Desarrolladora Homex, S.A.B. de C.V. and Subsidiaries
Notes to restated consolidated financial statements
for the years ended December 31, 2010 and 2009
(Figures in thousands of Mexican pesos (Ps.), except as otherwise indicated)

24. Income tax, asset tax and Flat Rate Business Tax (IETU)
In accordance with Mexican tax law, the Company is subject to income tax (ISR) and Flat Rate Business Tax (“IETU”) and files its tax returns on an individual entity basis and the related tax results are combined in the accompanying consolidated financial statements. The ISR is computed taking into consideration the taxable and deductible effects of inflation, such as depreciation calculated on restated asset values. Taxable income is increased or reduced by the effects of inflation on certain monetary assets and liabilities through the inflationary component, which is similar to the gain or loss from monetary position.

The Company files ISR and IETU tax returns on an individual entity basis and the related tax results are combined in the accompanying consolidated financial statements.

On December 7, 2009 a tax reform bill was approved and published, which reformed, amended and annulled certain tax dispositions that were effective on January 1, 2010.

This tax reform bill enacted an ISR rate increase that is to be effective as follows:

a) for years 2010 to 2012, 30%;
b) for year 2013, 29%; and
c) for year 2014 and future years, 28%

In addition, certain changes to the consolidation regime are effective. However, the Company is not subject to such regime.

The IETU of the period is calculated applying the rate of 17.5% (16.5% for 2008, 17% for 2009 and 17.5% for 2010) based on income determined by cash flows less authorized credits.

The credits for the IETU are mainly composed of unamortized negative IETU base, salaries and social security contributions, and deductions from assets such as inventories and fixed assets, during the initial transition period.

The payment of IETU is required only to the extent that it exceeds the ISR for the same period. The ISR paid during the period will reduce the total IETU payable for the same period.

When the deductions exceed the accumulated income (negative IETU), no IETU is levied. The amount of the negative IETU multiplied by the applicable rate, results in an IETU credit, which can be offset against the ISR generated in the same period or against the IETU payable, if any, within the next ten years.

Based on projected tax calculations in the future it is estimated that the Company will be subject to the payment of the ISR only.

a) As of December 31, 2010, 2009 and 2008 the ISR consist of the following:



To determine deferred ISR as of December 31, 2010 and 2009, the Company applied the different tax rates that were in effect beginning in 2010, to temporary differences according to their estimated dates of reversal.

The operations in Brazil generated loss before taxes of Ps. 711,389 and taxes of Ps.28,016 and they were computed and paid under Brazilian Tax regulations.

b) The reconciliation of the statutory and effective ISR rates expressed as a percentage of income before the ISR is:



* The effect of change in the statutory rate on deferred ISR represented an additional charge in the consolidated statement of income for 2009 of Ps. 78,624.

c) At December 31, 2010 and 2009 the main items comprising the asset (liability) balance of deferred ISR are:



(1) In conformity with the Mexican Income Tax Law (MITLA) in force through December 31, 2004, the cost of sales was considered as a non-deductible expense and inventory purchases and production costs were considered as deductible items. This tax treatment in the MITLA gave rise to a temporary difference because of the difference in the book value of inventories and its corresponding tax value. Effective January 1, 2005, the MITLA considers cost of sales as a deductible item instead of inventory purchases and production costs. The MITLA established transition rules to be followed to include the December 31, 2004 inventory balance into taxable revenue. However, as result of the interpretation of the transition rules established by the MITLA, the Company did not include its inventory balance at December 31, 2004. Consequently, the Company recorded a taxable inventory as a deferred tax liability of Ps. 187,425 and Ps. 156,555 as of December 31, 2010 and 2009, respectively. This taxable inventory relates to the inventory item and tax law change described above as it is the source of income on which the Company did not pay taxes.

d) As of December 31, 2010 the tax loss carryforward expiring in the following ten years amounted to Ps. 3,099,644.

i. The asset tax, used to be a minimum income tax, was payable based on 1.25% of the average value of most assets net of certain liabilities. The balances as of December 31, 2010 and 2009 of the asset tax were Ps. 11,311 and Ps. 10,873, respectively.

ii. The loss carryforwards and recoverable IMPAC for which the deferred ISR asset and prepaid ISR, respectively, have been recognized can be recovered subject to certain conditions. Tax loss carryforwards and recoverable IMPAC for which the deferred ISR asset and prepaid ISR, respectively, have been recognized can be recovered, subject to certain conditions. The amounts as of December 31, 2010 and expiration dates are:


Additionally for its Brazilian operations the Company has accumulated tax loss carry forward that at December 31, 2010 amount Ps. 141,374. Due to the uncertainty to recover these tax losses, an allowance for the total amount was recognized as of December 31, 2010.

e) The Federal tax authority has the right to perform reviews of the taxes paid by Mexican companies for a period of five years; therefore tax years beginning with 2005 are subject to possible review.

f) The Company has taken certain positions in its annual tax returns which are classified as uncertain tax positions for financial reporting purposes. Specifically, uncertain tax positions currently outstanding relate to the Company’s interpretation of the MITLA related to the inclusion of certain debts in the calculation of the inflation adjustment, and the deduction of land by real estate developers. As of December 31, 2009, uncertain tax positions result in Ps. 421,843 in deferred tax assets which have been provided for through a full valuation allowance, and an additional current liability in the amount of Ps. 248,781. As of December 31, 2010, uncertain tax positions result in Ps. 604,139 in deferred tax assets which have been provided for through a full valuation allowance, and an additional current liability in the amount of Ps. 775,946.