International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Mexico: Clarification of the term “standardised software” for tax treaty purposes

cuellar.jpg

lugo.jpg

David Cuellar


Sergio Lugo

On December 28 2012, the Mexican tax authorities published the MiscellaneousTax Regulations for fiscal year 2013, including a new rule intended to clarify the concept "standardised software" for purposes of interpreting article 12 (royalty payments) of the tax treaties signed by Mexico and also in light of Mexico's view that payments for the use of non-standardised software generally qualify as royalties. In general terms, Mexico follows the OECD Model Tax Convention to elaborate tax treaties with other jurisdictions and applies the commentaries on the OECD Model Tax Convention as a legal authority to interpret tax treaties. According to paragraph 28 of the commentaries on article 12, Mexico holds the position that payments related to software are classified as royalties when less than the full rights to the software are transferred; however, this rule should not be applicable in the following cases:

  • Payments for the use of copyrights on software for commercial exploitation if, and only if, the payment is made for the right to distribute standardised software copies and to the extent such copyrights do not include the right to customise or reproduce such software.

  • Payments for the use of copyrights for the sole use and benefit of the purchaser if, and only if, the software is completely standardised and not adapted/tailored to the purchaser.

In this context, new rule I.2.1.23 provides that standardised software includes the "commercial off the shelf (COTS)" software which is granted homogeneously and massively to any person in the market. In addition, rule I.2.1.23 provides that software which is specific or special should not qualify as standardised. For these purposes, specific or special software includes the following:

  • Software somehow adapted for the purchaser/user. When the software was standardised at the beginning but then adapted for the use of the purchaser/acquirer, such software should be considered as specific or special (and therefore not standardised) as from the moment the adaptation takes place.

  • Software designed, developed or produced for one user or a group of users, for the author or the person who designed, developed or produced the software.

In light of the recent clarification of the term "standardised software", multinational companies should carefully analyse each transaction on a case-by-case basis, including a comprehensive analysis of the corresponding agreements and the technical characteristics of the software to determine any potential tax consequences in Mexico.

David Cuellar (david.cuellar@mx.pwc.com) and Sergio Lugo (sergio.lugo@mx.pwc.com)
PwC

Tel: +52 55 5263 5816

Fax: +52 55 5263 6010

Website: www.pwc.com

more across site & bottom lb ros

More from across our site

Lawmakers have up to 120 days to decide the future of Brazil’s unique transfer pricing rules, but many taxpayers are wary of radical change.
Shell reports profits of £32.2 billion, prompting calls for higher taxes on energy companies, while the IMF has warned Australia to raise taxes to sustain public spending.
Governments now have the final OECD guidance on how to implement the 15% global minimum corporate tax rate.
The Indian company, which is contesting the bill, has a family connection to UK Prime Minister Rishi Sunak – whose government has just been hit by a tax scandal.
Developments included calls for tax reform in Malaysia and the US, concerns about the level of the VAT threshold in the UK, Ukraine’s preparations for EU accession, and more.
A steady stream of countries has announced steps towards implementing pillar two, but Korea has got there first. Ralph Cunningham finds out what tax executives should do next.
The BEPS Monitoring Group has found a rare point of agreement with business bodies advocating an EU-wide one-stop-shop for compliance under BEFIT.
Former PwC partner Peter-John Collins has been banned from serving as a tax agent in Australia, while Brazil reports its best-ever year of tax collection on record.
Industry groups are concerned about the shift away from the ALP towards formulary apportionment as part of a common consolidated corporate tax base across the EU.
The former tax official in Italy will take up her post in April.