UPDATE 2-Brazil demands Ita+¦ pays $8 bln in back taxes on merger
SAO PAULO, Aug 16 (Reuters) - Brazil's tax authority is demanding private-sector lender Itaú Unibanco Holding SA pay up to 18.7 billion reais ($7.98 billion) in back taxes related to the merger that made it Brazil's largest bank by market value almost five years ago.
Itaú is appealing the decision, which was received in June, and lawyers see a "remote" risk of losing the appeal, the São paulo-based bank said in a securities filing on Friday. Shares shed as much as 2.4 percent, nearing their steepest intraday decline in six weeks.
The Federal Revenue Service, which has gained global renown for its tough tactics, intensified pressure recently on a range of companies from commodity exporters to financial and industrial firms it accuses of different forms of tax evasion - a crackdown that coincided with eroding revenue and increased spending at all levels of government.
The authority, which in Brazil is nicknamed "The Lion," has also raised similar charges against Banco Santander Brasil SA for its purchase of Banco do Estado de São Paulo SA in the late 1990s, and against BM&FBovespa SA, for the merger that created the country's sole financial exchange. The dispute is still going on.
"We expect this case to turn into another lengthy legal process," Mario Pierry, head of equity research for Deutsche Bank Securities in São Paulo, wrote in a client note.
Tax authorities are challenging the corporate structure that resulted from Banco Itaú Holding Financeira SA's purchase of União de Bancos Brasileiros SA five years ago, demanding an additional 11.8 billion reais in income taxes and 6.9 billion reais in taxes on corporate profits.
"Itaú Unibanco reiterates that the transactions realized in 2008 were legitimate, approved by the administrations of the companies involved and their shareholders and later sanctioned by the relevant authorities," the bank wrote.