March/April 2013

Tip-toeing around taxes

Canadian suppliers must deliver unique products to access the Brazilian market

By Correy Baldwin

Marcotte Mining Machinery Services Inc. is able to export its equipment to Brazil free of duty because it has no competitors in the country | Courtesy of Marcotte Mining Machinery Inc.


With vast mineral reserves, an educated workforce, improved infrastructure and a recent increase in privatization, international interest in Brazil’s mining industry is high. More mineral-rich areas are opening up, attracting investors and suppliers from around the world. Currently, there are 45 Canadian mining equipment suppliers and 20 service suppliers working in the country.

“Brazil is a big market with a lot of opportunities,” says Geraldo Pinto, international business development manager at Marcotte Mining Machinery Services. “The economy in Brazil is very stable. For eight years now, with the last president, Lula da Silva, and more recently President Dilma Rousseff, the country has been doing very well.” Although Pinto says Marcotte is more focused on Mexico, Brazil’s underground mines could mean big business for his company that manufactures and supplies underground utility vehicles.

Over the last decade, Brazil has gone from a struggling to a thriving economy, and is now considered a market of strategic importance for investors. Its economy is ranked seventh globally, with a GDP of US$2.4 trillion. Mining and mineral processing account for an increasing portion of its economy; they brought in US$39 billion in 2010.

Taxes make it tough

But challenges remain for foreign suppliers, not the least of which is high tax rates. “Honestly, Brazil is not the path of least resistance,” says Jean-Phillip Bouchard, mining account manager at ISAAC Instruments. “It can be a challenging market, but it is a considerable mining market, and one that definitely requires attention.” ISAAC Instruments produces vehicle telemetry solutions for both open-pit and underground mining vehicles.

The company, says Bouchard, is not drawn to the Brazilian market in particular, but its burgeoning potential makes it a strategic target. “Our objective is to be in the top 500 mining companies as far as what we offer, and a large number of our prospective customers are in Brazil,” he notes. “North and South America are the main focus for us right now.”

The enthusiasm of Canadian business ventures is offset by the Brazilian government’s protection of local industry, explains Franz Brandenberger, Canada’s trade commissioner in Brazil: “Brazil has a large local industry that supplies over 90 per cent of its internal demand for mining equipment and services. It’s a very competitive market, and the Brazilian government tries to protect this local industry by imposing high taxation on imported equipment, especially equipment that is also manufactured locally.” In fact, Brazil now has as many mining suppliers as Canada, and the number of Brazilian suppliers – up 25 per cent in the last two years – is growing fast.

The Brazilian government protects the local industry well, says Pinto. “Taxation ends up being around 50 to 70 per cent of the product price [cost, insurance, freight]. With this level of taxation, many products from overseas cannot be competitive against similar products manufactured in Brazil.”

Some countries, including the U.S., Germany, France, Italy and China, have established local manufacturing facilities within Brazil as a way around the taxation problem. Canadian companies have yet to make much headway in this regard, aside from a few exceptions like Metso. “Canadian suppliers of equipment also tend to be small- to-medium-sized companies and not able to invest huge amounts to have a facility there,” says Brandenberger.

But there is good news. Importers can claim a tax reduction – down to zero per cent duty – if the product they are importing cannot be sourced from the local industry. “Before they import,” explains Pinto, “they have to file a claim with the government, and say: ‘I plan to import this machine, but it’s not manufactured in Brazil, and there’s no conflict with Brazilian companies, so we would like to have a tax reduction.’” Marcotte is thus able to sell its vehicles in Brazil without paying any duty. “We have no local competition,” says Pinto. “Our main competitors are here, in Canada.”

Taxes may be high, says Pinto, “but on the other hand, Brazil is very welcoming to new technologies and new products that don’t compete against Brazilian products.” This means that international companies must provide a product that is innovative, specialized or superior in quality. Most sales of Canadian mining equipment are for specific niche markets.

Brandenberger cites exploratory drill rigs as an example of a Canadian product in demand: “Canadian drill rigs are much more expensive than the local ones, but they are state-of-the-art equipment and very reliable.”

Page 1 of 2. Next
Post a comment

Comments

PDF Version