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Mexican IVA taxes receivable

9 Months Ended

Jul. 31, 2025

9.	Mexican IVA taxes receivable

Included in other assets are tax receivables due from the Mexican government for value-added taxes (“IVA”) paid in advance. CDM is charged IVA by vendors on certain expenditures in Mexico, which, insofar as they relate to the exportation of goods, translate into VAT amounts recoverable from the Mexican government.

As of July 31, 2025 and October 31, 2024, CDM VAT receivables, net of our estimated provision for uncollectable amounts, totaled $53.9 million (1.0 billion Mexican pesos) and $48.7 million (976.0 million Mexican pesos). Historically, CDM received VAT refund payments from the Mexican tax authorities on a timely basis. Beginning in fiscal 2014 and continuing into fiscal 2025, the tax authorities began objecting to refund requests and supporting documentation that had previously been deemed acceptable to process a refund. Additionally, they are also contesting the refunds requested attributable to VAT paid to certain suppliers that allegedly did not fulfill their own tax obligations. We believe these factors and others have contributed to delays in the processing of VAT claims by the Mexican tax authorities. Currently, we are in the process of collecting such balances primarily through regular administrative processes, but these amounts may ultimately need to be recovered through Administrative Appeals and/or other legal means.

During the first quarter of fiscal 2017, the tax authorities informed us that their internal opinion, based on the information provided by the local SAT office, considers that CDM was not properly documented relative to its declared tax structure and therefore CDM could not claim the refundable VAT balance. CDM has strong arguments and supporting documentation to sustain its declared tax structure for VAT and income tax purposes. CDM started an Administrative Appeal for the VAT related to the refund requests for the months of July, August and September of 2015 (the “2015 Appeal”) in order to assert its argument that CDM is properly documented and to therefore change the SAT’s

internal assessment. In August 2018, we received a favorable ruling from the SAT’s Legal Administration in Michoacan on the 2015 Appeal indicating that they believe CDM’s legal interpretation of its declared tax structure is indeed accurate. While favorable on this central matter of CDM’s declared tax structure, the ruling, however, still does not recognize the taxpayer’s right to a full refund for the VAT related to the months of July, August and September 2015. Therefore, in October 2018, CDM filed a substance-over-form Annulment Suit in the Federal Tax Court to recover its full refund for VAT over the subject period.

In April 2022, the Chamber specializing in exclusive resolution of the substantial matters belonging to the Federal Tax Court issued the ruling for the months of July, August and September 2015 through which it was declared that the following resolutions were resolved:

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It is recognized that CDM operates as a maquila under the authorization of the Ministry of Finance.

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It is recognized that all bank deposits corresponding to the purchase of avocados on behalf of Calavo are subject to the maquila program and it is not accruable income for purposes of Income Tax nor activities subject to VAT.

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It is recognized that VAT is recoverable, since CDM demonstrated the existence of operations carried under the maquila services.

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It is resolved that certain VAT amounts attributed to the purchase of certain packing materials are not recoverable as CDM was not the buyer on record and therefore did not pay for the materials, which approximated 6.9 million Mexican pesos (approximately $0.4 million USD).

We believe that our operations in Mexico are properly documented, and our internationally recognized tax advisors believe that there are legal grounds to prevail in collecting the corresponding VAT amounts. With assistance from our internationally recognized tax advisory firm, as of July 31, 2025, CDM filed Administrative Appeals for months for which VAT refunds have been denied by the SAT, and will continue filing such appeals for any months for which refunds are denied in the future. Therefore, we believe it is probable that the Mexican tax authorities will ultimately authorize the refund of the remaining VAT amounts.

During the second quarter of fiscal 2025, the SAT refunded 36.7 million Mexican pesos in VAT (approximately $1.9 million USD), including inflationary adjustments, relating to claims for March, April, and November 2019. These refunds were secured directly from the tax authority rather than through the court system.

Recent legal development

In August 2025, the Fifth Collegiate Circuit Court issued a ruling recognizing CDM as a maquila and directing the SAT to refund IVA balances for January through June 2013. We believe this decision provides important judicial confirmation of CDM’s maquila status, which strengthens our position to recover outstanding IVA receivables and also reinforces our defense in the 2013 Assessment described in Note 6. In August 2025, the SAT appealed this decision to the Mexican Supreme Court. We will continue to pursue collection of IVA refunds through administrative processes and, where necessary, legal remedies.