VAT Tax Issue [Text Block] | 12. VAT Tax Issue in Brazil Asserted Claims Value Added Tax (“VAT”) tax in Brazil is at the state level. We commenced operations in Brazil in May 2008 through an acquisition of Qualytextil, S.A., which subsequently became Lake Brasil Indústria e Comércio de Roupas e Equipamentos de Proteção Individual Ltda., (referred to in this footnote as “Qualytextil” and also referred to in this Form 10-Q as “Lakeland Brazil”). At the time of the acquisition, and going back to 2004, the acquired company used a port facility in a neighboring state (Recife-Pernambuco), rather than its own, in order to take advantage of incentives, in the form of a discounted VAT tax, to use such neighboring port facility. We continued this practice until April 2009. The practice was stopped largely for economic reasons, resulting from additional trucking costs and longer lead times. The Bahia state auditors (state of domicile for the Lakeland operations in Brazil) initially reviewed the period from 2004-2006 and filed a claim for unpaid VAT taxes in October 2009. The claim asserted that the state VAT taxes are owed to the state of domicile of the ultimate importer/user and disregarded the fact that the VAT taxes had already been paid to the neighboring state. The audit notice claimed that the taxes paid to Recife-Pernambuco should have been paid to Bahia in the amount of R$ 4.8 5.6 10.4 3.0 3.5 6.5 Bahia had announced an amnesty for this tax whereby R$ 3.5 1.9 2.1 1.1 An audit for the 2007-2009 period has been completed by the State of Bahia. In October 2010, the Company received five claims for 2007-2009 from the State of Bahia, the largest of which was for taxes of R$ 6.2 2.3 8.3 3.1 14.6 5.5 1.3 0.5 As more fully described in Note 15, Lakeland and Qualytextil entered into a Shares Transfer Agreement pursuant to which, effective July 31, 2015, Zap Comércio de Brindes Corporativos Ltda (“Transferee”), a company owned by an existing Qualytextil manager, acquired all of the shares of Qualytextil and assumed liabilities of Qualytextil, including VAT tax liabilities. VAT Tax Amnesty and Loan Agreement with Transferee of Brazil Operations The Bahia State Tax Department has commenced an audit of VAT taxes for the period from 2011-2014 in October 2015. The State of Bahia declared an amnesty beginning November 1, 2015 and expiring December 18, 2015. The Company had entered into a loan agreement (the “Loan Agreement”) on December 11, 2015 with Qualytextil for the amount of R$ 8,584,012 2.29 250,000 Repayment of the loan by Qualytextil to the Company will include the following elements R$ 3,395,947 900,000 3,012,326 800,000 1,025,739 275,000 300,000 80,000 2,286,022 834,398 Principal Total fines Total of the Negotiated Not included in Amnesty Status of unsettled items R$ 305,897 572,264 878,161 92,853 398,750 USD ¹ $ 80,499 $ 150,596 $ 231,095 $ 24,435 $ 104,934 R$ 573,457 1,416,106 1,989,563 236,290 809,747 The new owner will continue litigation as it is expected to be decided in management favor USD ¹ $ 150,910 $ 372,660 $ 523,569 $ 62,182 $ 213,091 R$ 6,081,597 10,638,172 16,719,769 1,903,665 7,985,262 USD ¹ $ 1,600,420 $ 2,799,519 $ 4,399,939 $ 500,964 $ 2,101,385 R$ 402,071 876,589 1,278,660 139,858 541,929 The new owner will continue litigation as it is expected to be decided in management favor USD ¹ $ 105,808 $ 230,681 $ 336,489 $ 36,805 $ 142,613 Total R$ 7,363,022 13,503,131 20,866,154 2,372,666 1,351,676 8,384,012 Total USD $ 1,937,637 $ 3,553,456 $ 5,491,093 $ 624,386 $ 355,704 2,206,319 Legal Fees 79,703 Total Loan $ 2,286,022 ¹ USD amounts based on exchange rate of as of settlement on December 18, 2015 at 3.80 |