Vale of woe

9 March 2012 By Kevin Allison

The Brazilian mining giant is embroiled in an escalating legal row over back taxes. The new CEO is looking more like his own man than a state functionary. But investors are right to focus more on Brasilia’s growing temptation to extract that pound of flesh.

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Vale said on March 6 it would take “appropriate legal action” to challenge back-tax claims, the latest twist in a long-running dispute with the Brazilian government.

The announcement came after Vale failed to secure a favourable ruling on an injunction related to the first and smallest of several tax cases brought by the state.

Brazil’s tax authorities are seeking $17.4 billion in back taxes and penalties related to the company’s overseas operations. The claims predate the arrival of Murilo Ferreira as chief executive last year.

Vale has posted more than $900 million of collateral while it continues to argue its case, but has yet to take provisions against potential losses related to the dispute, saying it is confident that the tax cases will be resolved in its favour.

The company’s shares have fallen 7 percent since March 5.

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