Presentation on theme: "Mexican Tax Reform Mexico’s Fiscal and Legal Reforms 2014"— Presentation transcript:
1 Mexican Tax Reform Mexico’s Fiscal and Legal Reforms 2014 John McLees, Manuel Padron, Mounia BenabdallahJanuary 23, 2014Chicago, IllinoisU.S. Mexico Chamber of Commerce
2 Tax Reform Overview Proposed on September 9, 2013 Contemplated by the 2013 pact among the major political partiesLittle advance notice of the terms of the reformGovernment agreed to significant changes during the legislative process, for example:On the form of the new tax on dividendsOn the terms of some of the new limitations on deductionsOn the proposed new Maquiladora tax rulesEffective date – generally January 1, 2014Supplemented at the end of 2013 by:Presidential Decree, Miscellaneous Regulations
3 Repeal of the “Single Rate Tax” (the “IETU “) The repeal reduces the tax burden for companies in Mexico and greatly simplifies tax compliance & planningIETU was calculated on a cash flow basisOn a broader tax baseIncluding the gross sales price on a sale of assetsWith no deduction for related party royalties or most interest paymentsIETU was paid to the extent it exceeded the income taxNo IETU implications in 2014 or future yearsWhat about the future? Will Mexico resort to some other minimum tax?The asset tax applied from 1989 to 2007The single rate tax (IETU) applied from 2008 through 2012
4 Repeal of Cash Deposit Tax (the “IDE”) IDE only applied to deposits of cash money (bills and coins)e.g. by retailers and restaurantsIDE functioned as a control tax – directed at the informal economyWas recoverable by a taxpayer that satisfied its other tax liabilities.IDE replaced by new reporting obligations for BanksRegarding companies and individual depositing more than 15,000 pesos (US $ 1,130) per month in cash money
5 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 contentTax on sales of fossil fuelsRates based on CO2 level.Tax on sales of pesticidesRates based on toxicity.
6 New Royalties Taxes on Mining Operations 0.5% on gross revenue from gold, silver and platinum mining7.5% over “extended” profit from any mining activity:Income minus certain deductionsIncluding amortization of exploration and development expensesNo deduction for interest or other depreciationNo annual inflation adjustmentOut of that 7.5%:80% goes to a fund for the regional sustainable development of mining in States and Municipalities62.5% for Municipalities and 37.5% for States20% goes to the Federal government
7 Changes in Tax Rates VAT 16% rate extended to the entire country Repealed the lower 11% rate in the border areaIndividual income taxIncreased for those with income of more than 500,000 pesos (approximately US$ 38,500) per yearUp to 35% on income higher than 3 million pesos (approximately US$ 231,000) per yearCorporate income taxRemains 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%
8 New Income Tax Law - Overview Section numbers changed from prior income tax lawChanges focus on:Limiting some deductions for companies and individualsIncreasing the tax burden on international operations companiesOn corporate distributionsOn other payments from related parties in MexicoOn Maquiladora operationsAttempting to place new conditions on benefiting from tax treatiesEliminating or limiting application of special tax regimes
9 Individual Income Tax Gain on the sale of publicly traded shares Now taxed at 10%Exemption eliminatedLimitations on total personal deductionsLimited to the lesser of 10% on total income or 4 yearly minimum wages.All payments must be done through the financial system to be deductiblePractical aspectsTaxpayers 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.
10 Corporate Income Tax – Overview New income tax law maintains basic structure of the corporate income taxTax imposed on net income – generally determined on an accrual basisDeductions are subject to technical requirementsDeductions of payments to foreign partiesSubject to special scrutiny (especially payments for services)Thin cap rules limit deduction of interest to related partiesTransfer pricing is a major focus (re amount of income and deductions in related party transactions)Mexico has generally applied OECD principlesIncreasing focus on base erosion and profit shifting
11 Corporate Income Tax – Overview No change in the adjustments for inflation and for currency gains & lossesAll amounts with significance across years are adjusted for inflationImputed inflationary income (loss) is recognized each year for taxpayers with net liabilities (net financial assets)Currency gains and losses also recognized each year
12 Corporate Income Tax – Overview Additional tax continues to be imposed on the distributing company on some corporate distributionsAnd on some funds transfers from foreign company’s branch/PE to its home officeApplies 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 excessCUFIN = cumulative taxable income, reduced by:income tax paidnondeductible expensesprior distributions andtax lossesNote on timing – current year after-tax income does not increase CUFIN until the end of the year
13 Corporate Income Tax – Income Recognition Change in the tax treatment of installment salesIncome recognition now based on accrualRepealed the option for deferring income recognition to time payments due or payable
14 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 basisSelling / buying real estate.Granting the temporary use of an asset.
