Author: Antonio Guerrero

TAX CUTS TO RESTART THE BRAZILIAN ECONOMY

 

By Antonio Guerrero

 

Aiming to shield the economy from the potential fallout of Europe’s debt crisis, the Brazilian government took fiscal policy steps that include $1.5 billion in tax cuts.

 

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Chevron banned from further Brazilian drilling

The plan seeks to restart the nation’s economy after a 2011 slowdown, which included a larger-than-expected 0.6% industrial output decline in October. The official 2012 GDP growth target is 5%. New measures include a cut in the foreign investment tax, eliminating a 2% tax on foreign investments in local equities and a 6% IOF tax on foreign investment in local debt.

 

The tax on consumer credit was cut to 2.5% from a previous rate of 3%. Before the December announcement, the central bank had also cut the Selic benchmark interest rate by 50 basis points, to 11%, marking the third rate cut in 2011. Analysts predict the benchmark rate will be cut further—to near 9% by mid-2012.

 

A Brazilian federal appeals court has upheld a ruling against Vale, the world’s second-largest mining company and largest iron ore producer, that could force the company to pay $14 billion in back taxes on overseas profits. The figure is greater than Vale’s first-half 2011 profits. The finance ministry has been pursuing the case for eight years, creating a precedent that could hit Brazilian companies with tax liabilities on overseas earnings at a time when they are expanding their global footprint. Vale counters that the ruling imposes double taxation, which is unconstitutional in Brazil. The company is studying its legal options. Vale has a $21.4 billion investment program for 2012.

 

The Brazilian government has banned US firm Chevron from conducting any further drilling operations in the country, following an offshore oil spill in November that sent about 2,400 barrels of oil into the waters off the coast of Rio de Janeiro. Chevron was fined $28 million and other fines, and possible jail terms for company officials are expected to follow. The National Petroleum Agency accused the company of negligence and of allegedly doctoring images and documents delivered to authorities to downplay the spill’s impact.