Tax Competitiveness of the Maquiladora Industry

18 index Tax Competitiveness of the Maquiladora Industry, a Study from the International Perspective For greater understanding of the preceding matrix, below is a list of acronyms of terms used therein. Table I.11 Acronym List of acronyms for tax matrix Description Income taxes Customs processing fees Antidumping duties Social integration program Contribution for the financing of social security IT IETU Flat rate business tax VAT Value added tax IGI Import duties IGE Export duties DTA CC || Import duties IE Export duties PIS COFINS IPI ICMS OIC IAI ICAN IT ITBI Land tax IRE Tax on real-estate transfers IUD IVS Tax on profits and dividends PM Sales and excise tax MP MYE Tax on industrialized products Tax for the free circulation of goods and services Other corporate taxes Acquisition of property tax Registration tax Tax on capital and net assets Tax on remittances sent abroad Municipal tax Other Raw materials, parts and components Machinery and equipment The promoting regimes selected analyzed for arriving at the results corresponding to each country. The scope of the analysis is based on a 10 year assessment horizon, reflected on an income statement in accordance with a "type" operation that includes the following assumptions and parameters: The analysis involves the promoting regimes of the following selected countries: Brazil, China, South Korea, Costa Rica, Mexico and Thailand • Details of results by country were developed and obtained with the same operating base and considering that all comparisons are to Mexico and specific operating parameters for promoting regimes. This approach allows for a more precise comparison between the different countries, recognizing the tax benefits of each . Operating parameters were divided. in two types, which are fundamental and additional. Both were developed by the KPMG team from figures and results included in the 2010 Competitive Alternatives prepared by KPMG International • Fundamental operating parameters are those that were considered for the income statement of the standard operation that will enable the quantification of the effects of regimes in each country within a possible scenario. The base country for developing this analysis is Mexico; accordingly, parameters are determined under the industry assumptions therein. However, elements of other markets were also considered for contextualization purposes. Parameters include operating costs, which cover operating requirements such as labor, premises and capital requirements In addition to fundamental parameters there are the additional parameters, where an initial investment in fixed assets is included. For the manufacturing industry, the analysis is based on new premises located in industrial areas Source: Prepared by KPMG in Mexico 2012 Source: Prepared by KPMG in Mexico 2012 Tax Competitiveness of the Maquiladora Industry, a Study from the International Perspective KPMG. 19 ⚫ Eleven sectors were included in the analysis of the manufacturing industry, namely: aerospace, agrifood, automotive, chemical, electronics, medical, metallurgic, pharmaceutical, plastics, precision manufacturing and telecommunications. Based on this composition, a percentage equal to the share of the sector in Mexico was applied in order to allocate a certain weight to each operating parameter • All study figures are expressed in Mexican pesos (MXN), considering Table 1.12 the exchange rate prevailing on February 28, 2012, which is equal to 12.8577 MXN per 1 USD6 • The comparison between countries and their promoting regimes is based on a income statement analysis. All details are treated on a cash flow basis, except for the initial investment in fixed assets, which are affected by the corresponding annual depreciation • Promoting regimes offer various tax incentives depending on the Fundamental Operating Parameters 000 USD application of each. Incentives include exemptions and reductions in certain areas. However, the primary analysis focus is the cost structure represented by corporate taxes and social security taxes. All other taxes and contributions were irrelevant for the purposes of our analysis Our analysis was developed considering factors that are subject to change over a defined period of time, since there might be changes in the current legislation and market conditions USD MXN 26,010,610 Costs Salaries 2,023 2,022,960 Social security % on salaries Other social benefits 599 % on salaries 599,469 % on salaries 7,707,795 Leasing of industrial 363 362,902 4,666,082 Facilities 2,343 30,123,209 Transportation (includes various items) Public utilities 374 according to each country 51 2,098 Table 1.13 Interest and depreciation Other taxes (not representative) Other operational costs Machinery and equipment Office equipment Research and development equipment Inventories Land leased (square meters) 2,342,815 374,263 according to each country 4,812,155 according to each country 651,079 26,977,219 Additional Operating Parameters 000 USD 50,637 2,098,137 US12.8577 MXN 16,100 292 268 4,374 16,100,000 292,000 267,500 4,374,000 207,008,970 3,754,448 3,439,435 56,239,580 18,374 m2 Industrial facilities (square meters) 6,867 m2 Construction cost per square meter (in pesos) 5,241 Source: Prepared by KPMG in Mexico 2012 6 Bloomberg LP (http://www.bloomberg.com/markets/currencies/

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