15 Corporate Income Tax – Deductions Immediate deduction of investments in fixed assets is eliminatedMust now use normal depreciation schedules in the income tax lawException for developersStill can deduct the cost of land for construction projects in the year of acquisition
16 Food stamps – Requirement for Deductions Corporate Income Tax – DeductionsNew requirements for certain deductible expensesMining industry – Amortization of ExpensesExploration expenses now deductible in a 10 year period.No longer deductible in the year in which they are made.Food stamps – Requirement for DeductionsGranted via electronic cards approved by tax authorities.
17 Corporate Income Tax – New Limits on Deductions VehiclesFor acquisition cost – 130,000 pesos (down from 175,000)For rental payments – 200 pesos daily (down from __)Corporate Income Tax – New Limits on DeductionsSocial Security PaymentsPayments made by the employer on behalf of workers are no longer deductible.Payments of Workers’ Tax Exempt IncomeNow only 47% deductible (53% deductible if the employercontinues to provide the same exempt fringe benefits asin the prior year).Contributions to Pension FundsNow only 47% deductible (53% deductible if the employerdoes not cut pension contributions from the prior year).
18 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],orIf the recipient is a transparent entity, unless(i) its shareholders [its direct shareholders? all of them?] are subject to taxationand(ii) the payment is an arm’s length amount
19 Corporate Income Tax – New Limits on Deductions Article 28. XXIX – Payments to a foreign party that deducts that same paymentAre now nondeductible in MexicoUnless 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 entityProvision designed to avoid “double dipping” (again inspired by the BEPS initiatives)[when would the limitation apply?]
20 Corporate Income Tax – New Limits on Deductions Example of the application of the new rulesUnder 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 rulesResult – double taxation
21 Corporate Income Tax – New Limits on Deductions Constitutional issuesAre 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 jurisdictionThat 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 contributeThese are among the potential constitutional challenges to several provisions in the new law.First deadline for filing constitutional challengesFebruary 14, 2014
22 Corporate Income Tax – Tax Consolidation Existing tax consolidation regime is eliminatedMust recognize income deferred under consolidation and not already recognizedAdditional tax computed in the 2013 tax returnAdditional tax paid over 5 years ( ).New optional consolidation regime starting in 2015For those electing by 2/15/14Income tax can be deferred for up to 3 years.Stock ownership requirement: 80%.Cannot include maquiladorasPre-2014 losses cannot be taken into accountNo deferral of tax imposed on dividends paid in excess of CUFIN
23 Corporate Income Tax – Special Tax Regimes New limitations on simplified tax regime for agricultural activitiesTaxpayers with agricultural activities keep some of the benefits of simplified regimeCash flow instead of accrual for recognizing revenues and deductionsSome tax exemptionsTax rate reduction to 21% for first 400 million pesos (US $30 million) in taxable income
24 Corporate Income Tax – Joint Responsibility of Shareholders As before, joint responsibility only if the Mexican company:Is not registered, orFails to provide notice of a change of domicile, orDoes not having accounting records, orHass 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.
25 Corporate Income Tax – Taxation of Foreign Parties Overview - overall structure is generally unchanged under the new lawWithholding taxes imposed at varying rates on payment to foreign partiesHigher withholding tax on payments to parties in low-tax jurisdictions without a treatyPE concept under domestic law applies to impose tax on net income of a foreign partyMore aggressive than Mexico’s treaty definitionsFor companies holding stocks of goods in MexicoFor companies with independent agents in MexicoHeavy reliance on tax treatiesTo avoid withholding tax on payments for servicesTo obtain more predictable and less onerous PE rules
26 Corporate Income Tax – Taxation of Foreign Parties Changes in taxation of Foreign Pension Fund investments in MexicoChanges in exemption for gain from the sale real property leased to third in MexicoRequired lease period before sale is now 4 years (up from 1 year).Tax registration obligation eliminatedAs beforeRemaining requirements: foreign pension fund must be:Effective beneficiary of the exempt income andExempt from income tax in its country of residency.Property registered as inventory will not be covered by the exemption.
