building a STRONGER foundation - Cemex

For the 2010 fiscal year, CEMEX will be required to pay (at the new, 30% tax rate) 25% of the Additional Consolidation Taxes
for the period between 1999 and 2004. The remaining 75% will be payable as follows: 25% for 2011, 20% for 2012, 15% for 2013
and 15% for 2014. Additional Consolidation Taxes arising after 2004 will be taken into account in the sixth fiscal year after their
occurrence and will be payable over the succeeding five years in the same proportions (25%, 25%, 20%, 15% and 15%). Applicable
taxes payable as a result of this tax reform will be increased by inflation adjustments as required by Mexican Income Tax Law (Ley
del Impuesto Sobre la Renta). In connection with the changes in the tax consolidation regime in Mexico, as of December 31, 2009, we
recognized a liability of approximately Ps10.5 billion (approximately U.S.$913.0 million as of April 30, 2011, based on an exchange
rate of Ps11.50 to U.S.$1.00), of which approximately Ps8.2 billion (approximately U.S.$713.0 million as of April 30, 2011, based on
an exchange rate of Mexican Ps11.50 to U.S.$1.00) were recognized under “Other non-current assets” in connection with the net
liability recognized before the new tax law and that we expect to realize in connection with the payment of this tax liability; and
approximately Ps2.2 billion (approximately U.S.$191.3 million as of April 30, 2011, based on an exchange rate of Ps11.50 to
U.S.$1.00) were recognized under “Retained earnings,” considering special provisions under MFRS for the portion, according to the
new law, related to: (a) the difference between the sum of the equity of the controlled entities for tax purposes and the equity for tax
purposes of the consolidated entity; (b) dividends from the controlled entities for tax purposes to CEMEX, S.A.B. de C.V.; and
(c) other transactions among the companies included in the tax consolidation group that represented the transfer of resources within
such group.
On February 15, 2010, we filed a constitutional challenge (juicio de amparo) against this tax reform. As of June 3, 2011 we
were notified of a favorable verdict at the first stage of the trial; the Mexican tax authorities may file an appeal (recurso de revisión)
which will be reviewed by the Mexican Supreme Court.
On March 31, 2010, additional tax rules (miscelanea fiscal) were published in connection with the general tax reform approved
by the Mexican Congress in November 2009. These new rules provide certain taxpayers with benefits arising from the years 1999 to
2004.
On June 30, 2010, CEMEX paid approximately Ps325 million (approximately U.S.$28.3 million as of April 30, 2011, based on
an exchange rate of Ps11.50 to U.S.$1.00) of Additional Consolidation Tax. This first payment represents 25% of the Additional
Consolidation Tax of the “1999 to 2004” period. The remaining 75% will be paid in the following 4 years according to the proportions
mentioned above.
In December 2010, pursuant to certain additional rules, the tax authorities granted the option to defer the calculation and
payment of certain items included in the law in connection with the taxable amount for the difference between the sum of the equity of
the controlled entities for tax purposes and the equity for tax purposes of the consolidated entity. As a result, CEMEX reduced its
estimated tax payable by approximately Ps2.9 billion (approximately U.S.$252.2 million as of April 30, 2011, based on an exchange
rate of Ps11.50 to U.S.$1.00) against a credit to “Retained earnings.” In addition, considering during 2010: a) cash payments of Ps325
million (approximately U.S.$28.3 million as of April 30, 2011, based on an exchange rate of Ps11.50 to U.S.$1.00) ; b) income tax
from subsidiaries paid to the Parent Company for Ps2.4 billion (approximately U.S.$208.7 million as of April 30, 2011, based on an
exchange rate of Ps11.50 to U.S.$1.00) ; and c) other adjustments of Ps358 million (approximately U.S.$31.1 million as of April 30,
2011, based on an exchange rate of Ps11.50 to U.S.$1.00), the estimated tax payable for tax consolidation in Mexico as of
December 31, 2010 amounted to approximately Ps10.1 billion (approximately U.S.$878.3 million as of April 30, 2011, based on an
exchange rate of Ps11.50 to U.S.$1.00). In our U.S. GAAP reconciliation of our 2010 and 2009 financial statements, an income of
approximately Ps2.9 billion (U.S.$236 million) and an expense of approximately Ps2.2 billion (U.S.$171 million), respectively,
recognized under “Retained earnings” under MFRS were reclassified under U.S. GAAP to income tax revenue for the period in 2010
and income tax expense for the period in 2009.
On January 21, 2011, the Mexican tax authorities notified CEMEX, S.A.B. de C.V. of a tax assessment for approximately
Ps995.6 million (approximately U.S.$86.6 million as of April 30, 2011 based on an exchange rate of Ps11.50 to U.S.$1.00) 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, instead of deducting purchases the law allows for the cost of goods sold to be deducted, since there
were inventories as of December 31, 2004, in a transition provision the law allowed for the inventory to be accumulated as income
(thus reversing the deduction via purchases) and then 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 its
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 authority and, therefore on March 29, 2011, CEMEX challenged the assessment before the tax court.
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