Mexico’s Fiscal and Legal Reforms 2014
Mexican Tax Reform
John McLees, Manuel Padron, Mounia Benabdallah
January 23, 2014
Chicago, Illinois
U.S. Mexico Chamber of Commerce
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
Corporate Income Tax – Overview
– 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
Corporate Income Tax – Overview
– 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.
Corporate Income Tax – Deductions
– 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
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.
Food stamps – Requirement for Deductions
Granted via electronic cards approved by tax authorities.
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 __)
Social Security Payments
Payments made by the employer on behalf of workers
are no longer deductible.
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).
Corporate Income Tax – New Limits on Deductions
– 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
Corporate Income Tax – New Limits on Deductions
– 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?]
Corporate Income Tax – New Limits on Deductions
– 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
Corporate Income Tax – New Limits on Deductions
– 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
Corporate Income Tax – Joint Responsibility of Shareholders
─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 – 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
Corporate Income Tax – Taxation of Foreign Parties
– 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.
Corporate Income Tax – Taxation of Foreign Parties
– 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 nonresident 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
Corporate Income Tax – New Tax on Dividends
– 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?
New Authority to Limit Enjoyment of Treaty Benefits
– 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
New Authority to Limit Enjoyment of Treaty Benefits
– 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
Corporate Income Tax – New Tax on Dividends
– 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.)
Corporate Income Tax – New Tax on Dividends
– 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
US Parent
Dutch Resident
Company
–




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
Active
Mexican subsidiary
–
36
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?
Maquiladora Tax Regime – Special PE Exemption
– 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)?
Maquiladora Tax Regime – Special PE Exemption
– 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
Previous Rules (in Maquiladora Decree)
I. Temporarily Imported Inventories
 Generally to be owned by the foreign
resident
 Can be temporarily imported
 Return abroad, including virtually
II. Transformation or repair activities
 Required on temporarily imported
inventories
III. Activities of the maquiladora
 Possible to have maquila production ,
non-maquila production and other
non-maquila activities in the
maquiladora company
41
Current Rules (in the New Income Tax Law)
I. Temporarily Imported Inventories
 (Same)
 (Same)
 (Same)
II. Transformation or repair activities
 (Same)
 Includes product development
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
Previous Rules (in Maquiladora Decree)
Current Rules (in the New Income Tax Law)
IV. M&E – ownership & prior ownership
 At least 30% needed to be owned by
foreign resident and not previously
owned by maquiladora or Mexican
related party
 Any 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% minimum
 Grandfather provision ( exemption for
maquiladoras complying with Article
216 BIS as of 12/31/2009) –
exemption applied indefinitely
42
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
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. nondiscrimination)
 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
43
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
Maquiladora Tax Regime – Value Added Tax
–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
Certification Rules – VAT and IEPS
Certification to avoid payment of
VAT and IEPS in temporary importations
Three categories:
Application filed online
with the company’s
advanced electronic
signature
Certification Rules – VAT and IEPS
– 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
Certification Rules – VAT and IEPS
Benefits
Category
AAA
Same as Category A, plus:
• VAT refund in 10 days
• Certification valid for 3 years
• No audit in 60 days for
self-assessment
• Simplified ICS
(to be defined by Hacienda in Rules)
• Invitation letter prior an audit
Category
AA
Category
A
•
•
•
•
• No immediate suspension of
Importer’s Registry when falling
into suspension cause
• Monthly consolidated pedimentos
• No declaration of serial numbers in
temporary import pedimentos (but
in ICS)
• Exports clearance at company’s
domicile
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
• Mechanism of tax credit for
VAT/IEPS to be paid upon
temporary importations
• VAT refund in 20 days
• Certification valid for 1 year
Certification Rules – VAT and IEPS
–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
Certification Rules – VAT and IEPS
–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
Certification Rules – VAT and IEPS
–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
Certification Rules – VAT and IEPS
Calendar to file application
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
Certification Rules – VAT and IEPS
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
Structuring Sales of Maquiladora Output Into Mexico
–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
Mandatory Profit Sharing (PTU) – Changes in the Base
Old Art. 16
repealed
– 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)
New Art. 9
– 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.
¿Better or worse? It depends.
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.
New Administrative Requirements and Procedures
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 Administrative Requirements and Procedures
Reviewing process
─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.
Seizure of bank accounts
─Only for an amount equivalent to the updated tax liability
─Eliminated ability to freeze accounts in excess of that
amount
New Administrative Requirements and Procedures
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.
Thank you
John A. McLees
Baker & McKenzie, Chicago
john.mclees@bakermckenzie.com
Manuel Padron
Baker & McKenzie, Juarez
manuel.padron@bakermckenzie.com
Mounia Benabdallah
Baker & McKenzie, New York
mounia.benabdallah@bakermckenzie.com
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