27 Corporate Income Tax – Taxation of Foreign Parties Foreign-party sales (and other transfers) of MexCo sharesStill are generally taxable, even under tax treatiesTax rate increased to 35% on net gain if the foreign party elects to be subject to tax on net gain on transfer of sharesDefault position (absent election) – foreign seller subject to tax at 25% on the gross sale priceCollected as withholding tax if the buyer is Mexican or PE of nonresident companyMexican company can be liable for the taxElection to be taxed on net gain (if any) requires seller to take several steps in a timely fashion, including:Appointment of a representative in MexicoNote US-Mexico tax treaty provisions for avoiding tax on transfers in an internal restructuring
28 Corporate Income Tax – New Tax on Dividends New dividend withholding tax10% withholding tax on dividend payments to non-resident shareholders or to individualsApplies to dividends distributed after 12/31/2013, with exceptionsIncreases effective tax rate to 37% on distributed earningse.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
29 Corporate Income Tax – New Tax on Dividends Exemptions from the new dividend withholding taxDividends paid from CUFIN accumulated as of December 31, 2013Important condition: Must keep records of cumulative undistributed CUFIN as of December 31, 2013What about distribution of book retained earnings in excess of CUFIN as of the end of 2013?Government position – no exemptionStatutory language could support an exemptionWhat 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
30 Corporate Income Tax – New Tax on Branch Transfers New tax on branch distributions10% tax on distributions (i.e. remittances) from a branch or other permanent establishment to the company’s home officeApplies to transfer of funds from PE to the home office that are treated as a transfer of distributable profitsAlso applies on remittances from one PE to anotherExemption 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?
31 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 treatyFor a withholding tax issue – getting a lower with/holding tax rate under a tax treatyPractical issue for Mexican party making the paymentMexican party needs to make sure that certification is on fileTo avoid obligation to pay additional tax not withheldBased on what information if payment is to a third party?
32 New Authority to Limit Enjoyment of Treaty Benefits For a PE issue –relying on narrower PE definition in a tax treatyPractical issue for a Mexican party paying a foreign partyIF the foreign party has a PE, the Mexican party’s deduction will depend on getting a Mexican invoice from the foreign partyMexican party needs to make sure that the certification is on fileIf 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
33 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 treatyProvision in the protocol prohibiting Mexico from taxing dividends subject to a participation exemption in the Netherlands
34 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 treatyOption 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 lawOption 2 – Cross Border Conversion (of LuxCo into a DutchCo) using EU DirectivesOption 3 – Cross Border Merger (LuxCo into a separate DutchCo) using EU Directives (taxable in Mexico, possible exit tax in Lux.)
35 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 LLCObjective: 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 lawSpecial protection of dividends from Mexico withholding under the Dutch-Mexico treaty
36 Investing Through the Netherlands Favorable bilateral tax treaty allows for:5% (or even 0%) wh/tax rate on dividends5% or 10% wh/tax on interest10% wh/tax on royaltiescapital gains tax exemption for corporate reorganizationsBilateral Investment TreatyNetherlands Participation Exemption regimeNetherlands – favorable outbound structures (e.g. tax treaty with the U.S.)Importance of SubstanceUS ParentDutch Resident CompanyActiveMexican subsidiary
37 Maquiladora Tax Regime – Overview of Changes Special lower income tax rate – repealed2003 Presidential Decree on maquiladora taxation revokedMaquiladoras now subject to the regular 30% rateRemaining income tax benefits for maquiladoras:Special PE exemption for foreign principals in consignment manufacturing arrangements with maquiladorasSpecial exemption from the new limit on deductions for compensation that is tax-free to the employeesNew VAT rules for:Avoiding VAT payments on temporary importation of goodsWill be subject to certification requirements in 2015Avoiding VAT on sales of temporarily imported goods to the maquiladora – also will depend on certification
38 Maquiladora Tax Regime – Special PE Exemption New requirements for getting a PE exemption for a foreign principal in a consignment manufacturing arrangementMore limited choices on how to qualify for that exemptionCan no longer rely on getting a transfer pricing study demonstrating OECD pricing + 1% of M&E made available on free bailmentMust reach safe harbor threshold for taxable incomeor obtain an Advance Pricing Agreement (an “APA”)Taxable income safe harbor unchanged:The greater of6.5% of the maquiladora’s operating costs or6.9% of value of all assets in use in MexicoStandards for issuing an APA are to be developedWhat about taking into account US-owned assets?
39 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 APASatisfying safe harbor will often require transfer price unacceptable for principals in countries outside USMexico’s announced APA standards would pose the same problemSolutions?Try to get a bilateral APA to support PE exemption ?Avoid the need for a special PE exemptionBy transferring the M&E to the maquiladora?By abandoning consignment manufacturing (and going to a buy sell model)?
