Mexican Tax Reform

Mexican Tax Reform

John McLees, Manuel Padron, Mounia Benabdallah

January 23, 2014Chicago, Illinois

U.S. Mexico Chamber of Commerce

Mexico’s Fiscal and Legal Reforms 2014

Tax Reform Overview

–Proposed on September 9, 2013– Contemplated by the 2013 pact among the major political

parties– Little advance notice of the terms of the reform

–Government agreed to significant changes during the legislative process, for example:– On the form of the new tax on dividends– On the terms of some of the new limitations on

deductions– On the proposed new Maquiladora tax rules

–Effective date – generally January 1, 2014–Supplemented at the end of 2013 by:

– Presidential Decree, Miscellaneous Regulations

Repeal of the “Single Rate Tax” (the “IETU “)

–The repeal reduces the tax burden for companies in Mexico and greatly simplifies tax compliance & planning – IETU was calculated on a cash flow basis

– On a broader tax base – Including the gross sales price on a sale of assets– With no deduction for related party royalties or most

interest payments– IETU was paid to the extent it exceeded the income tax

–No IETU implications in 2014 or future years–What about the future? Will Mexico resort to some other

minimum tax?– The asset tax applied from 1989 to 2007– The single rate tax (IETU) applied from 2008 through

2012

Repeal of Cash Deposit Tax (the “IDE”)

–IDE only applied to deposits of cash money (bills and coins)– e.g. by retailers and restaurants

–IDE functioned as a control tax – directed at the informal economy– Was recoverable by a taxpayer that satisfied its other

tax liabilities.–IDE replaced by new reporting obligations for Banks

– Regarding companies and individual depositing more than 15,000 pesos (US $ 1,130) per month in cash money

New Excise Taxes (“IEPS”)

–One peso per liter tax on sales of sweetened beverages. – Also applies to extracts, powders, and syrups that

contain all different types of added sugars (monosaccharaides, disaccharides, and polysaccharides with caloric content)

–8% tax on sales of non-basic food with high caloric content –Tax on sales of fossil fuels

– Rates based on CO2 level.–Tax on sales of pesticides

– Rates based on toxicity.

New Royalties Taxes on Mining Operations

– 0.5% on gross revenue from gold, silver and platinum mining

– 7.5% over “extended” profit from any mining activity: Income minus certain deductions Including amortization of exploration and development

expenses No deduction for interest or other depreciation No annual inflation adjustment

Out of that 7.5%: 80% goes to a fund for the regional sustainable

development of mining in States and Municipalities 62.5% for Municipalities and 37.5% for States

20% goes to the Federal government

Changes in Tax Rates

– VAT –16% rate extended to the entire country

– Repealed the lower 11% rate in the border area

– Individual income tax –Increased for those with income of more than 500,000

pesos (approximately US$ 38,500) per year– Up to 35% on income higher than 3 million pesos

(approximately US$ 231,000) per year

– Corporate income tax –Remains at 30%

– Had been scheduled to go down to 29% and then 28%–Tax rate for foreign parties on net income from sale of

shares – increased to 35%

New Income Tax Law - Overview

– Section numbers changed from prior income tax law– Changes focus on:– Limiting some deductions for companies and individuals– Increasing the tax burden on international operations

companies – On corporate distributions – On other payments from related parties in Mexico– On Maquiladora operations

– Attempting to place new conditions on benefiting from tax treaties

– Eliminating or limiting application of special tax regimes

Individual Income Tax

– Gain on the sale of publicly traded shares –Now taxed at 10%

– Exemption eliminated– Limitations on total personal deductions

–Limited to the lesser of 10% on total income or 4 yearly minimum wages.

–All payments must be done through the financial system to be deductible

–Practical aspects– Taxpayers from the upper tier claim 87% of the

personal deductions.– Individuals who are not obliged to file their annual tax

return often do not claim their personal deductions.

