News comes of another Big 4 firm with a big client with big troubles in Brazil. A few months ago it was PwC, potentially helping Cisco evade taxes in Brazil. Now word comes that GE has possibly been underpaying VAT by shipping light bulbs, at least on paper, to remote parts of the Amazon.
David Cay Johnston has published Blame It on Rio: GE’s Brazilian Headache, 50 Tax Notes In’l ___ (June 30, 2008). Here is the summary:
In 2005 the new manager of a General Electric subsidiary in Brazil that made light bulbs and lighting equipment got a tip, the company says. It led to his discovering something curious in the company’s records: Up to 64% of annual sales were recorded as going to wholesale distributors in lightly populated regions near the Amazon River.
Valter Moreira, the manager, noted in a report to his GE bosses in America that half of Brazilians live in urban states like São Paulo and Rio de Janeiro. So why would so many sales be made, at least on paper, to areas where few people lived? Moreira’s report explained that urban Brazilian states charged the subsidiary a 19% VAT on its bulbs, switches, and fixtures, while the rural states charged just 7% or none at all…
Film Courtesy of Andrew Coffey