40 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 exemptionExpressed as a new definition of maquiladora operation for tax purposesRe activities that a maquiladora may undertakeIncome from “productive activity” must come fromthe maquiladora operation (still being clarified)Re ownership and prior ownership of machinery and equipment used in Mexicowith a new two-year grandfather clause for certainmaquiladoras with longstanding consignmentoperations (previously unlimited)
41 New Conditions for Getting the Maquiladora PE Exemption Previous Rules (in Maquiladora Decree)Current Rules (in the New Income Tax Law)Temporarily Imported InventoriesGenerally to be owned by the foreign residentCan be temporarily importedReturn abroad, including virtually(Same)Transformation or repair activitiesRequired on temporarily imported inventoriesIncludes product developmentIII. Activities of the maquiladoraPossible to have maquila production , non-maquila production and other non-maquila activities in the maquiladora companyNew Limit on Activities of themaquiladoraAll income from “productive activities” shall be derive from the maquila operationFurther clarification required – a practical problem41
42 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 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 MaquilaQuestion 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 indefinitelyIV. M&E– ownership & prior ownership(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, 201542
43 POSSIBLE CONSTITUTIONAL CHALLENGES New M&E Based Conditions for Getting the PE ExemptionPOSSIBLE CONSTITUTIONAL CHALLENGESRetroactive application of a legal provisionUnfavorable retroactive effect exists when vested rights are deprived to a given company or individualArticle 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 ITLViolation to the Constitutional Principle of Equitable Application of the LawThe equitable principle refers to the equal protection right (i.e. non-discrimination)Violation of the principle of "Competitiveness" addressed in the Mexican ConstitutionNew principle adopted by the Mexican ConstitutionNecessary to demonstrate lack of competitiveness as a result of the new legal provisionsViolation of Fundamental RightsViolation to the rights to have a net worth, coped with the violation of a retroactive application of the LawFringe benefits (gasto de previsión social no acumulable para el trabajador). Sólo será deducible el 47%43
44 Maquiladora Tax Regime – PE Exemption for “Shelters” Third party (i.e. unaffiliated) maquiladoras (commonly called “shelters”) are an important altenativeConsignment operations with a shelter company require a special PE exemption for the foreign companyNot commercially acceptable to rely on safe harbor or maquiladora APA to avoid a PE in a third-party situationSolution 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 lawA foreign company can only benefit from that absolute PE exemption for four yearsMeasured from later of 1/1/14 or date maquila begins manufacturing operations for the foreign companyAfter that, what? Establish consignment operations with an affiliated maquiladora? or
45 Maquiladora Tax Regime – Compensation Deductions Compensation that is tax-free to the employeesNew 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 incomeIt must meet a fixed taxable income thresholdDenial of deductions just reduces the amount it needs to receive for its processing servicesPresidential Decree of December 2013 provides:Special exemption for maquiladoras from new limitation on deductions for compensation that is tax free to the employeeImportant for a maquiladora getting and APA
46 Maquiladora Tax Regime – Value Added Tax Starting 1/1/15, VAT is payable on temporary imports of materials, components, machinery and equipmentWill also apply to auto manufacturers’ imports into their fiscal deposit regimesNew credit mechanism established to avoid cash payment of VAT, only for companies satisfying new certification requirementsCertification requirements published on January 2Other trade benefits also available from certificationStarting 1/1/15,VAT will also be payable on foreign party sales of temporarily imported goods to a maquiladoraImmediate credit for a maquila that gets the certificationLaw amended to eliminate supplier obligation to withhold VAT on sales to a maquiladora
47 Certification Rules – VAT and IEPS Certification to avoid payment of VAT and IEPS in temporary importationsThree categories:Application filed online with the company’s advanced electronic signature
48 Certification Rules – VAT and IEPS 40 days to issue certificationCannot request certification within:6 months when not complying with infrastructure requirements during the certification procedure2 years when granted certification is cancelled
49 Certification Rules – VAT and IEPS BenefitsSame as Category A, plus:No immediate suspension of Importer’s Registry when falling into suspension causeVAT refund in 10 daysCertification valid for 3 yearsNo audit in 60 days for self-assessmentMonthly consolidated pedimentosNo declaration of serial numbers in temporary import pedimentos (but in ICS)Simplified ICS(to be defined by Hacienda in Rules)Invitation letter prior an auditExports clearance at company’s domicileCategory AAASame as Category A, plus:VAT refund in 15 daysCertification valid for 2 yearsNo audit in 30 days for self-assessmentInvitation letter prior an auditCategory AAMechanism of tax credit for VAT/IEPS to be paid upon temporary importationsVAT refund in 20 daysCertification valid for 1 yearCategory A
