Brazil’s state-controlled oil company Petrobras must settle a dispute involving billions of reais in back taxes with the federal government to show it has a duty to the country and not just its private investors, according to the Minister of Energy of the country.
Alexandre Silveira’s call for the oil giant to set an example for other companies with outstanding tax debts comes as President Luiz Inacio da Silva’s administration seeks to cut deals with them in order to boost revenue and balance the nation’s budget.
“Petrobras has an obligation to sit at the table with Brazil’s federal revenue office and the finance ministry and consider all possibilities to meet its fiscal commitments,” Minister Alexandre Silveira told Bloomberg News on Saturday in an interview in New York, highlighting the company. “amazing profitability” in recent years.
Petrobras has hundreds of lawyers in its legal department and hires dozens of private firms, Silveira added, but that doesn’t mean it has to take all tax disputes to court, in cases that can take years to resolve. “It is clear that the company must show its responsibility to Brazil.”
A possible deal with Petroleo Brasileiro SA, as the company is formally known, could bring 30 to 40 billion reais ($8.2 billion) into public coffers, helping to narrow Brazil’s budget gap, although Lula has expected to further increase public spending.
Petrobras owes more than 100 billion reais in back taxes as a result of failure to pay taxes on imports, remittances abroad and past profits, according to three government officials familiar with the matter. The debt is being analyzed by Brazil’s tax appeals court, known as Carf. A settlement could cut the company’s liabilities by more than half by reducing fines and interest owed, officials said. All requested anonymity because the conversations are not public.
Officials said Finance Minister Fernando Haddad and Petrobras CEO Jean Paul Prates have discussed a way for the company to pay off some of the debts that are under review by Carf. Haddad has heard from him that the oil company could pay up to 30 billion reais as part of a settlement, but the economic team is pushing for a higher figure, one of the people said. The talks were first reported by the newspaper Valor Economico.
Petrobras denies the idea of ongoing negotiations over back taxes. Asked if Prates and Haddad had spoken on the matter, a spokesman referred to an Aug. 15 statement in which the company maintains that “reports of possible settlement negotiations with the federal government are unfounded.” . In the statement, the oil producer says that its decisions on tax obligations take into account the risks of negative rulings in the administrative and judicial sphere. Petrobras can still appeal Carf’s decision in Brazilian courts.
Three people close to Petrobras, speaking on condition of anonymity, added that so far no discussion on the subject has reached its board of directors, which would have to approve any tax agreement involving the Brazilian government, the majority shareholder of the oil producer
The finance ministry did not immediately respond to a request for comment.
Increase in government revenue
The settlement of outstanding tax debts is part of Haddad’s strategy to find the 168 billion reais of revenue he needs to achieve the zero primary deficit, which excludes interest payments, envisioned in the 2024 budget proposal that the government published at the end of August.
Brazil’s congress recently approved a change to Carf rules that is expected to speed up decisions in cases involving large companies and could generate up to 55 billion reais by the end of 2024, the finance ministry projects. Part of this amount is expected to come from Petrobras.
The bank’s economists warn about the potential impact of debt payments on Petrobras’ dividends. Analysts at Citigroup Inc led by Gabriel Barra still see potential for Petrobras to distribute additional dividends, according to a recent note. But a deal or unfavorable decision by Carf could put a damper on dividends, reducing the amount of cash available to them, Barra said in an interview.
Members of the government’s economic team, meanwhile, have argued that the company cannot avoid its tax obligations in order to shower investors with extra dividends.
In a report published this week, Goldman Sachs estimated a $6 billion impact on Petrobras’ free cash flow in a scenario where the 40 billion reais currently being reviewed by Carf resulted in an unfavorable outcome for the company. If Petrobras appeals any of these rulings, any potential repayment would be delayed.
