Analysis: From Volkswagen to Bunge, concession holders in Brazil face hefty bill
27/04/2018 12:00
By Bruno Federowski and Leonardo Goy
BRASILIA, April 27 (Reuters) - Companies from Brazilian
state oil company Petróleo Brasileiro SA to commodities giant
Louis Dreyfus Company and German car giant Volkswagen AG
VOWG_p.DE could face hefty bills after Brazil's Supreme Court
this month allowed local governments to charge property taxes to
operators of public concessions.
The ruling settled an 18-year old spat between Petrobras
PETR4.SA , as the state-controlled oil company is known, and
the city of Santos, home of Brazil's busiest container port.
Even though Petrobras does not own the terminal, and only
operates it under a concession, the court ruled that it was
liable to pay tax on the property.
Now Santos is demanding the oil giant and other terminal
operators pay an estimated 300 million reais ($85.5 million) in
back taxes and foot an annual tax bill that could total 13
million reais a year.
"This will have ramifications throughout Brazil," Santos
mayor Paulo Barbosa told Reuters in an interview. "Any port city
- every city that is home to any concessions - may now charge
property taxes on them."
Property taxes in Brazil are set at the city level and
usually hover around 1.5 percent of property values.
Santos could become the first of many regional governments
to seek redress from operators of everything from ports and
highways to airports as a slower-than-expected economic recovery
in Latin America's largest economy has made authorities
desperate for tax revenues.
Though the annual value of tax payments going forward may be
small, at an annual average of around 200,000 reais ($57,136)
per terminal in Santos, the city government wants to collect
back taxes stretch back to 2000, when the suit was first filed.
The Supreme Court, by stating its ruling was generally
applicable, has opened the door for other cities to follow suit,
though there is still legal uncertainty over how far back unpaid
taxes can be claimed.
Venilton Tadini, head of Brazil's association of
infrastructure operators, said he expects local governments,
which have seen tax collection slump due to the weak economy, to
rush at the opportunity of raising revenues.
The association for highway operators said in a statement
that local governments have already contacted "several" of its
members to charge property taxes on toll roads, roadways and
even catwalks.
An unexpected tax bill could deal a blow to a wide range of
companies, including not only listed Brazilian firms such as
toll-road operator CCR SA CCRO3.SA and rail firm Rumo SA
RAIL3.SA , but also foreign behemoths such as commodities
traders Bunge BG.N and Louis Dreyfus Company AKIRAU.UL and
car manufacturer Volkswagen, which operate port terminals in
Brazil.
Representatives for the companies and the government
declined to comment.
RENEGOTIATIONS
With margins on many of the contracts tight, the ruling
could trigger renegotiations to offset the new taxes by
increasing federal payments to concession operators or by
allowing them to raise their tariffs more than currently
forecast.
This could pose a fresh obstacle to the federal government's
efforts to curb a mounting fiscal deficit, while also elevating
the notoriously high logistical costs for companies operating in
Brazil.
"Either the federal government transfers money to local
governments or prices will have to change. Margins are far too
tight," said José Di Bella Filho, the head of the port terminals
association.
Charging property taxes on public concessions could also
threaten future auctions of public services, the association
said.
This would add fresh difficulties to government efforts to
join forces with the private sector to renew the nation's ageing
infrastructure, a flagship initiative of President Michel Temer,
who is considering whether to seek reelection in October.
Temer's administration undertook a string of infrastructure
auctions after he took office in 2016, following the impeachment
of his predecessor Dilma Rousseff, seeking to tap newfound
demand for Brazilian assets.
A government source involved in concessions, who requested
anonymity because of the sensitivity of the subject, said the
Supreme Court decision generated legal uncertainty that could
drive investors away from future auctions.
That could be a heavy blow to Brazil's economic prospects.
In a February survey, OECD singled out infrastructure
investments as crucial to boosting Brazil's economic growth.
"Almost all areas of infrastructure are characterised by
quality shortcomings and bottlenecks," the report said.
"Brazilian companies suffer from high costs of transport and
logistics, which reduce the profitability of many otherwise
viable investment projects."
($1 = 3.51 reais)
(Reporting by Bruno Federowski and Leonardo Goy; Writing by
Bruno Federowski; editing by Daniel Flynn)
((Bruno.Federowski@thomsonreuters.com; Twitter: https://twitter.com/b_federowski
; +55 11 5644 7768; Reuters Messaging:
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