Corporate Income Tax – Overview

– New income tax law maintains basic structure of the corporate income tax–Tax imposed on net income – generally determined on an

accrual basis– Deductions are subject to technical requirements– Deductions of payments to foreign parties

– Subject to special scrutiny (especially payments for services)

– Thin cap rules limit deduction of interest to related parties

–Transfer pricing is a major focus (re amount of income and deductions in related party transactions)– Mexico has generally applied OECD principles– Increasing focus on base erosion and profit shifting


– No change in the adjustments for inflation and for currency gains & losses–All amounts with significance across years are adjusted

for inflation–Imputed inflationary income (loss) is recognized each

year for taxpayers with net liabilities (net financial assets)–Currency gains and losses also recognized each year


– Additional tax continues to be imposed on the distributing company on some corporate distributions

– And on some funds transfers from foreign company’s branch/PE to its home office

– Applies at 42% to corporate distributions treated as dividends (and branch remittances treated as payments of distributable profits) in excess the CUFIN of the company/branch

= 35% on grossed up amount of that excess

– CUFIN = cumulative taxable income, reduced by:

– income tax paid

– nondeductible expenses

– prior distributions and

– tax losses

– Note on timing – current year after-tax income does not increase CUFIN until the end of the year

Corporate Income Tax – Income Recognition

– Change in the tax treatment of installment sales–Income recognition now based on accrual–Repealed the option for deferring income recognition

to time payments due or payable

Corporate Income Tax – CFC Rules (“REFIPRES”)

– New categories of income of a foreign subsidiary on which the Mexican parent is subject to tax on a current basis–Selling / buying real estate.–Granting the temporary use of an asset.

– Immediate deduction of investments in fixed assets is eliminated–Must now use normal depreciation schedules in the

income tax law–Exception for developers

– Still can deduct the cost of land for construction projects in the year of acquisition

Corporate Income Tax – Deductions

Food stamps – Requirement for Deductions Granted via electronic cards approved by tax authorities.

Corporate Income Tax – Deductions

New requirements for certain deductible expenses

Mining industry – Amortization of Expenses Exploration expenses now deductible in a 10 year period. No longer deductible in the year in which they are made.

Corporate Income Tax – New Limits on Deductions

Vehicles

For acquisition cost – 130,000 pesos (down from 175,000)

For rental payments – 200 pesos daily (down from __)

Payments made by the employer on behalf of workers are no longer deductible.

Social Security Payments

Payments of Workers’ Tax Exempt Income

Now only 47% deductible (53% deductible if the employer

continues to provide the same exempt fringe benefits as

in the prior year).

Contributions to Pension Funds

Now only 47% deductible (53% deductible if the employer

does not cut pension contributions from the prior year).


– Article 28. XXXI – Payments of interest, royalties or technical assistance to a related foreign party (when one party controls the other)–Are now nondeductible (inspired by the BEPS initiatives):

– If payment is not considered as existing or not considered as taxable income in the other jurisdiction [e.g. payments from a disregarded Mexican entity to its parent company],

or – If the recipient is a transparent entity, unless

– (i) its shareholders [its direct shareholders? all of them?] are subject to taxation

and – (ii) the payment is an arm’s length amount


– Article 28. XXIX – Payments to a foreign party that deducts that same payment–Are now nondeductible in Mexico

– Unless the foreign party is subject to tax on the related income (if any) currently or in the following year.– This exception provides protection when a US

company deducts the expenses of a Mexican subsidiary that is a disregarded entity

–Provision designed to avoid “double dipping” (again inspired by the BEPS initiatives)– [when would the limitation apply?]


– Example of the application of the new rules

– Under second rule (XXIX) Payment 4 would be deductible – because US Parent includes the income (and deductions) of Mexican sub in determining its taxable income in the U.S.

– BUT – Under the first rule (XXXI), payment 4 appears NOT to be deductible without any exception – because payment is treated “not existing” under the US check the box rules–Result – double taxation


–Constitutional issues–Are these limitations on deductions Article 28. XXIX and

Article 28. XXXI constitutional and thus valid?– They make the deduction depend on the tax treatment of

the recipient in the foreign jurisdiction– That should be irrelevant under the under the

“proportionality” principal in Mexico:– Providing that a taxpayer must contribute based on its

income, profit, return or sign of wealth, consistent with its ability to contribute

–These are among the potential constitutional challenges to several provisions in the new law.

