Fresnillo voluntarily aligns tax treatment across mining operations

Fresnillo updated the market on the tax treatment of its mining works on Monday, reporting that in 2017 the Mexican tax authorities (SAT) opened a routine audit into the 2014 tax returns of two of its underground mining subsidiaries.

The FTSE 100 company said that audit primarily related to the tax treatment of mining works, which was not explicitly dealt with in the Mexican income tax law.

Following that, in 2018 the firm and SAT agreed on the tax treatment deemed most appropriate to mining works disbursements for the year of the audit, resulting in a tax amendment which was documented through an agreement executed between SAT, Mexico’s tax ombudsman PRODECON, and Fresnillo on 30 November.

“Fresnillo has now determined it to be in the company's best interests to align its tax treatment across its underground mining operations subsidiaries with the conclusive agreement,” the board explained in a statement on Monday.

“Accordingly, Fresnillo has voluntarily elected to apply the same criteria regarding the tax treatment of mining works to all its underground mines, retrospectively for the years 2014 to 2018.”

The company said the decision had an estimated net impact on the profit and loss statement of $8m.

It said the total amended amount was $55.3m, of which $39.6mwas income tax and mining rights and $15.7m was interest and surcharges.

The principal amount was reclassified from deferred to current taxes, and had no impact on the income statement.

“This principal amount will be offset in future years by deducting depreciation from the tax base,” the board explained.

It said the total amended amount of $55.3m had been covered as $22.2m against tax receivables, with the remaining $33.1m in cash.

“These effects will be recorded in the company's results for the six months ending 30 June.”