By Brazil Stock Guide – Itaú Unibanco Holding SA (ITUB4 BZ; ITUB US), Banco Santander Brasil SA (SANB11 BZ) and Citigroup Inc. (C US) have reached agreements with Brazil’s Attorney General’s Office for the National Treasury (PGFN) that resulted in about R$2.4 billion ($490 million) in tax payments in recent weeks, according to people familiar with the matter.
The settlements were signed under the government’s Comprehensive Transaction Program, a framework designed to encourage negotiated resolutions of long-running tax disputes with the federal government. The payments provided an immediate boost to Brazil’s fiscal accounts and may be followed by additional inflows as roughly 70 corporate requests remain under review at the PGFN.
Mariana Lellis, the PGFN’s chief negotiator, said the amounts paid reflect the net cash received by the Treasury after average discounts of about 21% on penalties, interest and ancillary charges granted to close the cases. The reductions ranged from 10% to 30% and were set individually based on factors such as the age of each lawsuit, the government’s probability of winning or losing in court, and the costs of carrying the disputes forward.
“There is a much larger universe of financial institutions — a much larger universe of debt,” Lellis said, referring to additional negotiations still being analyzed under confidentiality rules.
Part of the agreements addressed disputes over the now-defunct financial transactions tax, known as CPMF. Santander Brasil paid roughly R$1 billion after discounts, while Citi transferred about R$400 million to the federal government. In Itaú’s case, the talks covered litigation over PIS and Cofins taxes levied on financial revenues, as well as liabilities related to income tax and the social contribution on net profit. The bank paid close to R$1 billion.
Although the government prevailed at Brazil’s Supreme Court on the PIS/Cofins issue, the court has yet to issue a final ruling on how the decision’s effects will be applied over time. The PGFN opted to settle to avoid further legal uncertainty, people familiar with the discussions said.
The PGFN also reached a PIS/Cofins agreement with Banco de Desenvolvimento de Minas Gerais, which paid R$140 million. All four institutions made lump-sum payments between late December and early January. Itaú said it maintains dialogue with authorities and uses legal instruments to resolve tax disputes “with full transparency and compliance with the law.” Santander Brasil, Citi and BDMG declined to comment.
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