–First deadline for filing constitutional challenges– February 14, 2014

Corporate Income Tax – Tax Consolidation

– Existing tax consolidation regime is eliminated–Must recognize income deferred under consolidation

and not already recognized– Additional tax computed in the 2013 tax return– Additional tax paid over 5 years (2014-2018).

– New optional consolidation regime starting in 2015–For those electing by 2/15/14 –Income tax can be deferred for up to 3 years. –Stock ownership requirement: 80%.–Cannot include maquiladoras–Pre-2014 losses cannot be taken into account–No deferral of tax imposed on dividends paid in excess

of CUFIN

Corporate Income Tax – Special Tax Regimes

–New limitations on simplified tax regime for agricultural activities –Taxpayers with agricultural activities keep some of the

benefits of simplified regime– Cash flow instead of accrual for recognizing revenues and

deductions– Some tax exemptions– Tax rate reduction to 21% for first 400 million pesos (US

$30 million) in taxable income

─As before, joint responsibility only if the Mexican company: ─Is not registered, or─Fails to provide notice of a change of domicile, or─Does not having accounting records, or─Hass destroyed its accounting records.

─New law has clarified that the extent of joint liability of a shareholder:

─Multiply tax liability by its %age participation in the share capital of the company.

Corporate Income Tax – Joint Responsibility of Shareholders

Corporate Income Tax – Taxation of Foreign Parties

– Overview - overall structure is generally unchanged under the new law –Withholding taxes imposed at varying rates on payment to

foreign parties– Higher withholding tax on payments to parties in low-tax

jurisdictions without a treaty –PE concept under domestic law applies to impose tax on

net income of a foreign party– More aggressive than Mexico’s treaty definitions

– For companies holding stocks of goods in Mexico– For companies with independent agents in Mexico

–Heavy reliance on tax treaties – To avoid withholding tax on payments for services– To obtain more predictable and less onerous PE rules


– Changes in taxation of Foreign Pension Fund investments in Mexico– Changes in exemption for gain from the sale real property

leased to third in Mexico

– Required lease period before sale is now 4 years (up from 1 year).

– Tax registration obligation eliminated

– As before

– Remaining requirements: foreign pension fund must be:

– Effective beneficiary of the exempt income and

– Exempt from income tax in its country of residency.

– Property registered as inventory will not be covered by the exemption.


– Foreign-party sales (and other transfers) of MexCo shares–Still are generally taxable, even under tax treaties–Tax rate increased to 35% on net gain if the foreign party

elects to be subject to tax on net gain on transfer of shares–Default position (absent election) – foreign seller subject to

tax at 25% on the gross sale price– Collected as withholding tax if the buyer is Mexican or PE

of nonresident company– Mexican company can be liable for the tax

–Election to be taxed on net gain (if any) requires seller to take several steps in a timely fashion, including:– Appointment of a representative in Mexico

– Note US-Mexico tax treaty provisions for avoiding tax on transfers in an internal restructuring

Corporate Income Tax – New Tax on Dividends

– New dividend withholding tax –10% withholding tax on dividend payments to non-

resident shareholders or to individuals –Applies to dividends distributed after 12/31/2013, with

exceptions– Increases effective tax rate to 37% on distributed earnings

– e.g. (30% x 100) + (10% x 70) = 37%–Withholding tax reduced under tax treaties:

– To as low as zero under some treaties: – U.S. treaty (for an 80% shareholder)– Dutch treaty (when the participation exemption

applies in the Netherlands)– To a minimum of 8% under the Luxembourg treaty


– Exemptions from the new dividend withholding tax –Dividends paid from CUFIN accumulated as of December

31, 2013 – Important condition: Must keep records of cumulative

undistributed CUFIN as of December 31, 2013–What about distribution of book retained earnings in

excess of CUFIN as of the end of 2013?– Government position – no exemption– Statutory language could support an exemption

–What about dividends paid from a Mexican subsidiary to a Mexican holding company in 2014?– Is sub’s 2013 CUFIN included in 2013 CUFIN of the

holding company (contrary to the normal rule)?– Yes – under Miscellaneous rule issued in December

Corporate Income Tax – New Tax on Branch Transfers

– New tax on branch distributions– 10% tax on distributions (i.e. remittances) from a branch or

other permanent establishment to the company’s home office

–Applies to transfer of funds from PE to the home office that are treated as a transfer of distributable profits– Also applies on remittances from one PE to another– Exemption for remittances out of the accumulated CUFIN

of the PE as of 12/31/13 (similar to exemption for dividends)

–Do tax treaties protect taxpayers from this tax?– How do the permanent establishment and business

profits articles apply?– What about the nondiscrimination articles?

