Oil Companies Gain Respite from Rio Taxes

Injunctions granted by a Rio de Janeiro state court exempt six multinational oil companies from paying two newly created state taxes on oil production.

What′s Next: The taxes take effect on March 30.  Challenges of the taxation before the supreme court have yet to be ruled on.

Six multinational oil companies operating in Brazil have received respite from two new taxes created at the end of December by the state government of Rio de Janeiro.

A Rio court judge on March 21 issued two injunctions suspending the taxation for the six companies-Chevron, Shell, Norway′s Statoil, Spain’s Repsol, China’s Sinopec and Portugal′s Petrogal.

The new taxes will take effect on March 30 and will apply to other oil companies operating in the state although additional legal challenges have yet to be ruled on.  In their collective suit filed by the law firm Machado Meyer Advogados, the six companies argued that the taxes are unconstitutional and investment decisions in the oil industry are long term and companies cannot be surprised with new taxes that raise their expenditures.

The taxes were created on Dec. 30 by two Rio state laws, one setting a tax of 68 US cents per barrel of oil produced in the state or within its coastal waters and the other an 18 percent value added tax on the transportation of oil to deposits and refineries.

In his decision, Rio court judge Joao Luiz Amorim Franco ruled that the value added tax cannot be charged on oil extraction while the other tax is in violation of the constitution.

The Brazilian Association of Petroleum Extraction and Production which represents the country′s leading oil companies, has filed two suits before the supreme court challenging the constitutionality of the laws.  Brazil’s state oil company Petrobras also filed a suit before the supreme court on March 22.  The court′s eventual ruling will apply to all oil companies operating in Rio.

Rio de Janeiro is the center of Brazil′s oil industry and 67 percent of the country′s oil production and 40 percent of its natural gas comes from deepwater fields off the state′s coast.

(Bloomberg Tax Management - 24.03.2016)

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