Brazil Probes Alleged Mass Tax Fraud/Where does it stop??

Brazil Probes Alleged Mass Tax Fraud

Brazilian tax authorities allegedly solicited bribes from major companies in exchange for reducing their liabilities

tax

Union members clashed with the police during a demonstration in support of President Dilma Rousseff in front of the National Congress in Brasília. The leader’s popularity has fallen amid a poor economy and a bribery scandal at Petrobras. PHOTO: EVARISTO SA/AGENCE FRANCE-PRESSE/GETTY IMAGES

By

PAULO TREVISANI/WSJ

April 7, 2015 4:51 p.m. ET

BRASÍLIA—Prosecutors are investigating allegations that Brazilian tax authorities solicited bribes from major companies in exchange for reducing their liabilities in corporate tax disputes, officials say.

On Tuesday, the Finance Ministry said the alleged scheme wasn’t systematic but rather, involved “isolated acts” carried out by a small group of government tax officials. When prosecutors announced the investigation on March 26 they said that losses to the nation’s treasury totaled $6.1 billion over 15 years.

The case comes amid a scandal at state-owned Petróleo Brasileiro SA, or Petrobras, in which authorities have arrested dozens of people for their alleged roles in bribery and money laundering. That unrelated case, involving hundreds of millions of dollars in losses, has roiled the government because prosecutors allege some illicit money was funneled to some members of President Dilma Rousseff’s ruling Workers’ Party. The party denies that and Ms. Rousseff is not accused of wrongdoing.

The new case, which prosecutors dub Operation Zealots, has no apparent links to the government. But it come as Ms. Rousseff is trying to convince an emboldened opposition to support unpopular measures aimed at resuscitating a moribund economy.

The new probe is focused on the Finance Ministry’s Administrative Council for Tax Appeal, an arbitration board that hears appeals from taxpayers who dispute how much they owe the government.

Prosecutors said 74 companies and 24 individuals are under investigation. None have been named publicly and no charges have been filed. But a leading investigator on the case said companies under investigation include Ford Motor Brazil, a unit of Ford Motor Co.; JBS, the world’s largest meatpacker, the Brazilian unit of the Spanish bank Banco Santander SA; and Brazil’s second largest private-sector bank, Bradesco SA.

Santander said that all its dealings with the council have been “ethical and in accordance with applicable law.” In a written statement, Bradesco denied wrongdoing and said its appeals to the council were “supported by well-known law firms” and that the company follows “the best governance practices.” Spokespeople for Ford Brazil and JBS declined to comment.

Brazil’s Finance Ministry is investigating the case alongside Brazil’s internal revenue service, the federal police and the federal prosecutor. On Tuesday, the ministry said it was taking steps to increase the transparency of the appeals process. The ministry said that, as of Feb. 28, it was deliberating on 112,000 tax cases with a total of about $171 billion in dispute.

Brazil’s tax system is among the most onerous and complex in the world. Penalties can be steep. That has fostered an environment where corruption can flourish, experts say.

“Taxes in Brazil are so high and complicated that it is easy for companies to get in trouble with the taxman,” the leading investigator told The Wall Street Journal. The investigator said frequent tax disputes created opportunities for ill-intentioned public servants to profit by helping firms circumvent red tape.

Prosecutors say the probe began in 2013 after they received an anonymous letter describing details of the alleged scheme.

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