Cemex 2012 Annual Report Download - page 98

Notes to the
consolidated
financial
statements
98
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19D) Uncertain tax positions and significant tax proceedings
As of December 31, 2012 and 2011, as part of short-term and long-term provisions and other liabilities (note 17), CEMEX has
recognized provisions related to unrecognized tax benefits in connection with uncertain tax positions taken, in which it is deemed
probable that the tax authority would differ from the position adopted by CEMEX (note 2O). As of December 31, 2012, the tax
returns submitted by some subsidiaries of CEMEX located in several countries are under review by the respective tax authorities
in the ordinary course of business. CEMEX cannot anticipate if such reviews will result in new tax assessments, which would,
should any arise, be appropriately disclosed and/or recognized in the financial statements.
A summary of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2012, 2011 and
2010, excluding interest and penalties, is as follows:
2012 2011 2010
Balance of tax positions at beginning of year $ 21,936 17,260 20,333
Additions for tax positions of prior years 325 1,162 3,687
Additions for tax positions of current year 110 4,812 765
Reductions for tax positions related to prior years and other items (14,601) (2,513) (2,240)
Settlements and reclassifications (4,053) (121) (81)
Expiration of the statue of limitations (1,599) (120) (4,195)
Foreign currency translation effects (883) 1,456 (1,009)
Balance of tax positions at end of year $ 1,235 21,936 17,260
Tax examinations can involve complex issues, and the resolution of issues may span multiple years, particularly if subject
to negotiation or litigation. Although CEMEX believes its estimates of the total unrecognized tax benefits are reasonable,
uncertainties regarding the final determination of income tax audit settlements and any related litigation could affect the amount
of total unrecognized tax benefits in future periods. It is dicult to estimate the timing and range of possible changes related
to the uncertain tax positions, as finalizing audits with the income tax authorities may involve formal administrative and legal
proceedings. Accordingly, it is not possible to reasonably estimate the expected changes to the total unrecognized tax benefits
over the next 12 months, although any settlements or statute of limitations expirations may result in a significant increase or
decrease in the total unrecognized tax benefits, including those positions related to tax examinations being currently conducted.
As of December 31, 2012, certain significant proceedings associated with these tax positions are as follows:
• During 2011, the U.S. Internal Revenue Service (“IRS”) had issued various Notices of Proposed Adjustment (“NOPAs”) for
the years 2005 through 2009 proposing certain adjustments to CEMEX’s tax returns. As of December 31, 2012, CEMEX’s
subsidiaries in the United States and the IRS have reached a resolution regarding the income tax audits for the years 2005
through 2009 and also tax losses to applicable prior years to recover taxes previously paid. CEMEX expects a net refund
from the IRS of approximately US$25. In connection with this resolution, CEMEX expects to owe additional state and local
income taxes and interest resulting from the IRS audit adjustments. The IRS has recently commenced an audit of years 2010
and 2011. CEMEX believes it has adequately reserved for its uncertain tax position. The amount of which is not specified,
as doing so may harm the current negotiations of CEMEX with the IRS. Nonetheless, there can be no assurance that the
outcome of the IRS negotiations will not require further provisions for taxes.
• Pursuant to amendments to the Mexican income tax law effective January 1, 2005, Mexican companies with investments in
foreign entities whose income tax liability is less than 75% of the income tax that would be payable in Mexico, are required
to pay taxes in Mexico on net passive income, such as dividends, royalties, interest, capital gains and rental fees obtained
by such entities, provided, however, that those revenues are not derived from entrepreneurial activities in such countries.
CEMEX challenged the constitutionality of the amendments before the Mexican federal courts. In September 2008, the
Supreme Court of Justice ruled the amendments were constitutional for tax years 2005 to 2007. On March 1, 2012 and July
5, 2012, CEMEX self-assessed the taxes corresponding to the 2005 and 2006 tax years, respectively, for a total amount,
inclusive of surcharges and carry-forward charges, of approximately $4,642 (US$358) for 2005 and $1,100 (US$86)
for 2006, of which 20%, equivalent to approximately $928 (US$72) for 2005 and $221 (US$17) for 2006, was paid in
connection with the submission of amended tax returns. The remaining 80% of such total amounts would have been due in
February 2013 and July 2013 for the 2005 and 2006 tax years, respectively, plus additional interest if CEMEX would have
elected to extend the payment date in thirty-six monthly installments. On January 31, 2013 in connection with the transitory
amnesty provision described below, CEMEX reached a settlement agreement with the tax authorities (note 26). Changes in
the provision were recognized through income tax expense for the period.