacks #4 Rank, which translates into a short-term Sell rating (1-3 months).
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VALE RIO DO-ADR (VALE): Free Stock Analysis Report
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