Brazil’s Petrobras Loses Appeal of Double Taxation

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By Ed Taylor

For the second time in 14 months, Brazil’s state oil company Petrobras has lost a dispute over Brazil’s recognition of tax treaties.

On March 24, a federal revenue service appeals court ruled against Petrobras in a $510 million case (16682.721067/2014-01) involving the company’s profits in the Netherlands for 2010. Although Brazil has a tax treaty with the Netherlands protecting the country’s multinationals from double taxation, the revenue service has routinely ignored these treaties.

Last May, an appeals court ruled against Petrobras in a similar case involving the company’s profits in the Netherlands and Argentina covering the years 2005 to 2010, a total of $1.8 billion in tax assessments.

Petrobras, like other multinationals headquartered in Brazil with foreign holdings, has had its overseas profits assessed for income tax payments. The revenue service has charged Brazil’s 25 percent company income tax and the 9 percent social contribution on net profit, even in cases where there are treaties preventing double taxation.

Brazil and the Netherlands have a 1991 treaty against double taxation that contains an article preventing the type of assessments made by the tax department against Petrobras.

Tax authorities, however, argued in the two Petrobras cases that they weren’t taxing the profits of the company’s foreign subsidiaries but the fact that these earnings were made available to the mother company, increasing Petrobras’ value.

‘Date of the Balance.’

Officials have based their argument on a presidential decree issued in 2001 (MP 2158) which stated that “the profits earned by a firm controlled abroad are considered available for the controlling firm in Brazil on the date of the balance for which they were determined.”

In the March 24 case, a majority of the tax appeals court accepted the revenue service’s position, ruling that the Brazilian decree takes precedence over Brazil’s tax treaties. In a statement, Petrobras said it will appeal the ruling to the highest court of the revenue service’s appeals system.

Should it lose there, the company could turn to the normal judicial system where rulings have been more favorable to multinationals. In April 2014, the Superior Court of Justice, the country’s second highest appeals court, accepted an appeal by mining giant Vale challenging government taxation of its profits in Belgium, Denmark and Luxemburg, countries with which Brazil has tax treaties preventing double taxation.

To contact the reporter on this story: Ed Taylor in Rio de Janeiro at

To contact the editor responsible for this story: Penny Sukhraj at

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