APPENDIX 1
Memorandum submitted by Anglo American
plc
ANGLO AMERICAN'S
HISTORY IN
BRAZIL
Anglo American is a FTSE top 20, UK-based mining
and natural resources company with significant investments in
some 60 countries, including several in South America, in platinum,
base metals, coal, ferrous metals, paper and packaging, industrial
minerals, gold and diamonds.
Anglo American is a long-term investor in Brazil.
Our involvement dates back 34 years. Following the acquisition
of 40% of Unigeo, a prospecting Joint Venture, we first opened
offices as Anglo American do Brasil (Ambras) in January 1973 in
Rio de Janeiro. One of Ambras' first ventures was in the gold
mining industry, and over time Ambras opened and acquired ownership
of such mines or projects as Morro Velho, Jacobina, Crixas and
Salobo. Anglo American's present-day gold interests are represented
by our 41.8% interest in our independently-managed associate,
AngloGold Ashanti, and are not covered by this note.
A major development of our involvement in Brazil
came with the acquisition in 1981 of 40% followed two years later
by acquisition of the remaining 60% of Empresas Sudamericanas
Consolidadas SA, the company holding the Hochschild Group's South
American interests. In Brazil these included a range of base metal,
phosphate and petrochemical mines and industrial plants. Base
metals and phosphate operations represent the basis for Anglo
American's managed Brazilian operations today.
ANGLO AMERICAN
IN BRAZIL
TODAY
Anglo American Brazil currently employs 2,300
people and provides jobs for some 1,800 contractors. In 2005 our
operations generated some $185 million in added value, $500 million
in earnings, $90 million in exports and $41 million in corporate
taxes and royalties. The Group's managed assets in Brazil are
valued at $546 million and we have just announced a major new
investment with a vlue of some $1.2 billion in a nickel project
at Barro Alto.
The Group's current activities are divided into
two main teams; base metals and phosphates. The Base Metals operations
are located in four municipalities of the state of Goias and consist
of a niobium mine, Catalo and nickel operations at Codemin and
Baro Alto.
Anglo American also has a 73% shareholding in
Copebras, a leading producer of phosphate fertilisers, phosphoric
acid and sodium tripolyphosphate: these operations are centred
in Catalao and Cubatao.
In addition we have a corporate office in Sao
Paulo and conduct extensive exploration activities in Brazil.
We have always sought to develop the skill-base of our Brazilian
employeesvirtually all our in-country workforce are Brazilian
nationals.
In accordance with Anglo American's Good
Citizenship Business Principles, which recognise that we will
be more successful as a company if the communities where we operate
grow through economic and social development, our operations in
Brazil give a high priority to sound environmental management,
workplace safety and addressing key social priorities. We are
proud of our long-standing engagement in Brazil and committed
to sustaining and growing it over time.
ISSUES
By and large, Brazil is a good place to do business.
Its strengths include the robustness of its democracy; good institutions
and a vibrant civil society; its stable regulatory framework and
excellent natural and human resources. We are pleased to enjoy
strong relationships with our stakeholders in Brazil, including
the public sector at all levels. Nonetheless, we would draw the
Committee's attention to three issue which present obstacles to
more effective involvement:
Limitations on foreign companies
owning assets in border zones: Federal law 6634/79 sets out
special requirements for companies to do business in the Border
Zones, and this includes mining companies. A particular concern
is the requirement in this law that 51% of total and controlling
equity of a company must be held directly, or indirectly, by Brazilian
citizens. It similarly requires two thirds of employees and the
majority of managers to be Brazilian citizens.
As noted above, and as is made clear by the value
added that our operations create for the Brazilian economy, Anglo
American is committed to ensuring proper returns to the Brazilian
people and Government from its operations. While Anglo American
does not currently have any direct investment in the border zone,
we are minority partners in potential projects and these restrictions
pose real limits on our scope to develop our operations.
Taxation issuesno
double taxation treaty between the UK and Brazil: Brazil has
agreed and put in place Double taxation Agreements with a number
of overseas jurisdictions including inter alia: Canada,
Chile, China, France, Germany, Luxembourg, Netherlands and Spain.
However, no such agreement currently exists with the United Kingdom.
Cross-border investment can be seriously impeded
if there is a danger that the returns on investment may be taxed
twice. The Organisation for Economic Cooperation and Development
(OECD) Model Tax Convention and the worldwide network of tax treaties
based upon it, help to avoid that danger by providing clear consensual
rules for taxing income and capital in each jurisdiction. For
most types of income, especially business profits and investment
income, double taxation is prevented through a double taxation
treaty by allocating taxing rights between the resident and source
countries and by requiring the elimination of double taxation
where there are competing taxing rights.
If Brazil were to negotiate and put in place
a double taxation agreement with the UK this would remove or reduce
the risk of double taxation for UK investors into Brazil (and
vice versa).
Taxation issuestransfer
pricing: Brazilian legislation on transfer pricing is not
in line with OECD guidelines on transfer pricing. Law No.9430
of 27 December 1996 introduced transfer pricing legislation in
Brazil with respect to cross-border transactions between a Brazilian
resident and a foreign related-party. The Brazilian tax authorities
have the power to allocate or adjust income for corporate income
tax and social contribution tax purposes if they deem that the
transfer price used is not appropriate.
Conceptually this is no different from many
other jurisdictions that have domestic transfer pricing rules.
However, in general, Brazilian transfer pricing rules do not follow
the transfer pricing guidelines outlined in the OECD Model Convention.
For example, Brazilian transfer pricing rules often apply fixed-profit
margins on transactions between related parties. This can create
tax uncertainty and lead to administrative problems for multi-national
investors particularly where the other jurisdiction in which the
related-party is based requires the transfer pricing transaction
to be in compliance with their own transfer pricing rules which
are based on the OECD Model. This gives rise to both tax compliance
and contractual difficulties and in addition, can lead to potential
economic double taxation as there may be a mis-match between the
two sets of transfer pricing rules such that the allowable expense
in one jurisdiction differs significantly from the table income
in the other.
If Brazil were to bring its transfer pricing
legislation in line with to OECD Model, Brazil would then comply
with the transfer pricing rules applicable in most other jurisdictions
with the result that the concerns referred to above for multi-national
investors would be significantly reduced or possibly eradicated
completely.
5 January 2007
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