Mexico: Sworn statement for the applicability of tax treaty benefits
Derived from the approval of 2014's Mexican Tax reform package, various amendments to the Mexican tax laws have been enacted. One of them is the inclusion of faculties to the Mexican Tax Authorities with respect to the applicability of tax treaty benefits when transactions are performed between related parties. In this regard, the Mexican Tax Authorities are now entitled to request a foreign resident to certify the existence of international juridical double taxation through the issuance of a sworn statement. Such statement should be signed by the legal representative of the foreign resident intending to apply treaty benefits, and should attest that income is being subject to taxation in the country of residence of the recipient. The statement should also mention the applicable regulations and provide supporting documentation.
Note that Mexican legislation does not establish what double taxation means, but in general terms, the OECD Model Tax Convention Commentaries on articles 23-A and 23-B establishes that juridical double taxation should be understood where the same income (or capital) is taxable in the hands of the same person by more than one country.
Because of the fact that it may be difficult for certain foreign taxpayers to obtain such kind of statement derived from the applicable foreign regulations (territorial tax regimes) or from a specific kind of transaction (a tax free reorganisation), on December 30 2013, the Mexican tax authorities published in the Official Gazette the Miscellaneous Tax Regulations corresponding to the fiscal year 2014, which contain a rule addressing such situation. In this regard, the rule establishes that the Mexican tax authorities would not request the issuance of the previously mentioned sworn statement when:
The foreign resident is a resident in a country with a territorial tax system.
The foreign resident is not subject to taxation in its country of residence by virtue of the application of the exemption method foreseen in any tax treaty signed with Mexico.
In the case of the transfer (alienation) of shares, if such transfer is carried out under the rules of a corporate restructure as established in any tax treaty signed by Mexico.
As it can be seen in the case at hand, it is important to review in detail the new rules regarding the deductibility for payments abroad contained in the 2014 Tax Reform and other miscellaneous regulations to fulfill all the requirements regarding treaty application.
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