UPDATE 2-Brazil court rules in Vale's favor on foreign taxation

Thu Apr 24, 2014 7:55pm EDT

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By Jeb Blount

RIO DE JANEIRO, April 24 (Reuters) - A Brazilian appeals court on Thursday gave mining company Vale SA a partial victory in its 22.3 billion real ($10 billion) dispute with Brazil's government over the taxation of its foreign units.

Brazil's Superior Justice Tribunal, the last court of appeal before the Supreme Court, ruled three to one that Brazilian treaties with Belgium, Luxembourg and Denmark prevent Brazil from taxing the profits of Vale units in those countries, the court's press office said.

The court also ruled that Brazilian rules allowing taxation of Vale profit in Bermuda are valid because Brazil has no relevant tax treaty with the island, the press office said.

Vale declined to comment on the ruling or say how much of the company's business is conducted by its units in Belgium, Luxembourg, Denmark or Bermuda. With operations in more than 30 countries, Rio de Janeiro-based Vale is Brazil's most international company.

Shares of Vale, the world's largest iron ore exporter, rose after the decision. The company's preferred shares, the most-traded class of its stock, rose 1.62 percent, the most in two weeks, to 28.15 reais.

Vale and other Brazilian multinationals such as steelmakers Cia. Siderurgica Nacional and Gerdau SA say Brazil is unfairly assessing tax on subsidiaries that has already been paid to foreign governments, a practice known as double-taxation.

Being forced to pay taxes twice, once in the country of operation and again at home, reduces Vale's competitiveness with rivals based in countries whose governments have moved to end the practice.

In November, Vale agreed to end lawsuits contesting assessments on foreign units for the 2003-2012 period in exchange for a discount that cut its estimated 45 billion-real liability in half.

At the time, though, Chief Executive Murilo Ferreira also said that Vale had not renounced its position that the government's taxation rules are wrong and that if courts eventually agree, it will demand repayment.

The court's ruling involves double taxation of Vale via a levy on the increase in the value of its equity in four Belgian, Danish and Luxembourg-based units, the court's press office said in a statement.

Brazil's finance ministry said it plans to appeal the ruling. The ministry also said the court's decision will have no impact on Vale's $10 billion November tax settlement. Under the agreement, the ministry said in a statement, Vale has irrevocably given up the right to reduce or receive any rebate for all related assessments for the 2003-2012 period with the exception of a some taxes paid on 2005 activity.

Brazilian Finance Minister Guido Mantega on Thursday said that new rules brought in as part of the November tax deal with Vale aim to expand taxation of Brazilian companies overseas.

"The Supreme Court will look at the new legislation that was approved by Congress, the result will be that more companies will pay," Mantega told reporters in Brasilia.

($1 = 2.21 Brazilian reais) (Reporting by Jeb Blount; Additional reporting by Nestor Rabello in Brasilia; Editing by Meredith Mazzilli and Andrew Hay)

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