building a STRONGER foundation - Cemex

Tariffs
The following is a discussion of tariffs on imported cement in our major markets.
Mexico. Mexican tariffs on imported goods vary by product and have historically been as high as 100%. In recent years, import
tariffs have been substantially reduced and currently range from none at all for raw materials to over 20% for finished products, with
an average weighted tariff of approximately 3.7%. As a result of the North American Free Trade Agreement, or NAFTA, as of
January 1, 1998, the tariff on cement imported into Mexico from the United States or Canada was eliminated. However, a tariff in the
range of 7% ad valorem will continue to be imposed on cement produced in all other countries unless tariff reduction treaties are
implemented or the Mexican government unilaterally reduces that tariff. While the reduction in tariffs could lead to increased
competition from imports in our Mexican markets, we anticipate that the cost of transportation from most producers outside Mexico to
central Mexico, the region of highest demand, will remain a barrier to entry.
United States. There are no tariffs on cement imported into the United States from any country, except Cuba and North Korea.
Europe. Member countries of the European Union are subject to the uniform European Union commercial policy. There is no
tariff on cement imported into a country that is a member of the European Union from another member country or on cement exported
from a European Union country to another member country. For cement imported into a member country from a non-member country,
the tariff is currently 1.7% of the customs value. Any country with preferential treatment with the European Union is subject to the
same tariffs as members of the European Union. Most Eastern European producers exporting cement into European Union countries
currently pay no tariff.
Tax Matters
Mexico. Pursuant to amendments to the Mexican Income Tax Law (Ley del Impuesto sobre la Renta), which became effective
on January 1, 2005, Mexican companies with direct or indirect investments in entities incorporated in foreign countries whose income
tax liability in those countries is less than 75% of the income tax that would be payable in Mexico will be required to pay taxes in
Mexico on passive income, such as dividends, royalties, interest, capital gains and rental fees obtained by such foreign entities, except
for income derived from entrepreneurial activities in such countries, which is not subject to tax under these amendments. We filed two
motions in the Mexican federal courts challenging the constitutionality of the amendments. Although we obtained a favorable ruling
from the lower Mexican federal court, on September 9, 2008, the Mexican Supreme Court on appeal ruled against our constitutional
challenge of the controlled foreign corporation tax rules in effect in Mexico for tax years 2005 to 2007. Since the Mexican Supreme
Court’s decision does not pertain to an amount of taxes due or other tax obligations, we will self-assess any taxes due through the
submission of amended tax returns. We have not yet determined the amount of tax or the periods affected, but the amount could be
material. If the Mexican tax authorities do not agree with our self-assessment of the taxes due for past periods, they may assess
additional amounts of taxes past due, which could be material and may impact our cash flows.
The Mexican Congress approved several amendments to the Mexican Asset Tax Law (Ley del Impuesto al Activo) that came
into effect on January 1, 2007. As a result of such amendments, all Mexican corporations, including us, were no longer allowed to
deduct liabilities from calculation of the asset tax. We believed that the Asset Tax Law, as amended, was against the Mexican
Constitution. We challenged the Asset Tax Law through appropriate constitutional action (juicio de amparo), and the Mexican
Supreme Court ruled that the reform did not violate the Mexican Constitution. In addition, the Mexican Supreme Court ordered the
lower courts to resolve all pending proceedings based upon criteria provided by the Mexican Supreme Court. However, we will not be
affected by this resolution since we have already calculated and paid the applicable asset tax in accordance with the Mexican Asset
Tax Law.
The asset tax was imposed at a rate of 1.25% on the value of most of the assets of a Mexican corporation. The asset tax was
“complementary” to the corporate income tax (impuesto sobre la renta) and, therefore, was payable only to the extent it exceeded
payable income tax.
In 2008, the Asset Tax Law was abolished and a new applicable to all Mexican corporations was enacted, known as the
Impuesto Empresarial a Tasa Única (Single Rate Corporate Tax), or IETU, which is a form of alternative minimum tax.
During November 2009, the Mexican Congress approved a general tax reform, effective as of January 1, 2010. Specifically, the
tax reform requires CEMEX to retroactively pay taxes (at current rates) on items in past years that were eliminated in consolidation or
that reduced consolidated taxable income (“Additional Consolidation Taxes”). This tax reform will require CEMEX to pay taxes on
certain previously exempt intercompany dividends, certain other special tax items, and operating losses generated by members of the
consolidated tax group not recovered by the individual company generating such losses within the succeeding 10-year period, which
may have an adverse effect on our cash flow, financial condition and net income. The Additional Consolidation Taxes must be paid
over a five-year time period. This tax reform also increases the statutory income tax rate from 28% to 30% for the years 2010 to 2012,
29% for 2013, and 28% for 2014 and future years.
72