Tax tangle arises as Brazil starts importing U.S. condensate
By Jeb Blount and Marianna Parraga
RIO DE JANEIRO/HOUSTON Oct 29 (Reuters) - Petrobras' move to start buying processed U.S. condensate will help output at its domestic refining network, but the purchases have exposed a wrinkle in Brazilian law that could allow the state-run company to import the light oil duty-free, tax lawyers and traders said.
Typically, condensate is considered a very light form of crude found in oil or natural gas wells and in raw form is not taxable in Brazil.
But condensate arriving from the United States could be subject to Brazil's CIDE levy because it has been partially processed, they said.
The concept of lightly processed condensate is peculiar to the United States. It arose last year as a way for U.S. producers to have it classified as a refined product to circumvent a decades-old ban on domestic crude exports. With U.S. condensates shipments now hitting the export market, they are causing headaches for bookkeepers in the United States and Brazil.
"The definition of condensate is not easy," a spokeswoman for Brazil's tax authority told Reuters. The spokesperson said how the substance is taxed also depends in part on whether the condensates are used to make gasoline or diesel.
Petrobras started importing U.S. condensate in May with a 636,000-barrel-cargo, becoming the first Latin American buyer of it. Two more cargoes were bought since then.
So far, those condensate cargoes appear to have entered Brazil classified as crude oil, according to its government's data.
"This type of thing is quite common in the industry," an oil trader and former Petrobras trading official told Reuters, adding that tax rules across different jurisdictions can complicate trades. Continuación...