REFILE-Brazil’s BM&FBovespa stock drops on tax probe report

(Corrects inactive stock symbol in last paragraph)

* Brazil paper says BM&FBovespa faces tax investigation

* Tax agency to prove possible misuse of tax shields

* Company denies wrongdoing, says has not been notified

* Shares tumble as much as 5 pct on Tuesday

By Guillermo Parra-Bernal and Aluisio Alves

SAO PAULO, June 1 (BestGrowthStock) – Shares of BM&FBovespa tumbled
as much as 5 percent on Tuesday on reports the country’s tax
agency may seek 5.5 billion reais ($3 billion) in back taxes
from the world’s third-largest exchange operator.

Brazilian newspaper Folha de S. Paulo said the agency is
gauging the illegality of BM&FBovespa’s use in 2008 of a tax
shield that helped shareholders book large gains during the
merger of rival bourses Bovespa and BM&F that created the

Brazilian regulators have for years contested the legality
of that tax shield, which allows companies that merge with
rivals to make large tax deductions and considerably increase
goodwill provisions.

According to Folha, which did not say how it obtained the
information, the claim for BM&FBovespa’s alleged misuse of the
tax shield could cost the bourse “billions of reais.”

“We expect this to turn into a lengthy legal process, and
believe that it may create volatility for BM&FBovespa’s share
price in the short term,” Deutsche Bank analysts Mario Pierry
and Tito Labarta wrote in a note to clients.

BM&FBovespa’s shares dropped to as low as 11.52 reais in
early trading, the lowest level since May 25. They were down 4
percent at 11.64 reais in late morning trading on Tuesday.

A spokeswoman for Brasilia-based Receita Federal, as the
tax agency is known, declined to comment. Sao Paulo-based
BM&FBovespa denied any wrongdoing and said it has not been
notified by authorities of any tax-related irregularities.

BM&F and Bovespa combined their operations in 2008 and
under the use of existing accounting rules, booked a goodwill
of 16.3 billion reais. The existence of the tax shield dates
back to 1997, when the government used the structure to make
state asset sales more attractive to private investors.

According to Folha, Banco Santander Brasil (SANB11.SA: ) and
Natura (NATU3.SA: ) were fined for misusing the tax shield, but
both companies appealed the decision.

Stock Market Money

($1=1.832 reais)
(Editing by Maureen Bavdek)

REFILE-Brazil’s BM&FBovespa stock drops on tax probe report