building a STRONGER foundation - Cemex

United States. As of the date of this annual report, the Internal Revenue Service (“IRS”) has issued various Notices of Proposed
Adjustment (“NOPAs”) for the years 2005 through 2007 proposing a number of adjustments. CEMEX has requested the opportunity
to discuss and negotiate these with the IRS field team before they are finalized as formal Revenue Agent Reports. CEMEX anticipates
that this process of discussion and negotiation, together with subsequent administrative and legal processes that CEMEX may avail
itself of if discussion and negotiation do not produce an acceptable settlement, may take an extended period of time, and management
is uncertain that these issues will be settled in the next twelve months. CEMEX believes it has adequately reserved for its uncertain tax
positions; however, there can be no assurance that the outcome of the IRS negotiations will not require further provisions for taxes.
Colombia. On November 10, 2010, the Colombian Tax Authority (Dirección de Impuestos) notified CEMEX Colombia, S.A.,
or CEMEX Colombia, of a special proceeding (requerimiento especial) in which the Colombian Tax Authority rejected certain tax
losses taken by CEMEX Colombia in its 2008 year-end tax return. In addition, the Colombian Tax Authority assessed an increase in
taxes to be paid by CEMEX Colombia in the amount of approximately $43 billion Colombian Pesos (approximately U.S.$24.3 million
as of April 30, 2011, based on an exchange rate of 1,768.19 Colombian Pesos to U.S.$1.00) and imposed a penalty in the amount of
approximately $69 billion Colombian Pesos (approximately U.S.$39.0 million as of April 30, 2011, based on an exchange rate of
1,768.19 Colombian Pesos to U.S.$1.00). The Colombian Tax Authority argues that CEMEX Colombia is limited in its use of prior
year tax losses to 25 percent of such losses per subsequent year. We believe that the tax provision that limits the use of prior year tax
losses does not apply in the case of CEMEX Colombia because the applicable tax law was repealed in 2006. Furthermore, we believe
that the Colombian Tax Authority is no longer able to review the 2008 tax return because the time to review such returns has already
expired pursuant to Colombian law. In February 2011, CEMEX Colombia presented its arguments to the Colombian Tax Authority.
The Colombian Tax Authority has six months from the time CEMEX Colombia presented such arguments to send a “Liquidación
Oficial,” or final determination, that CEMEX may appeal, if necessary. At this stage, we are not able to assess the likelihood of an
adverse result or potential damages which could be borne by CEMEX Colombia.
On April 1, 2011, the Colombian Tax Authority notified CEMEX Colombia of a special proceeding (requerimiento especial) in
which the Colombian Tax Authority rejected certain deductions taken in its 2009 year-end tax return. The Colombian Tax Authority
seeks to increase the due income tax in $89.9 billion Colombian Pesos (approximately U.S.$50.8 million as of April 30, 2011, based
on an exchange rate of 1,768.19 Colombian Pesos to U.S.$1.00) and to impose an inaccuracy penalty of $143.9 billion Colombian
Pesos (approximately U.S.$81.4 million as of April 30, 2011, based on an exchange rate of 1,768.19 Colombian Pesos to U.S.$1.00).
The Colombian Tax Authority argues that certain expenses are not deductible for fiscal purposes because they are not linked to direct
revenues recorded in the same fiscal year, without taking into consideration that future revenue will be taxed with income tax in
Colombia. CEMEX Colombia plans to respond to the proceeding notice on or before July 1, 2011. Afterwards, the Colombian Tax
Authority has six months to send a “Liquidación Oficial,” or final determination, that CEMEX may appeal, if necessary. At this stage,
we are not able to assess the likelihood of an adverse result or potential damages which could be borne by CEMEX Colombia.
Other Legal Proceedings
Expropriation of CEMEX Venezuela and ICSID Arbitration. On August 18, 2008, Venezuelan officials took physical control of
the facilities of CEMEX Venezuela, following the issuance of several governmental decrees purporting to authorize the takeover by
the government of Venezuela of all of CEMEX Venezuela’s assets, shares and business. Around the same time, the Venezuelan
government removed the board of directors of CEMEX Venezuela and replaced its senior management. Venezuela has paid no
compensation to CEMEX Venezuela’s shareholders for such action. On October 16, 2008, CEMEX Caracas, which held a 75.7%
interest in CEMEX Venezuela, filed a request for arbitration against the government of Venezuela before the ICSID seeking relief for
the expropriation of their interest in CEMEX Venezuela. In the ICSID proceedings against Venezuela, CEMEX Caracas is seeking:
(a) a declaration that the government of Venezuela is in breach of its obligations under a bilateral investment treaty between the
Netherlands and Venezuela (the “Treaty”), the Venezuelan Foreign Investment Law and customary international law; (b) an order that
the government of Venezuela restore to CEMEX Caracas their interest in, and control over, CEMEX Venezuela; (c) in the alternative,
an order that the government of Venezuela pay CEMEX Caracas full compensation with respect to its breaches of the Treaty, the
Venezuelan Foreign Investment Law and customary international law, in an amount to be determined in the arbitration, together with
interest at a rate not less than LIBOR, compounded until the time of payment; and (d) an order that the government of Venezuela pay
all costs of and associated with the arbitration, including CEMEX Caracas’s legal fees, experts’ fees, administrative fees and the fees
and expenses of the arbitral tribunal. The ICSID Tribunal was constituted on July 6, 2009. On July 27, 2010, the arbitral tribunal heard
arguments on the jurisdictional objections raised by the Republic of Venezuela and issued its decision in favor of jurisdiction on
December 30, 2010. Briefing in the merits phase of the arbitration is ongoing, and a hearing on the merits is scheduled for the first
quarter of 2012. We are unable at this preliminary stage to estimate the likely range of potential recovery or to determine what
position Venezuela will take in these proceedings, the nature of the award that may be issued by the ICSID Tribunal or the likely
extent of collection of any possible monetary award issued to CEMEX Caracas.
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