New Authority to Limit Enjoyment of Treaty Benefits

– Authorities can now require a foreign party relying on the treaty to file a document (under oath) establishing the double tax effect in the absence of a treaty

– For a withholding tax issue – getting a lower with/holding tax rate under a tax treaty–Practical issue for Mexican party making the payment

– Mexican party needs to make sure that certification is on file – To avoid obligation to pay additional tax not withheld– Based on what information if payment is to a third party?


– For a PE issue –relying on narrower PE definition in a tax treaty–Practical issue for a Mexican party paying a foreign party

– IF the foreign party has a PE, the Mexican party’s deduction will depend on getting a Mexican invoice from the foreign party– Mexican party needs to make sure that the certification is

on file – If it wants rely on avoiding a PE under a treaty

definition – to avoid need to get Mexican invoice from a foreign company to get a deduction for its payment


– Will authorities use the new authority to try to limit benefits granted by Mexico’s tax treaties?–Would that be valid / legal / constitutional in Mexico?–Would the new authority include requiring such a certification

in the case of dividend payment?– Note additional grounds for challenging the validity of

protection under Mexico-Dutch treaty– Provision in the protocol prohibiting Mexico from taxing

dividends subject to a participation exemption in the Netherlands


– Taking advantage of the Dutch tax treaty to avoid Mexican withholding tax on dividends (case 1)–For a MexCo owned by a Luxembourg company (common

ownership structure for maquiladora companies) – Objective: to avoid 8% tax on dividends under the

Luxembourg treaty– Option 1 – Move place of effective management of LuxCo

to the Netherlands (and meet strict substance rules) – LuxCo treated as Dutch resident and not Lux resident

under the Dutch-Lux tax treaty and Dutch law– Option 2 – Cross Border Conversion (of LuxCo into a

DutchCo) using EU Directives – Option 3 – Cross Border Merger (LuxCo into a separate

DutchCo) using EU Directives (taxable in Mexico, possible exit tax in Lux.)


– Taking advantage of the Dutch tax treaty to avoid Mexican withholding tax on dividends (case 2)–For a MexCo owned by disregarded US LLC

– Objective: to minimize risk of denial of treaty benefits if required to show the avoidance of double taxation.– Question – does new authority to question that apply

to dividends (it that an “operacion”)?– Cause Mexico-Netherlands tax treaty to apply by

moving place of effective management of the LLC to Netherlands (and meet strict substance rules) – LLC treated as resident of the Netherlands under the

Dutch-Mexico tax treaty and Dutch law– Special protection of dividends from Mexico withholding

under the Dutch-Mexico treaty

Investing Through the Netherlands

– Favorable bilateral tax treaty allows for: 5% (or even 0%) wh/tax rate on dividends 5% or 10% wh/tax on interest 10% wh/tax on royalties capital gains tax exemption for corporate

reorganizations

– Bilateral Investment Treaty – Netherlands Participation Exemption regime – Netherlands – favorable outbound structures

(e.g. tax treaty with the U.S.) – Importance of Substance

36

US Parent

Dutch Resident Company

Active

Mexican subsidiary

Maquiladora Tax Regime – Overview of Changes

– Special lower income tax rate – repealed– 2003 Presidential Decree on maquiladora taxation revoked– Maquiladoras now subject to the regular 30% rate– Remaining income tax benefits for maquiladoras:– Special PE exemption for foreign principals in consignment

manufacturing arrangements with maquiladoras – Special exemption from the new limit on deductions for

compensation that is tax-free to the employees– New VAT rules for: – Avoiding VAT payments on temporary importation of goods