50 Certification Rules – VAT and IEPS Requirements category A:Inventory control systemObtain a favorable opinion on tax compliance from HaciendaNot be in the list of non-compliant companies, published by HaciendaHave valid digital seals issued by HaciendaAll employees must be registered in Social SecurityEvidence that the value of finished goods returned equal at least 60% (80% for sensible goods) of value of temporarily imported materialsStrict compliance with other tax, customs, IMMEX and labor obligations
51 Certification Rules – VAT and IEPS Additional requirements category AA:40% of Mexican operations are made with tax-compliant service providers / suppliersMore 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 paidNo negative resolutions of VAT refunds requested in the past 12 months
52 Certification Rules – VAT and IEPS Additional requirements category AAA:70% of Mexican operations are made with tax-compliant service providers / suppliersMore 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
53 Regional Tax Administration in Foreign Trade (ARACE) Certification Rules – VAT and IEPSCalendar to file applicationRegional Tax Administration in Foreign Trade (ARACE) PeriodCertified companies in accordance with Rule , 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 NorthApril 15 to May 15NortheastJune 3 to July 3Central NorthJuly 7 to August 7CentralAugust 7 to September 8West and SouthSeptember 22 to October 22
54 Certification Rules – VAT and IEPS Essential compliance issues to avoid cancellation:Comply at all times with certification requirementsGive notice of changes on corporate name, tax domicile, operative domiciles, shareholders and administration boardGive notice on change of carriers and of suppliersRegister companies involved in their virtual transfersAllow inspections by customs authoritiesMaintain Importer’s Registry in forceEvidence that temporarily imported goods were returned abroad, transferred or change of customs regimeTemporarily imported goods must be located in authorized domicilesEvidence legal possession and importation of foreign trade goodsNot have pending tax assessmentsMaintain IMMEX in force
55 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 pedimentosVirtual exports for customs purposes continue to satisfy export requirements under the tax lawVirtual pedimentos available for sales with physical transfers to another maquiladora or automotive OEMUse of virtual pedimentos for direct transfers of maquiladora output for sale to other customers in MexicoRequires use of a separate service maquiladoraRequires the manufacturing maquiladora to have a NEEC certificationBased on safety and security requirements
56 Mandatory Profit Sharing (PTU) – Changes in the Base Old Art. 16 repealedNew Art. 9Profit sharing base is now equal to taxable income (except no deduction for PTU and no reduction by NOLs)Recognizes inflationDividends are not included in the baseForeign exchange effect based on accrued amounts.Special profit sharing base, different from taxable incomeDid not include inflation adjustments.Dividends received were in profit sharing baseSpecial rule for taking foreign exchange losses into effect (amount due not amount accrued)¿Better or worse? It depends.
57 New Administrative Requirements and Procedures Auditor’s tax opinion (dictamen fiscal)Law amended to eliminate obligation to obtain a dictamen fiscalElecting to get a dictamen fiscal to avoid other reporting obligations to the governmentNow only for companies with at least 100 million pesos of taxable incomeElectronic invoicingGenerally starting in 2014Alternatives eliminatedMost large companies already required to use electronic invoicing.
58 Electronic accounting New Administrative Requirements and ProceduresElectronic accountingEffective July 1, 2014, all taxpayers must periodically provide all accounting records electronically to the tax authorities.Standardization of accountingRules to be issued on the form of accounts to be submittedTax electronic mailboxNow 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.
59 New Administrative Requirements and Procedures Reviewing processNew right of the authorities as of July 2014 to conduct electronic reviews and issue pre-assessment electronicallyWithout prior notice to the taxpayers.Preassessment becomes final if taxpayer does not respondSettlement of a tax controversy during the review process using installment payments.Seizure of bank accountsOnly for an amount equivalent to the updated tax liabilityEliminated ability to freeze accounts in excess of that amount
60 Tax authorities’ non-disclosure obligation New Administrative Requirements and ProceduresTax authorities’ non-disclosure obligationPossible to publish the name and ID of a taxpayer only in the following scenariosDetermined and unpaid tax liabilities.Taxpayer is not localizable.Conviction for a tax-related criminal conduct.
61 Thank you John A. McLees Baker & McKenzie, Chicago Manuel PadronBaker & McKenzie, JuarezMounia BenabdallahBaker & McKenzie, New York