The Brazilian tax authorities are demanding more than 2 billion euros from Unilever in connection with a restructuring of the food group in 2001. The total claim has now risen to 2.9 billion euros. It concerns various tax matters in Brazil, according to the annual report about 2020.
The Brazilian tax authorities ruled in 2004 that the restructuring of the Brazilian Unilever branch had no business purpose, but was aimed at avoiding taxes. The court first ruled in favor of Unilever, but in 2013 the tax authorities again filed a case. The claim then amounted to 561 million euros. That has since quadrupled to more than 2 billion euros. According to Unilever, it could take “several years” before a final decision is made.
The restructuring of the food group was part of The Road to Growth: a program that Unilever applied worldwide between 1999 and 2004. Main goal was to focus on leading brands. More than a thousand small brands have disappeared from Unilever’s portfolio. In Brazil, this led to a series of takeovers that bundled the group in 2001 into Unilever Brasil, the company that is now under fire.
The tax case is not Unilever Brasil’s only problem. At the beginning of 2020, Unilever lost a case on appeal over a claim of 137 million euros. In 2008 Unilever Brasil had acquired another group subsidiary, Unilever Brasil Alimentos. According to the Brazilian judge, this internal transaction was done to avoid income tax.
Transactions between Unilever Industrial and Unilever Comercial are also under scrutiny. A few years ago, Unilever split its Brazilian subsidiary into a commercial and an industrial branch. Since then, Unilever Industrial has been selling its products exclusively to Unilever Comercial, which markets them.
The internal sale is made at a price three times lower than the final sale price. Unilever pays tax on that lower internal selling price and not on the higher price at which the products are sold. The Brazilian treasury is therefore missing out on money, the tax authorities ruled. After all, the companies do not operate independently; Unilever Comercial finances the activities of Unilever Brasil and has control over that internal sales price, according to the Brazilian tax authorities. In anticipation of the final ruling, Unilever has released 35 million euros.
According to the latest annual report, there are still 650 million euros in lawsuits in Brazil against Unilever. Certainly one of these relates to a Dutch subsidiary of the company. In December 2019, the Brazilian court ruled that Unilever Brasil wrongly used a loan agreement with Netherlands HoldCo – which also belongs to the Unilever group – to deduct interest paid by Unilever Brasil for years from the taxable profit.
Because the Netherlands is on a ‘grey list’ of controversial tax regimes in Brazil, interest paid to Dutch holding companies cannot be deducted from profits in Brazil. Unilever tried in vain to prove that Netherlands HoldCo carries out ‘substantial economic activities’ and would therefore not be subject to this restriction. Because the company had no employees and 25 other sister companies were registered at the same address, the Brazilian tax authorities rejected Unilever’s defence.
Sergio Nieto Solis works for The Investigative Desk. More information: at www.investigativedesk.com
A version of this article also appeared in NRC in the morning of June 14, 2021