* Brazil seeks to end inter-company price "manipulation"
* Agency says rule designed to prevent local tax evasion
* Crack down comes day after gov't grants $5.5 bln
manufactures tax break
(Adds details, background)
By Luciana Otoni
BRASILIA, April 4 Brazil cracked down on
multinational commodities firms Wednesday with rules to block
them from shifting tax liabilities to more favorable countries.
The measure by Brazil's tax authority comes a day after the
government granted $5.5 billion in tax breaks aimed largely at
Under new rules, the Brazilian units of companies such as
Vale, Bunge, Cargill, Louis Dreyfus,
Glencore and Noble Group must value
transactions with overseas units of the same company using
international price benchmarks, said Sandro Serpa, a top
enforcement official at Brazil's federal tax authority.
The measure is aimed at ending "price manipulation" of
inter-company imports and exports that allow multinational
companies to evade Brazilian taxes, he said.
"The subject is relevant and involves billions of dollars in
value transferred within companies," Serpa told reporters. "They
are values that concern the whole world ... gigantic values
shifting via the flow of tradable goods."
The rules come as the government steps up its "defense"
against what it calls an international "currency war."
According to President Dilma Rousseff, efforts by the
United States, Japan and Europe to kick-start their sluggish
economies have flooded the world with a "tsunami" of cheap
capital, boosting the value of developing-world currencies.
This has caused a flood of cheap imports from China and made
Brazilian manufactures uncompetitive, Rousseff said. Meanwhile,
demand from China for Brazil's raw materials such as iron ore
and soybeans remains strong, further boosting its currency while
providing few manufacturing jobs.
Brazil's real reached a 12-year high in July.
"It seems that the government has made a harsh political
decision," said Alexandre Barros, founder of Early Warning, a
Brasilia political risk consultancy. "They have bowed to the
pressure of manufacturers and cut their taxes, but because it
has no desire to slim government, it's decided to pay for it by
taxing commodities producers."
Previously, a non-Brazilian unit of a multinational could
sell a product to its Brazilian counterpart at an above-market
price. This allowed the non-Brazilian unit to book a larger part
of the profit from the overall transaction abroad, where tax
rates are lower, Serpa said.
A Brazilian unit could also sell a commodity at a
below-market price to a unit abroad. The foreign unit could then
sell it on at the higher international price, allowing the
multinational to book the profit offshore, limiting its
Brazilian tax liability, Serpa said.
While Serpa's examples focused on commodities companies and
traders, he said his agency will also seek to prevent similar
moves by other industries to "evade" Brazilian taxes by
Brazil's tax authority is already fighting to collect about
$17 billion of back taxes it says Vale, the world's No. 2 mining
company, owes. Vale, which is fighting the assessment in court,
says the taxes were already paid by units outside of Brazil and
that collection amounts to double taxation.
If the courts uphold the tax authority's claims, other major
companies in Brazil could face similar large tax liabilities.
($1= 1.83 reais)
(Additional reporting by Jeb Blount in Rio; Writing by Reese
Ewing in Sao Paulo; Editing by Alden Bentley, David Gregorio,