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Venezuelan Tax Authorities Initiate Assessment against Sidor

05/29/2008 - Venezuelan tax authorities initiate a tax assessment against Sidor’s income taxes for fiscal years 2003, 2004, 2005, 2006, and 2007 regarding allegedly omitted payments totaling Venezuelan bolívares 1,438.6 million.

Following announcement of the Venezuelan government's intention to nationalize Ternium SA subsidiary Sidor and the passing of legislation to that effect, the Venezuelan tax authorities initiated a tax assessment against Sidor. The assessment involves income taxes for fiscal years 2003, 2004, 2005, 2006, and 2007 resulting in allegedly omitted payments in an aggregate principal amount of Venezuelan bolívares 1,438.6 million (US$669.1 million).
 
The tax assessment, which covers previously audited periods, alleges that Sidor improperly deducted certain payments for income tax purposes, primarily consisting of amounts paid to Ylopa - Serviços de Consultadoria, Ltd., a subsidiary of Ternium organized under the laws of Portugal, and Corporación Venezolana de Guayana, or CVG (a Venezuelan governmental entity and a shareholder of Sidor), under certain participation account agreements (contratos de cuentas en participación) entered into with Ylopa and CVG in connection with the restructuring of Sidor's financial debt in 2003. In addition, the tax assessment challenges, among other things, the adjustment of tax loss carry-forwards corresponding to prior fiscal years.
 
Under the new tax assessment, Sidor is required to amend the relevant income tax returns and pay the resulting balance, plus a penalty equal to 10% of the allegedly omitted amounts. Sidor may challenge the tax assessment and maintain the suspension of its effects.
 
Sidor said it believes that it is and has always been in compliance with all applicable Venezuelan tax laws and regulations, and that there are no grounds for any such claims. Ternium says it will defend itself vigorously against any attempt by the Venezuelan government to lower the compensation for its interest in Sidor as a result of this tax assessment, and reserves all of its rights under contracts, investment treaties, and applicable Venezuelan and international law.
 
Ternium is one of the leading steel companies in the Americas, offering a wide range of flat and long steel products. With its main operations in Mexico, Venezuela, and Argentina and 21,000 employees, Ternium had sales of approximately US$8 billion and shipments of approximately 10 million tons of finished steel products in 2007.