Reuters./Sao Paulo
Itau Unibanco Holding SA, Brazil’s No 1 bank by market value, has no plans to build a provision against a potential 18.7bn real ($7.98bn) tax claim from the government, saying the possibility of a loss is “remote.”
The Sao Paulo-based bank was “surprised” by the leak of information that the Federal Revenue Service wanted back taxes related to the merger that created Itau Unibanco five years ago, Claudia Politanski, Itau’s senior vice president for legal affairs, said in an interview.
The tax agency, which has gained global recognition for its tough tactics, recently intensified pressure on enterprises ranging from commodity exporters to financial and industrial companies that it accuses of tax evasion. The crackdown coincides with eroding revenue and more spending at all levels of government.
Officials at the agency, which in Brazil is nicknamed “The Lion,” argue that Banco Itau Holding Financeira SA’s purchase of Uniao de Bancos Brasileiros SA five years ago should have been carried out differently, without generating the tax shelter it did. The process used by Itau was endorsed at the time by securities regulator CVM, anti-trust watchdog Cade and the central bank, which oversees the banking industry.
“The goal of the agency’s claim is to deconstruct what we did with the merger. But I can tell you that their suggestions run counter to the current banking industry rules, makes no sense in economic terms and would be impossible to implement,” Politanski said.
Itau is appealing the decision, Politanski added.
The tax agency did not comment, despite repeated requests.
Itau received the notification from the agency in June.
“We expect this case to turn into another lengthy legal process,” Mario Pierry, head of equity research for Deutsche Bank Securities in Sao Paulo, wrote in a client note.
The authority, has also raised similar charges against Banco Santander Brasil SA for its purchase of Banco do Estado de Sao Paulo SA in the late 1990s, and against BM&FBovespa SA, for the merger that created the country’s sole financial exchange.
The dispute is still going on.
The Federal Revenue Service has won some cases in which mergers were carried out “exclusively to generate goodwill and thus to benefit from the tax shield of such goodwill,” said Carlos Macedo, an analyst with Goldman Sachs Group.
In other cases in which deals took place at market-driven prices, such as Itau’s or BM&FBovespa’s, the agency has been less successful.
“Much like for BM&FBovespa and Santander Brasil, we believe the merger between Itau and Unibanco falls in the second category, reducing the risk to the bank’s capital,” Macedo said.
The tax agency is demanding that Itau pay an additional 11.8bn real in income taxes and 6.9bn reals in levies on corporate profits.