– Will be subject to certification requirements in 2015– Avoiding VAT on sales of temporarily imported goods to the

maquiladora – also will depend on certification

Maquiladora Tax Regime – Special PE Exemption

– New requirements for getting a PE exemption for a foreign principal in a consignment manufacturing arrangement

– More limited choices on how to qualify for that exemption– Can no longer rely on getting a transfer pricing study

demonstrating OECD pricing + 1% of M&E made available on free bailment

– Must reach safe harbor threshold for taxable income

or obtain an Advance Pricing Agreement (an “APA”)– Taxable income safe harbor unchanged:

The greater of

6.5% of the maquiladora’s operating costs or

6.9% of value of all assets in use in Mexico– Standards for issuing an APA are to be developed

What about taking into account US-owned assets?


– New requirements for getting a PE exemption for a foreign principal (cont’d)

– Impact of new limited choices to qualify – either safe harbor for taxable income or maquiladora APA– Satisfying safe harbor will often require transfer price

unacceptable for principals in countries outside US– Mexico’s announced APA standards would pose the

same problem– Solutions?

– Try to get a bilateral APA to support PE exemption ?– Avoid the need for a special PE exemption

– By transferring the M&E to the maquiladora?– By abandoning consignment manufacturing (and

going to a buy sell model)?


– New requirements for getting a PE exemption for a foreign principal (cont’d)

– Plus new requirements added to the law as conditions for qualifying for that exemption – Expressed as a new definition of maquiladora operation

for tax purposes– Re activities that a maquiladora may undertake

Income from “productive activity” must come from

the maquiladora operation (still being clarified)– Re ownership and prior ownership of machinery and

equipment used in Mexico

with a new two-year grandfather clause for certain

maquiladoras with longstanding consignment

operations (previously unlimited)

New Conditions for Getting the Maquiladora PE Exemption

41

Previous Rules (in Maquiladora Decree) Current Rules (in the New Income Tax Law)

I. Temporarily Imported Inventories Generally to be owned by the foreign

resident Can be temporarily imported Return abroad, including virtually

I. Temporarily Imported Inventories (Same)

(Same) (Same)

II. Transformation or repair activities Required on temporarily imported

inventories

II. Transformation or repair activities (Same) Includes product development

III. Activities of the maquiladoraPossible to have maquila production , non-maquila production and other non-maquila activities in the maquiladora company

III. New Limit on Activities of the maquiladora All income from “productive

activities” shall be derive from the maquila operation

Further clarification required – a practical problem

New Conditions for Getting Maquiladora PE Exemption

42

Previous Rules (in Maquiladora Decree) Current Rules (in the New Income Tax Law)

IV. M&E – ownership & prior ownershipAt least 30% needed to be owned by foreign resident and not previously owned by maquiladora or Mexican related partyAny or all of the remaining 70% could be owned by the Maquila Question on rules re prior ownership on foreign owned M&E in addition to that satisfying the 30% minimumGrandfather provision ( exemption for maquiladoras complying with Article 216 BIS as of 12/31/2009) – exemption applied indefinitely

IV. M&E– ownership & prior ownership(Same)

(Same)

(Same)

New grandfather provision under 12/13 Decree (exemption for maquiladoras complying with Article 216 BIS as of 12/31/2009) only applies through December 31, 2015

New M&E Based Conditions for Getting the PE Exemption

43

POSSIBLE CONSTITUTIONAL CHALLENGES Retroactive application of a legal provision

Unfavorable retroactive effect exists when vested rights are deprived to a given company or individual

Article 181 - IV of the ITL is contrary to the Constitution, as it affects situations that happened under the terms of the previous text of the IMMEX Decree and the ITL

Violation to the Constitutional Principle of Equitable Application of the Law The equitable principle refers to the equal protection right (i.e. non-

discrimination) Violation of the principle of "Competitiveness" addressed in the Mexican Constitution

New principle adopted by the Mexican Constitution Necessary to demonstrate lack of competitiveness as a result of the new legal

provisions Violation of Fundamental Rights

Violation to the rights to have a net worth, coped with the violation of a retroactive application of the Law

