Cemex 2012 Annual Report Download - page 99

Notes to the
consolidated
financial
statements
99
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• In November 2009, Mexico approved amendments to the income tax law, which became effective on January 1, 2010. Such
amendments modified the tax consolidation regime by requiring entities to determine income taxes as if the tax consolidation
provisions did not exist from 1999 onward, specifically turning into taxable items: a) the difference between the sum of the
equity of the controlled entities for tax purposes and the equity of the consolidated entity for tax purposes; b) dividends from
the controlled entities for tax purposes to CEMEX, S.A.B. de C.V.; and c) other transactions that represented the transfer of
resources between the companies included in the tax consolidation. In connection with these changes to the tax consolidation
regime, as of December 31, 2009, CEMEX had accrued an aggregate liability of $10,461, of which: i) $8,216 had been
recognized against “Other non-current assets” before the new tax law became effective, assets which, CEMEX expects to
recover through the payment of the related tax liability; and ii) $2,245 was recognized in December 2009, in connection
with the amendments to the income tax law mentioned above. In December 2010, pursuant to miscellaneous rules, the tax
authority in Mexico granted the option to defer the calculation and payment of the income tax over the difference in equity
explained above, until the subsidiary is disposed of or CEMEX eliminates the tax consolidation. As a result, CEMEX reduced
its estimated tax payable by approximately $2,911 against a credit to income taxes for the period in the statements of
operations. Tax liabilities associated with the tax loss carryforwards used in the tax consolidation of the Mexican subsidiaries
are not offset with deferred tax assets in the balance sheet. The realization of these tax assets is subject to the generation
of future tax earnings in the controlled subsidiaries that generated the tax loss carryforwards in the past. Changes in the
Parent Company’s tax payable associated with the tax consolidation in Mexico in 2012, 2011 and 2010 were as follows:
2012 2011 2010
Balance at the beginning of the year $ 12,410 10,079 10,461
Income tax received from subsidiaries 2,089 2,352 2,496
Restatement for the period 745 485 358
Payments during the period (698) (506) (325)
Effects associated with miscellaneous rules – – (2,911)
Balance at the end of the year $ 14,546 12,410 10,079
• On January 21, 2011, the Mexican tax authority notified CEMEX, S.A.B. de C.V., of a tax assessment for approximately $996
(US$77) pertaining to the tax year 2005. The tax assessment is related to the corporate income tax in connection with the
tax consolidation regime. As a result of a tax reform in 2005, the law allows the cost of goods sold to be deducted, instead
of deducting purchases. Since there were inventories as of December 31, 2004, in a transition provision, the law allowed
the inventory to be accumulated as income (thus reversing the deduction via purchases) and then be deducted from 2005
onwards as cost of goods sold. In order to compute the income resulting from the inventories in 2004, the law allowed this
income to be offset against accumulated tax losses of some of CEMEX’s subsidiaries. The authorities argued that because
of this offsetting, the right to use such losses at the consolidated level had been lost; therefore, CEMEX had to increase its
consolidated income or decrease its consolidated losses. CEMEX believes that there is no legal support for the conclusion of
the Mexican tax authority and, on March 29, 2011, CEMEX challenged the assessment before the tax court.
• On November 16, 2011, the Mexican tax authorities notified Centro Distribuidor de Cemento, S.A. de C.V. and Mexcement
Holdings, S.A. de C.V., subsidiaries of CEMEX in Mexico, of tax assessments related to direct and indirect investments in
entities considered to be preferential tax regimes, in the amount of approximately $1,251 (US$101) and approximately
$759 (US$59), respectively. In February 2012, CEMEX filed a claim against these assessments before the corresponding
courts. At this stage, CEMEX is not able to assess the likelihood of an adverse result in these proceedings.
• On December 17, 2012, the Mexican authorities published the decree of the Federation Revenues Law for the 2013 tax
year. The decree contains a transitory amnesty provision that grants tax amnesty of up to 80% of certain tax proceedings
originated before the 2007 tax period, and 100% of interest and penalties, as well as 100% of interest and penalties of tax
proceedings originated in the 2007 tax period and thereafter. CEMEX is a beneficiary of such transitory amnesty provision
in connection with several of the Mexican tax proceedings mentioned in the paragraphs above. The tax authorities must issue
the relevant rules for the implementation of such decree no later than March 2013. CEMEX awaits the publication of such
rules in order to definitively determine the final amount of taxes payable and benefits that would be obtained pursuant to the
decree. Based on CEMEX’s best estimates and current understanding of the transitory amnesty provision, CEMEX reduced
the provision accrued in prior years related to these tax proceedings and the effect is included as part of the changes of
unrecognized tax benefits during the year presented in the table above.