How Vale avoided paying USD 6 billion in taxes

. Apr 01, 2019
How Vale avoided paying USD 6 billion in taxes Vale is the world's biggest producer of iron ore and pellets

Speaking before Congress in February, Fabio Schvartsman, the CEO of mining giant Vale, called his company “a Brazilian jewel.” He was making the case for the firm to avoid punishment for the Brumadinho dam collapse—which he called a “tragic accident”—though Vale was aware of the dam’s fragile security conditions months before the accident and benefited from decades of financing political campaigns in exchange for lax regulations.

Apparently, though, this “Brazilian jewel” has more issues than just frail engineering. A study by the Fiscal Justice Institute, a non-profit think tank formed by Brazilian tax auditors, shows that Vale has used loopholes in Brazil’s legislation to avoid paying at least BRL 23 billion (USD 6 billion) in taxes on iron ore exports between 2009 and 2015. According to Brazil’s revenue services, the companies—as well as some of its competitors—are being targeted by auditors.

</span></p> <p><span style="font-weight: 400;">What Vale has evaded through fiscal maneuvers is twice the sum seized by courts as insurance for the reparation for the Brumadinho tragedy, which killed at least 217 people.</span></p> <p><span style="font-weight: 400;">In order to avoid taxes, iron ore sent to China and Japan is actually first exported to Vale&#8217;s Swiss office (opened in Saint-Prex 13 years ago) at a below-market price. Then, the product is sold to Asian countries for the right amount. Curiously, the iron ore exported to Switzerland never reaches its final destination. How could it? The tax haven is completely landlocked.</span></p> <hr /> <p><img loading="lazy" class="alignnone size-large wp-image-15298" src="" alt="How Vale avoided paying USD 6 billion in taxes" width="1024" height="896" srcset=" 1024w, 300w, 768w, 610w, 1100w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <p><span style="font-weight: 400;">As exports leaving Brazil are cheaper on paper, Vale ends up paying much less tax than it should. In a statement, Vale denies any wrongdoing. &#8220;Operations with controlled companies based abroad are legal, regulated, and monitored.&#8221;</span></p> <p><span style="font-weight: 400;">On December 23, 2018, Brazil&#8217;s tax authority launched a plan to crack down on the so-called &#8220;capital flight&#8221; allowed by the triangulation of the sale of agricultural and mineral commodities. An investigator told Brazilian news portal </span><i><span style="font-weight: 400;">Uol </span></i><span style="font-weight: 400;">that &#8220;all tax planning maneuvers that push legal boundaries are a form of fraud.&#8221;</span></p> <h2>Vale not the only avoiding taxes</h2> <p><span style="font-weight: 400;">Other major mining companies use the same strategy to avoid taxes. Groups such as Samarco (a joint venture between Vale and BHP Billiton), Usiminas, and Gerdau (primarily a steel company which also has a branch to export minerals) have subsidiaries based in tax havens such as the Cayman Islands, the British Virgin Islands, Luxembourg, or Denmark—a country with a &#8220;privileged tax system.&#8221; </span></p> <p><span style="font-weight: 400;">This concept includes countries, or states within countries, that don’t require companies to make their corporate structure public, including by way of a breakdown of ownership.</span></p> <p><span style="font-weight: 400;">All companies have declared they comply with Brazil&#8217;s tax legislation, and support the use of offshore trading companies.</span></p> <h2>The taxman&#8217;s biggest debtors</h2> <p><span style="font-weight: 400;">According to data from Brazil&#8217;s tax authority, 363 </span><a href=""><span style="font-weight: 400;">mining companies</span></a><span style="font-weight: 400;"> owe more than BRL 1 million in unpaid taxes. Samarco alone is responsible for 15 percent of debts in the sector. The company has also failed to pay most of the fines it was handed after the 2015 </span><a href=""><span style="font-weight: 400;">Mariana disaster</span></a><span style="font-weight: 400;">, when an iron ore tailings dam collapsed, spilling 25,000 Olympic-sized pools worth of toxic mud into the surrounding area.</span></p> <p><span style="font-weight: 400;">Samarco, however, denies this data, saying that most of its debts are being challenged in courts. That didn&#8217;t stop authorities from including the company on the list of active debtors.

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