Höganäs takes SEK65m tax hit in Brazil

Höganäs has been hit with a tax bill equivalent to SEK 16 million in Brazil over the import of machinery and expects to receive further claims from the government that are expected to total nearly SEK 50 million more.

Höganäs is provisioning SEK 65 million for value-added tax in its Brazilian subsidiary. Subsequent to a tax audit, the company received an initial claim for around SEK 16 million. As a result of current tax audit processes, the company expects additional claims. This provision is based on an evaluation Höganäs and the auditors of the group conducted in co-operation with local legal counsel. Of the SEK 65 million provision, SEK 43 million will be posted to operating income and SEK 22 million to net interest income/expenses.

The majority of this provision relates to value-added tax on imported machinery to Brazil as part of the drive to build up local operations after their acquisition in 1999. The majority is due to the forwarding agent appointed for importing the machinery not paying the value-added tax, despite Höganäs paying it in advance. Brazilian law stipulates that Höganäs has liability for payment, regardless of any responsibility that may lie with individuals or third party companies, despite acting in a bona fide manner.

While the company has appealed against the claims, such proceedings can be long and drawn out, sometimes taking years to be resolved. Interest costs up to the conclusion of the proceedings are additional to the SEK 65 m provision and are dependent on Brazilian Government bond yields.

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