Maquiladora Tax Regime – PE Exemption for “Shelters”

− Third party (i.e. unaffiliated) maquiladoras (commonly called “shelters”) are an important altenative

− Consignment operations with a shelter company require a special PE exemption for the foreign company

− Not commercially acceptable to rely on safe harbor or maquiladora APA to avoid a PE in a third-party situation

− Solution has been an absolute PE exemption for a foreign principal dealing with a shelter (a third party maquiladora)

− New limits on that solution under the new income tax law− A foreign company can only benefit from that absolute PE

exemption for four years− Measured from later of 1/1/14 or date maquila begins

manufacturing operations for the foreign company− After that, what? Establish consignment operations with

an affiliated maquiladora? or . . . . . . . .

Maquiladora Tax Regime – Compensation Deductions

– Compensation that is tax-free to the employees –New income tax law limits deductions to 53% of payments

of such compensation (47% if the amount of such compensation has been reduced from the prior year)

– Note – For a maquiladora that elects the safe harbor:– The limit on deductions does not affect its taxable income

– It must meet a fixed taxable income threshold– Denial of deductions just reduces the amount it needs to

receive for its processing services– Presidential Decree of December 2013 provides:

–Special exemption for maquiladoras from new limitation on deductions for compensation that is tax free to the employee – Important for a maquiladora getting and APA

–Starting 1/1/15, VAT is payable on temporary imports of materials, components, machinery and equipment– Will also apply to auto manufacturers’ imports into their

fiscal deposit regimes– New credit mechanism established to avoid cash

payment of VAT, only for companies satisfying new certification requirements– Certification requirements published on January 2– Other trade benefits also available from certification

–Starting 1/1/15,VAT will also be payable on foreign party sales of temporarily imported goods to a maquiladora– Immediate credit for a maquila that gets the certification

–Law amended to eliminate supplier obligation to withhold VAT on sales to a maquiladora

Maquiladora Tax Regime – Value Added Tax

Certification to avoid payment of VAT and IEPS in temporary importations

Certification Rules – VAT and IEPS

Three categories: Application filed online with the company’s advanced electronic

signature

– 40 days to issue certification


–Cannot request certification within: 6 months when not complying with infrastructure requirements

during the certification procedure 2 years when granted certification is cancelled


Category AAA

Same as Category A, plus: •VAT refund in 15 days•Certification valid for 2 years•No audit in 30 days for self-assessment•Invitation letter prior an audit

Category AA

• Mechanism of tax credit for VAT/IEPS to be paid upon temporary importations

• VAT refund in 20 days

• Certification valid for 1 year

Category A

Benefits

–Requirements category A:– Inventory control system

– Obtain a favorable opinion on tax compliance from Hacienda

– Not be in the list of non-compliant companies, published by Hacienda

– Have valid digital seals issued by Hacienda

– All employees must be registered in Social Security

– Evidence that the value of finished goods returned equal at least 60% (80% for sensible goods) of value of temporarily imported materials

– Strict compliance with other tax, customs, IMMEX and labor obligations


–Additional requirements category AA:

– 40% of Mexican operations are made with tax-compliant service providers / suppliers

– More than 5 years under current regime or having at least 1,000 employees or M&E with a value of more than 50 million pesos (approx. 4 million dollars)

– No tax assessments in the past 12 months or evidence that the tax assessment has already been paid

– No negative resolutions of VAT refunds requested in the past 12 months


–Additional requirements category AAA:

– 70% of Mexican operations are made with tax-compliant service providers / suppliers

– More than 7 years under current regime or having at least 2,500 employees or M&E with a value of more than 100 million pesos (approx. 7.5 million dollars)

– No tax assessments in the past 24 months or evidence that the tax assessment has already been paid.

– No negative resolutions of VAT refunds requested in the past 12 months



Regional Tax Administration in Foreign Trade (ARACE) Period

Certified companies in accordance with Rule 3.8.1., paragraph L of the FTGR, and companies that operate

under fiscal deposit for the assembly and manufacturing of vehicles.

