Mexico: New mining and environmental royalties

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Mexico: New mining and environmental royalties

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David Cuellar


Caroline Paris

In the July 2013 issue, we discussed a new 5% mining tax to be introduced to the Mexican tax legislation. This was following a proposal by the Institutional Revolutionary Party (PRI for its initials in Spanish) in March 2013, to establish a tax for the extraction of minerals in favour of the states and municipalities where mining activities are performed. The proposal was approved by the House of Representatives and passed to the Senate for approval. However, in September 2013, while its analysis and approval by the Senate was still pending, the Federal Government decided to include this proposed tax in the tax reform package for 2014, with several important modifications. The tax reform proposal was approved by the Mexican Congress on October 31 2013 and is applicable as of January 1 2014.

There are two new taxes to consider, which are adding a significant tax burden to multinational mining companies with Mexican projects.

The initially proposed and partly approved 5% royalty is replaced by a 7.5% tax applicable on net revenues arising from the sales related to the mining activities, calculated not including depreciation (except those involved in mining prospecting and exploration), interest and the annual inflation adjustment. This royalty payment is deductible for tax purposes, resulting in an effective tax rate of 5.25%.

In addition, the creation of an annual extraordinary fee aimed to finance the environmental erosion impact of the gold, silver and platinum mining industries was also approved. Hence, a new tax, at a rate of 0.5%, is now applicable to gross income arising from the sales of gold, silver, and platinum. This environmental fee is also deductible for tax purposes so that the effective rate is 0.35%.

It is worth mentioning that the 2014 tax reform maintained the additional fees applicable to idle mining properties. An additional 50% of the highest existing concession fee (based on hectares) will be payable by concession holders not conducting demonstrable exploration and exploitation activities for two consecutive years within the first 11 years of obtaining the mining concession. The fee will reach 100% of the existing concession fee if no exploration or exploitation work is done for two consecutive years after the eleventh year of obtaining the concession title.

David Cuellar (david.cuellar@mx.pwc.com) and Caroline Paris (caroline.paris@mx.pwc.com)

PwC

Tel: +52 55 5263 5816

Fax: +52 55 5263 6010

Website: www.pwc.com

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