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This excerpt taken from the PBR 20-F filed May 22, 2009. Effect
of Taxes on Our Income
In addition to taxes paid on behalf of consumers to federal,
state and municipal governments, such as the Imposto sobre
Circulação de Mercadorias e Serviços, or
ICMS, we are required to pay three principal charges on our oil
production activities in Brazil: royalties, special
participation and retention bonuses. See Item 4.
“Information on the Company—Regulation of the Oil and
Gas Industry in Brazil—Exploration and Development
Regulation” and Item 3. “Key
Information—Risk Factors—Risks Relating to
Brazil.”
These charges imposed by the Brazilian government are included
in our cost of goods sold. In addition, we are subject to tax on
our income at an effective rate of 25% and a social contribution
tax at an effective rate of 9%, the standard corporate tax rate
in Brazil. See Note 3 to our audited consolidated financial
statements.
This excerpt taken from the PBR 20-F filed Jun 30, 2005.
General
In addition to collecting sales and value-added taxes, such as the Imposto sobre Circulação de Mercadorias e Serviços, or ICMS, on behalf of federal and state governments, we pay three principal taxes on our oil producing activities in Brazil:
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These taxes imposed by the Brazilian government are included in our cost of goods sold, and therefore have a significant effect on our total lifting costs. Additionally, we are subject to tax on our income at an effective rate of 25% and a social contribution tax at an effective rate of 9%, the standard corporate tax rate in Brazil. See Note 4 to our audited consolidated financial statements.
Potential Change in ICMS Legislation
In June 2003, the State of Rio de Janeiro enacted a law (State Law nº 4.117, dated June, 27th, 2003, also known as “Noel Law”) imposing the Imposto sobre Circulação de Mercadorias e Serviços (state sales tax, or ICMS) on upstream activities. The law was regulated by Decree nº 34.761, which was suspended by Decree nº 34.783 of February 4th, 2004, for an undetermined period of time. Nevertheless, the State of Rio de Janeiro may choose to enforce the law at any time.
The constitutionality of this law is currently being challenged at the Brazilian Supreme Court (Supremo Tribunal Federal – STF). The claim was filed by the Federal Prosecutor and the Attorney General has given a favorable legal opinion. The Supreme Court did not suspend the effectiveness of the law.
In accordance with legislation currently in force, the ICMS for fuels derived from oil is assessed at the point of sale but not at the wellhead level. As a result, the tax is mainly collected in the states where the sales of fuels are made. If the State of Rio de Janeiro enforces the new law, it is unlikely that the other states would allow us to use the tax imposed at the wellhead level in Rio de Janeiro as a credit to offset the tax imposed at the sale level. Therefore, we would have to pay ICMS at both levels, unless we were successful in challenging this tax in court. If the supreme court decides that this law is constitutional, our ability to challenge the payment of ICMS at both levels will depend on the ground of the Supreme Court’s decision.
We estimate the amount of ICMS that we would be required to pay to the State of Rio de Janeiro could increase by approximately R$5.85 billion (U.S.$2.0 billion) per year as a result of this change in legislation. This increase could have a material adverse effect on our results of operations and financial condition.
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