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Mexico: Mexican tax reform: Upcoming changes impacting multinational companies

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David Cuellar


Araceli Sosa

On September 8 2013, the executive branch of the Mexican government submitted the 2014 Tax Reform Package to the Mexican Congress, which aims to increase the country's tax revenue. The main proposals would eliminate flat tax and the group taxation regime (tax consolidation), restrict deductions in general, repeal the tax benefits applicable to real estate investment entities (SIBRAS), as well as eliminate other benefits such as accelerated depreciation of assets and certain preoperating expenses, and limit tax-exempt salaries deductions, among others.

In this regard, some of the main upcoming changes (if this package is approved) impacting multinationals are as follows:

  • The tax consolidation regime would be repealed by 2014 and the deferred income tax generated in previous years would be triggered according to a detailed procedure incorporated in the new tax law (five-year schedule for payment).

  • A brand new consolidation regime would be introduced, which offers a three-year income tax deferral period.

  • A new 10% corporate tax rate (CTR) to dividends paid by Mexican entities to foreign residents. Thus, dividends would be subject to the 30% CTR already applied, plus a 10% rate. At the time, there is no certainty about whether this additional tax would be creditable in foreign countries.

  • Payments abroad made to related parties would be non-deductible if such payments are subject to a preferred tax regime, which means that the recipient's income is taxed at an effective tax rate that is less than 75% of the Mexican CTR, or those payments are part of a double dipping structure in place. According to the current language of this provision, it seems to be applicable to all sorts of payments (deductions).

  • At the moment, to claim the benefits of a tax treaty, entities have to prove the tax residence of the foreign residents. The new Bill includes that it would also be necessary to demonstrate under oath that revenues are subject to double taxation.

  • Additional restrictions are proposed to exemptions granted to foreign pension funds investing in Mexico.

  • Several limitations to the maquila regime: the permanent establishment (PE) protection would only apply to operations with qualified entities exporting 90% of its total revenues, the protection of PE for maquila shelter would only apply for a three year period; and

  • Temporary imports under IMMEX (maquiladora programme) would be taxed at 16% VAT rate.

According to the Mexican legislative process, the proposed provisions will be discussed by the Mexican Congress, and the reform is expected to be approved by October 31 2013; however, the reform must be published in the Official Gazette before the end of this year to come into effect on January 1 2014.

David Cuellar (david.cuellar@mx.pwc.com) and Araceli Sosa (araceli.sosa@mx.pwc.com), Mexico City

PwC

Tel: +52 55 5263 5816

Fax: +52 55 5263 6010

Website: www.pwc.com

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