Brazil's tax agency has in recent weeks slapped more than $3-billion in fines on leading companies that it says owe back taxes, in what some experts describe as an aggressive play for cash as the government struggles to meet its budget targets.
Shares of Brazilian miner MMX Mineração SA, owned by Brazilian billionaire Eike Batista, and cosmetics producer Natura Cosmeticos SA tumbled on Tuesday, hours after both companies said they had been notified by the agency of alleged tax infractions.
The Receita Federal tax agency is seeking 3.8-billion reais ($1.87-billion U.S.) from MMX and 627.8-million reais from Natura.
In recent weeks, the agency also fined pulp producer Fibria SA and logistics company Santos Brasil Participacoes SA a combined 2-billion reais.
The fines come at a time when the government of President Dilma Rousseff is scrambling to plug budget holes and maintain the fiscal discipline that helped Brazil win the confidence of investors over the past decade.
Brazil's economy likely grew less than 1 per cent last year, much less than expected when Ms. Rousseff prepared the 2012 budget. The left-leaning president also announced a wave of targeted tax cuts throughout the year to try to stimulate commerce.
"We see a tax collection effort from the government because tax revenues are dwindling," said Flavio Serrano, senior economist with BES Investimento in Sao Paulo. "Anything that you can get at this moment in back taxes helps out."
A spokesperson for the Receita Federal said the fines were part of the agency's "routine work" and declined to comment on specific cases, citing ongoing investigations.
Brazil's tax code is by far the world's most complex, according to the World Bank. Individuals and companies often complain that overlapping and ambiguous taxes make accounting errors easy, exposing them to fines.
The tax agency, known as "the lion" for its official emblem as well as its ferocious pursuit of tax dodgers, has been a key ally in Ms. Rousseff's drive to hike revenues and meet hefty primary budget surplus targets. The primary surplus, or revenues minus expenditures excluding debt payments, is seen as a key measure of the country's ability to repay its obligations.
The government demanded a record 109-billion reais in unpaid taxes from individuals and companies last year. Some of those accused of underpaying are global giants like iron ore miner Vale SA, which is partly owned by the government.
However, the agency's reach was limited last year. The government missed last year's primary surplus target of 139.8-billion reais by a long shot and risks not meeting its goal again in 2013.
MMX Mineracao SA faces a potential fine for paying less in income tax than required since 2007, according to a securities filing on Tuesday.
MMX, based in Rio de Janeiro, said the fine has no legal basis, and hopes it will be reversed. The value of the fine, which is equivalent to about 80 per cent of the company's current market value, has not been provisioned and has no immediate financial impact, MMX said in a securities filing.
Shares of Natura tumbled 4 per cent to 55.55 reais, the biggest intraday decline in the stock since last Aug. 30. MMX fell more than 4 per cent in afternoon trading on Tuesday, extending a 35.5-per cent drop in the past 12 months.
According to a securities filing, Natura on Monday received two notices from the tax watchdog challenging tax practices in the treatment of industrial and social security taxes dating back to 2008. A company representative declined to comment beyond the filing.
Natura, Brazil's No. 1 maker of cosmetics, is unlikely to provision for the potential tax payment and may only take charges related to lawyers' fees, analysts said.
"Despite the large value of the payment being demanded, we do not see a reason for the market to be alarmed, at this point in time," Deutsche Bank Securities analyst Renata Coutinho said of Natura. "We recall that in 2005 the company faced a similar challenge and the decision was favourable to Natura, as the company was in compliance with the law."