Freeport-McMoRan 2013 Annual Report Download - page 115

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2013 ANNUAL REPORT | 113
believes its 1998 stability agreement exempts it from these royalties
and believes any payments will be recoverable.
Indonesia Tax Matters. PT-FI has received assessments from
the Indonesian tax authorities for additional taxes and interest
related to various audit exceptions for income taxes and other taxes
as follows:
Tax Return Tax Interest
Date of Assessment Year Assessment Assessment Total
October 2010 2005 $ 103 $ 49 $ 152
November 2011 2006 22 10 32
March 2012 2007 91 44 135
First-quarter 2013 2008 62 52 114
Second-quarter 2013 2011 56 13 69
Tot al $ 3 3 4 $ 16 8 $ 5 0 2
PT-FI has filed objections to the assessments because it
believes it has properly determined and paid its taxes. During
2013, the Indonesian tax authorities agreed to refund $291 million
($320 million was included in income taxes receivable in the
consolidated balance sheet at December 31, 2012) associated with
income tax overpayments made by PT-FI for 2011. PT-FI received a
cash refund of $165 million in July 2013, and the Indonesian tax
authorities withheld $126 million of the 2011 overpayment for
unrelated assessments from 2005 and 2007, which PT-FI is disputing.
PT-FI filed objections for $22 million of the remaining 2011
overpayments that it believes it is due. As of December 31, 2013,
PT-FI had $255 million included in other assets for amounts paid
on disputed tax assessments, which it believes are collectible,
including the $126 million discussed above for the 2011 refunds.
In December 2009, PT-FI was notified by the Large Taxpayer’s
Office of the Government of Indonesia of its view that PT-FI is
obligated to pay value added taxes on certain goods imported
after the year 2000. The amount of such taxes and related
penalties under this view would be significant. PT-FI believes that,
pursuant to the terms of its Contract of Work, it is only required
to pay value added taxes on these types of goods imported after
December 30, 2009. PT-FI has not received a formal assessment
and is working with the applicable government authorities to
resolve this matter.
Columbian Chemicals Company (Columbian) Claims. In
July 2012, FCX and Columbian (formerly a subsidiary of FMC)
reached an agreement regarding the extent of FCX’s indemnity
obligations under the 2005 agreement pursuant to which
Columbian was sold. Under the agreement, FCX’s remaining
possible exposure, net of amounts reserved or paid, totaled
$107 million at December 31, 2013.
Letters of Credit, Bank Guarantees and Surety Bonds. Letters of
credit and bank guarantees totaled $326 million at December 31,
2013, primarily for the Cerro Verde royalty dispute (bank
guarantee secured by a time deposit — refer to discussion above),
environmental and asset retirement obligations, workers’
compensation insurance programs, tax and customs obligations,
and other commercial obligations. In addition, FCX had surety
quantities of smelter waste to be used as road building and fill
material throughout Kay County over a period of decades and
sought unspecified financial assistance for removing or covering
much of the material and unspecified damages for the alleged
public nuisance created by the presence of the material. On
November 25, 2013, the case was settled for an amount that is not
material to FCX.
Tax and Other Matters. Cerro Verde Royalty Dispute. SUNAT,
the Peruvian national tax authority, has assessed mining royalties
on ore processed by the Cerro Verde concentrator, which
commenced operations in late 2006. These assessments cover the
period October 2006 to December 2007 and the years 2008 and
2009. In July 2013, the Peruvian Tax Tribunal issued two decisions
affirming SUNAT’s assessments for the period October 2006
through December 2008. Decisions by the Tax Tribunal end the
administrative stage of the appeal procedures for the assessments.
In September 2013, Cerro Verde filed judiciary appeals related
to the assessments because it continues to believe that its 1998
stability agreement exempts all minerals extracted from its
mining concession from royalties, irrespective of the method
used for processing those minerals. Although FCX believes its
interpretation of the stability agreement is correct, if Cerro Verde
is ultimately found responsible for these assessments, it may
also be liable for penalties and interest, which accrues at rates
that range from approximately 7 percent to 18 percent based
on the year accrued and the currency in which the amounts would
be payable.
On October 1, 2013, SUNAT served Cerro Verde with a demand
for payment totaling 492 million Peruvian nuevo soles ($176 million
based on exchange rates as of December 31, 2013, including
interest and penalties of $104 million, or a total of $94 million net
of noncontrolling interests) based on the Peruvian Tax Tribunal’s
July 2013 decisions for the period October 2006 through
December 2008. As permitted by law, Cerro Verde requested and
was granted an installment payment program that defers
payment for six months and thereafter satisfies the amount via
sixty-six equal monthly payments. On July 19, 2013, a hearing on
SUNAT’s assessment for 2009 was held, but no decision has been
issued by the Tax Tribunal for that year. As of December 31, 2013,
the aggregate amount of the assessments, including interest and
penalties, for the year 2009 was 206 million Peruvian nuevo
soles ($74 million based on exchange rates as of December 31, 2013,
or a total of $39 million net of noncontrolling interests). SUNAT
may make additional assessments for mining royalties and
associated penalties and interest for the years 2010 through 2013,
which Cerro Verde will contest; FCX believes any such
assessments for the years 2010 through 2013, if made, would in
the aggregate be similar to the aggregate assessments received
for the periods October 2006 through December 2009. No
amounts were accrued for these assessments or the installment
payment program as of December 31, 2013, because Cerro Verde