April 1 to April 30

Pacific North April 15 to May 15

Northeast June 3 to July 3

Central North July 7 to August 7

Central August 7 to September 8

West and South September 22 to October 22

Calendar to file application

Essential compliance issues to avoid cancellation:

–Comply at all times with certification requirements

–Give notice of changes on corporate name, tax domicile, operative domiciles, shareholders and administration board

–Give notice on change of carriers and of suppliers

–Register companies involved in their virtual transfers

–Allow inspections by customs authorities

–Maintain Importer’s Registry in force

–Evidence that temporarily imported goods were returned abroad, transferred or change of customs regime

–Temporarily imported goods must be located in authorized domiciles

–Evidence legal possession and importation of foreign trade goods

–Not have pending tax assessments

–Maintain IMMEX in force


–Direct transfers of maquiladora production in Mexico (without physical export first) – As before, must be accomplished using virtual

pedimentos– Virtual exports for customs purposes continue to satisfy

export requirements under the tax law– Virtual pedimentos available for sales with physical

transfers to another maquiladora or automotive OEM– Use of virtual pedimentos for direct transfers of

maquiladora output for sale to other customers in Mexico – Requires use of a separate service maquiladora– Requires the manufacturing maquiladora to have a

NEEC certification – Based on safety and security requirements

Structuring Sales of Maquiladora Output Into Mexico

Mandatory Profit Sharing (PTU) – Changes in the Base

– Special profit sharing base, different from taxable income– Did not include inflation

adjustments.

– Dividends received were in profit sharing base

– Special rule for taking foreign exchange losses into effect (amount due not amount accrued)

– Profit sharing base is now equal to taxable income (except no deduction for PTU and no reduction by NOLs)

– Recognizes inflation

– Dividends are not included in the base

– Foreign exchange effect based on accrued amounts.

New Art. 9

¿Better or worse? It depends.

Old Art. 16 repealed

New Administrative Requirements and Procedures

Auditor’s tax opinion (dictamen fiscal)

─Law amended to eliminate obligation to obtain a dictamen fiscal─Electing to get a dictamen fiscal to avoid other reporting obligations to the government─Now only for companies with at least 100 million pesos of taxable income

Electronic invoicing

─Generally starting in 2014─ Alternatives eliminated─ Most large companies already required to use

electronic invoicing.

Electronic accounting

─Effective July 1, 2014, all taxpayers must periodically provide all accounting records electronically to the tax authorities.

─Standardization of accounting─Rules to be issued on the form of accounts to be

submitted


Tax electronic mailbox

─Now the taxpayer can choose the alternative of receiving all notices electronically from the tax authorities .

─Enforceable obligation to do so in June 2014 for companies and the following year for individuals.

─ Also the way to claim refunds.

─New right of the authorities as of July 2014 to conduct electronic reviews and issue pre-assessment electronically─Without prior notice to the taxpayers.─Preassessment becomes final if taxpayer does not

respond─Settlement of a tax controversy during the review process

using installment payments.

Reviewing process

Seizure of bank accounts ─Only for an amount equivalent to the updated tax liability─Eliminated ability to freeze accounts in excess of that

amount


Tax authorities’ non-disclosure obligation

─Possible to publish the name and ID of a taxpayer only in the following scenarios─Determined and unpaid tax liabilities. ─Taxpayer is not localizable.─Conviction for a tax-related criminal conduct.


Baker & McKenzie Abogados, S.C. forma parte de Baker & McKenzie International, una sociedad suiza (Verein) de la que forman parte firmas de abogados en todo el mundo. De acuerdo con la terminología comúnmente usada en organizaciones de servicios profesionales, el término “socio” se refiere a aquellas personas que son socios o equivalentes a socios de dichas organizaciones. Asimismo, el término “oficina” se refiere a cualquier oficina de dicha firma de abogados.© 2013 Baker & McKenzie Abogados, S.C. 61

Thank youJohn A. McLees

Baker & McKenzie, [email protected]

Manuel PadronBaker & McKenzie, Juarez

[email protected]

Mounia BenabdallahBaker & McKenzie, New York

[email protected]

Mexican Tax Reform

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Transcript of Mexican Tax Reform