(Bloomberg) – Brazil’s state-controlled oil company Petrobras has a duty to the country to resolve its dispute with the federal government over billions of reais in back taxes, the country’s energy minister said. .
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As the administration of President Luiz Inacio da Silva seeks to cut deals with them in an effort to raise revenue and balance the country’s budget, he has called on Alexandre Silveira’s oil giant to set an example for other companies with high tax debts.
“Petrobras is obliged to sit at the table with Brazil’s Federal Revenue Office and the Ministry of Finance and consider all options to comply with tax obligations,” Minister Alexander Silveira said in an interview in New York on Saturday, highlighting the company’s statement. “Remarkable profitability” in recent years.
Petrobras has hundreds of lawyers in its legal department and employs dozens of private law firms, Silveira added, but that doesn’t mean it has to take all tax disputes to court, cases that can take years to resolve. “It is clear that the company must show its responsibility to Brazil.”
A potential deal with Petroleo Brasileiro SA, as the company is formally known, could bring 30 billion to 40 billion reais ($8.2 billion) into public coffers, helping to narrow Brazil’s budget gap as Lula plans to further increase public spending.
Petrobras owes more than 100 billion reais in taxes, according to three government officials familiar with the matter, based on unpaid taxes on imports, exports and past profits. The debt is subject to analysis by Brazil’s tax appeals court, known as CARF. The deal could more than halve the company’s liabilities by reducing penalty and interest liabilities, the officials said. All requested anonymity because conversations are not public.
The officials said Finance Minister Fernando Haddad and Petrobras CEO Jean-Paul Prats had discussed ways for the company to pay off some of the debts under Carf’s review. Haddad heard from him that the oil company could pay up to 30 billion riyals as part of the deal, but the economic group is pushing for a bigger man, one of the people said. The talks were first reported by Valor Economic newspaper.
Petrobras disputes the idea of continued negotiations on back taxes. When asked if Pratts and Haddad had discussed the subject, a spokesperson cited an Aug. 15 statement in which the company said, “Reports of possible negotiations with the federal government are unfounded.” In the statement, the oil producer’s decisions on tax liabilities take into account negative decisions in administrative and judicial matters. Petrobras can still appeal Karf’s decision in Brazilian courts.
Three people close to Petrobras, who spoke on condition of anonymity, added that no discussion had yet reached the board of directors on the topic, which would have to approve any tax deal involving the Brazilian government, the oil producer’s majority shareholder.
The finance ministry did not immediately respond to a request for comment.
Read more: Lula wants to spend more, close the budget gap with taxes
Increase government revenue
Clearing tax arrears is part of Haddad’s strategy to raise 168 billion riyals in revenue, excluding interest payments, in the 2024 budget proposal released by the government in late August.
Brazil’s Congress recently approved changes to carf laws that are expected to speed up decisions on cases involving large companies and could generate up to 55 billion reais by the end of 2024, the Finance Ministry projects. Part of that money is expected to come from Petrobras.
Bank economists are warning of the potential impact of debt payments on Petrobras’ dividend. Analysts at Citigroup Inc, led by Gabriel Barra, are still bullish on Petrobras’ increased dividend prospects. But a settlement or poor Carf decision could reduce the amount of money available to them, which could be a dividend, Barra said in an interview.
Members of the government’s economic team argued that the company could not avoid tax liabilities in order to pay more dividends to investors.
In a report released this week, Goldman Sachs estimated a $6 billion impact on Petrobras’ free cash flow, with the current 40 billion reais in CAF’s valuation giving the company an unfavorable outcome. If Petrobras appeals any of these decisions, the payment will be delayed.
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