1. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. MANAGING THE INTERCOMPANY BALANCES FOR TAX PURPOSES Héctor Silva Meeting - Breakfast April 21, 2010

2. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. Up to 45-60 days of balance – reasonable as compared with unrelated transactions Yearly expenses = $12,000,000 A R = 1.5 – 2.0 Million A P 2 INTERCOMPANY BALANCES

3. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 3 WHEN APPLYING SAFE HARBOR; INTERCOMPANY BALANCE < 60 DAYS Intercompany account is denominated in US Dollars Account ReceivableAccount Payable − Exchange gains/losses Taxable/deductible −Creates an inflationary adjustment − Exchange gains/losses Taxable/deductible * −Creates an inflationary adjustment * Exchange losses are deemed interests and subject to the 3/1 thin capitalization rules. Any exchange and/or inflationary adjustments is transferred through out the service fee under the Safer Harbor option.

4. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 4 WHEN APPLYING SAFE HARBOR; INTERCOMPANY BALANCE < 60 DAYS Intercompany account is denominated in MX Pesos Account ReceivableAccount Payable − No exchange differences −No inflation adjustment is allowed − No exchange differences −Creates an inflationary adjustment Exchange differences are recognized directly by the parent company in the US books.

5. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 5 WHEN APPLYING SAFE HARBOR; INTERCOMPANY BALANCE > 60 DAYS Intercompany account is denominated in US Dollars Account ReceivableAccount Payable −Could be considered as a deemed dividend for US tax purposes under section 956 tax code (US advise is recommended) Exchange differences taxable/deductible Inflationary adjustment −Exchange losses deductible (deemed interest for 3/1 this capitalization rules) Inflationary adjustment

6. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 6 WHEN APPLYING SAFE HARBOR; INTERCOMPANY BALANCE > 60 DAYS Intercompany account is denominated in MX Pesos Account ReceivableAccount Payable Deemed dividend No Exchange differences No inflationary adjustments No exchange differences Inflationary adjustment

7. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 7 WHEN APPLYING TRANSFER PRICING STUDY; INTERCOMPANY BALANCE < 60 DAYS Intercompany account is denominated in US Dollars Account ReceivableAccount Payable Exchange differences are taxable/deductible Inflationary effects Exchange differences are taxable/deductible (deemed interest for 3/1 thin capitalization rule) Inflationary effects

8. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 7 WHEN APPLYING TRANSFER PRICING STUDY; INTERCOMPANY BALANCE < 60 DAYS Intercompany account is denominated in MX Pesos Account ReceivableAccount Payable No exchange differences No Inflationary adjustment is allowed No Exchange differences Inflationary adjustment

9. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 8 WHEN APPLYING TRANSFER PRICING STUDY; INTERCOMPANY BALANCE > 60 DAYS Intercompany account is denominated in US Dollars Account ReceivableAccount Payable Mark –up need to be adjusted to eliminate non-arm’s length aging Exchange differences and inflationary effects are reimbursed Deemed dividend for US tax purposes Mark-up need to be adjusted to eliminate non-arm’s length aging Exchange differences and inflationary effects are reimbursed See 3/1 thin capitalization effect Be ware of the adjustment not to create a taxable income with a possible disallowed deduction

10. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 8 WHEN APPLYING TRANSFER PRICING STUDY; INTERCOMPANY BALANCE > 60 DAYS Intercompany account is denominated in MX Pesos Account ReceivableAccount Payable Mark –up need to be adjusted to eliminate non-arm’s length aging Inflationary effects are reimbursed Deemed dividend for US tax purposes Mark-up need to be adjusted to eliminate non-arm’s length aging Inflationary effects are reimbursed

11. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. INTERCOMPANY BALANCES Reducing intercompany balances Accounts Receivable – Distribute a dividend - Measure US tax implications - Identify Flat Tax impact Accounts Payable – Capitalization of liabilities 9

12. ©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. Héctor Silva hsilva@deloittemx.com +52 (664) 622 7840