The recent dispute between Vale S.A. and the Brazilian authorities over the determination of the CFEM has reopened the discussion on how mining operations should be valued when related companies are involved. The amount in question, close to R$ 730 million, reveals a growing pattern in Latin America: the strengthening of state scrutiny over prices applied to intra-group exports.
1. A precedent that redefines state supervision in extractive industries
The court decision, which validated the charge proposed by the authorities, consolidates a trend in which regulatory bodies do not limit themselves to verifying declarations, but analyze the economic logic behind the values used in the marketing chain. In this case, the central concern was the difference between the price declared in transactions with related parties and the value observed in final sales to independent buyers.
This approach implies that the determination of royalties, economic rights, and other sectoral levies may be subject to review when the prices used do not reflect market parameters.
2. Valuation of exports: a critical issue for multinational groups
Mining operates with global supply chains, where the relationship between local production and international marketing often involves traders, subsidiaries, or holding companies in various jurisdictions. The Brazilian authority noted that the price used by Vale in its internal group sales differed from the amount obtained in the final stage of marketing.
This type of discrepancy triggers review mechanisms based on the arm’s length principle, used internationally to assess whether intra-group prices are consistent with the behavior of independent operators.
3. Economic effects behind the adjustment proposed by the authorities
The basis for the adjustment was not limited to Brazilian tax regulations, but focused on the economic impact generated by a possible undervaluation of the exported ore. By applying prices below the sale values to third parties, the basis for calculating the CFEM would have been lower, directly affecting the revenue associated with the exploitation of non-renewable resources.
This sends a clear message: in sectors where the value of the product is the basis for specific taxes, price determination takes on a strategic role and is not merely technical.
4. Understanding the controversy: Vale’s position and the authority’s reasoning
The central difference between Vale and the federal agencies did not focus on the existence of intra-group transactions, but rather on the criteria for defining what the base price of the CFEM should be. While the company used the internally agreed value, the National Mining Agency (ANM) and the Attorney General’s Office (AGU) argued that the final amount obtained on the international market with unrelated entities should be considered.
The court understood that the reference proposed by the authorities more accurately reflected the economic reality of the business.
5. Outlook for the sector: increased scrutiny and need for technical support
The precedent encourages mining companies and multinational groups to strengthen their valuation, documentation, and price traceability analyses. Future scrutiny could focus on complex marketing chains, vertical integration, and cross-border flows that generate shifts in profitability.
Conclusion
The Vale case marks a turning point in the interaction between transfer pricing regulations and the mining sector’s own taxation mechanisms. The treatment of intra-group transactions becomes a determining factor in safeguarding public revenues and ensuring a competitive framework aligned with international standards.
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Source: MoneyTimes