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Primero In Dispute With Mexican Tax Authority

by Mike Godfrey,, Washington

07 June 2016

Primero Mining Corp. has announced its intention to initiate international arbitration proceedings against the Government of Mexico in order to resolve a dispute with the Mexican tax authority over the alleged cancellation of an advanced pricing agreement (APA).

On June 2, Primero issued a Notice of Intent to submit a claim to international arbitration against Mexico under the auspices of the North American Free Trade Agreement (NAFTA) alleging "improper actions taken by the Mexican tax authority, the Servicio de Administracion Tributaria (SAT)."

"These actions have the intent of revoking legal rights previously granted to Primero and upon which Primero relied to expand its investment in Mexico," the company said.

Primero, a publicly listed Canadian company, has significant investments in Mexico, including its San Dimas gold and silver mine located in Durango, Mexico.

The dispute relates to a comprehensive 200-page legal claim served on the company's Mexican subsidiary, Primero Empresa Minera, S.A. de C.V., by SAT in February 2016, which, according to the firm, sought to "nullify" the APA issued by the tax authority in 2012. This APA confirmed the company's basis for paying taxes on realized silver prices for the years 2010 to 2014.

The company said at the time that the claim is "without merit" and that the decision to cancel the APA is unprecedented in Mexican legal history.

"The company's advisors maintain that seeking to nullify an APA undermines the function of an APA, which is to assure a taxpayer of certainty," Primero said.

"The company, and its Mexican legal and financial advisors, continue to believe that the company has filed its tax returns, and paid all applicable taxes, in compliance with Mexican tax laws," it added.

The firm also pointed out that a Mexican Supreme Court decision prevents the tax authority from collecting taxes retroactively following changes to a tax ruling.

In its latest statement, Primero accused SAT of being "neither fair nor equitable" in its actions towards the company.

"The Company believes that the SAT's actions are discriminatory against Primero as a foreign investor," it said. "As a consequence, Primero believes the Government of Mexico has failed to uphold the core values of NAFTA, including its obligation to protect Primero's foreign investment under NAFTA Chapter 11, and therefore the Company is entitled to full compensation."

TAGS: compliance | tax | investment | mining | law | Mexico | tax authority | agreements | transfer pricing | advance pricing agreement (APA) | Canada | North America

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