Roberto del Toro		Angélica González

Globalization has become a key term in a constantly changing business and economic environment that has experienced significant developments over the last decade.

In this context, professionals in charge of tax policies seem to be aware of the importance of providing a solid tax infrastructure in line with the demands of international transactions. In this regard, Mexican tax treaty negotiations have seen some significant action over the past years; with the signature of four agreements (both new and renegotiated) in 2008 alone.

Mexico's tax treaty network is comprised by 37 treaties in force, with Iceland, Russia and Barbados being the latest additions (applicable as from 2008) Although in force, the treaty with Barbados will be applicable as from January 1 2010.

From the 37 countries with which Mexico has a tax treaty in force, 22 have a broad exchange of information agreement as well. Table 1 shows the double tax treaties in force and table 2 outlines the treaties that are in the process of being developed.

Note that as from January 1 2008 the Mexican flat tax (IETU) was enacted replacing the Mexican asset tax. In this regard, as IETU was not comprised within the scope of the tax treaties previously negotiated by Mexico it became necessary to confirm with such countries whether they would acknowledge IETU as an identical or substantially similar tax; thus, covered by the tax treaties provisions.

In this regard, as of today, most of the countries with which Mexico entered a tax treaty have either acknowledged the IETU for treaty purposes or included them in the relevant clauses (new and renegotiated treaties such as South Africa and Iceland). The US is the only country that has neither recognised IETU nor included it in a renegotiated treaty; however, as the US tax authorities are still evaluating the case, they have allowed taxpayers to credit IETU for the evaluation period carried out.

Below are some highlights on incomplete and renegotiated agreements:

Renegotiated agreements

• Canada – Applicable as from January 1 2008.
• The Netherlands – Signed December 11 2008; although it has not been published in the Mexican official gazette, it is expected to be in force as from 2010.
• Germany – Published in the official gazette in December 11 2008; pending approval from the German government, it is expected to be in force as from 2010.

Broad exchange of information agreements

The Mexican tax authorities are negotiating a broad exchange of information agreement with the Bermuda authorities.

Although not yet finalised the negotiation of this treaty can be considered a milestone as it is the first agreement of its kind negotiated with a jurisdiction with which Mexico does not have a tax treaty in force.

Among other benefits of this development, a foreign entity that is not a resident of a country with which Mexico has a broad exchange of information agreement cannot own more than 50% of the shares of a Mexican entity that files a consolidated tax return; once the treaty is in place, it will allow Mexican groups to ultimately be owned by a Bermudian entity.

Roberto del Toro (roberto.del.toro@mx.pwc.com) & Angélica González Ortega (angelica.gonzalez.ortega@mx.pwc.com), Mexico City