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losses does not apply in the case of CEMEX Colombia because the applicable tax law was repealed in 2006.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