Alcoa 2013 Annual Report Download - page 141

The value added tax credits were claimed by AWAB for both fixed assets and export sales related to the Juruti bauxite
mine and São Luís refinery expansion. The RFB has disallowed credits they allege belong to the consortium in which
AWAB owns an interest and should not have been claimed by AWAB. Credits have also been disallowed as a result of
challenges to apportionment methods used, questions about the use of the credits, and an alleged lack of documented
proof. The assessment is currently in the administrative process, which could take approximately two years to
complete. AWAB presented defense of its claim to the RFB on April 8, 2013. If AWAB is successful in the
administrative process, the RFB would have no further recourse. If unsuccessful in this process, AWAB has the option
to litigate at a judicial level. The estimated range of reasonably possible loss is $0 to $65 ($R155), whereby the
maximum end of the range represents the sum of the portion of the disallowed credits applicable to the export sales and
a 50% penalty of the gross amount disallowed. Additionally, the estimated range of disallowed credits related to
AWAB’s fixed assets is $0 to $75 (R$175), which would increase the net carrying value of AWAB’s fixed assets if
ultimately disallowed. It is management’s opinion that the allegations have no basis; however, at this time,
management is unable to reasonably predict an outcome for this matter.
In September 2010, following a corporate income tax audit covering the 2003 through 2005 tax years, an assessment
was received as a result of Spain’s tax authorities disallowing certain interest deductions claimed by a Spanish
consolidated tax group owned by the Company. An appeal of this assessment in Spain’s Central Tax Administrative
Court by the Company was denied in October 2013. In December 2013, the Company filed an appeal of the assessment
in Spain’s National Court.
Additionally, following a corporate income tax audit of the same Spanish tax group for the 2006 through 2009 tax
years, Spain’s tax authorities issued an assessment in July 2013 similarly disallowing certain interest deductions. In
August 2013, the Company filed an appeal of this second assessment in Spain’s Central Tax Administrative Court.
The combined assessments total $334 (€242). The Company believes it has meritorious arguments to support its tax
position and intends to vigorously litigate the assessments through Spain’s court system. However, in the event the
Company is unsuccessful, a portion of the assessments may be offset with existing net operating losses available to the
Spanish consolidated tax group. Additionally, it is possible that the Company may receive similar assessments for tax
years subsequent to 2009. At this time, the Company is unable to reasonably predict an outcome for this matter.
Between 2000 and 2002, Alcoa Alumínio (Alumínio) sold approximately 2,000 metric tons of metal per month from its
Poços de Caldas facility, located in the State of Minas Gerais (the “State”), to Alfio, a customer also located in the
State. Sales in the State were exempted from value-added tax (VAT) requirements. Alfio subsequently sold metal to
customers outside of the State, but did not pay the required VAT on those transactions. In July 2002, Alumínio
received an assessment from State auditors on the theory that Alumínio should be jointly and severally liable with
Alfio for the unpaid VAT. In June 2003, the administrative tribunal found Alumínio liable, and Alumínio filed a
judicial case in the State in February 2004 contesting the finding. In May 2005, the Court of First Instance found
Alumínio solely liable, and a panel of a State appeals court confirmed this finding in April 2006. Alumínio filed a
special appeal to the Superior Tribunal of Justice (STJ) in Brasilia (the federal capital of Brazil) later in 2006. In 2011,
the STJ (through one of its judges) reversed the judgment of the lower courts, finding that Alumínio should neither be
solely nor jointly and severally liable with Alfio for the VAT, which ruling was then appealed by the State. In June
2012, the STJ agreed to have the case reheard before a five-judge panel. A decision from this panel is pending, but
additional appeals are likely. At December 31, 2013, the assessment totaled $53 (R$125), including penalties and
interest. While the Company believes it has meritorious defenses, the Company is unable to reasonably predict an
outcome.
In addition to the matters discussed above, various other lawsuits, claims, and proceedings have been or may be
instituted or asserted against Alcoa, including those pertaining to environmental, product liability, safety and health,
and tax matters. While the amounts claimed in these other matters may be substantial, the ultimate liability cannot now
be determined because of the considerable uncertainties that exist. Therefore, it is possible that the Company’s liquidity
or results of operations in a particular period could be materially affected by one or more of these other matters.
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