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Mexico: Tax authorities' new guidance on permanent establishment



David Cuellar and Blas Montemayor, PwC

Early in April and July 2013, the Mexican tax authorities published new internal criteria regarding some aspects of the Mexican federal tax legislation, including international tax matters. These criteria are intended to help clarify the interpretation of the Mexican tax provisions, which are rather complex and also to make clear the position of the Mexican tax authorities with respect to specific tax issues.

In this regard, one of the above mentioned criterions dealing with international matters provides the tax authorities' view on how to read the permanent establishment (PE) definition under domestic law.

Under the Mexican income tax law (MITL) the general definition of the term PE is any place of business in which business activities are partially or totally carried out or independent personal services are rendered. For these purposes, the MITL provides a non-exhaustive list of examples of places that may be considered a PE, including branches, agencies, offices, factories, workshops, installations, mines, quarries or any place of exploration, mining or exploitation of nature resources.

According to the tax authorities' new internal criteria, the list of non-exhaustive PE examples should not be read in an isolated basis but rather such examples should be read in light of the definition of a PE (a place in which business activities are carried out or services are rendered).

For instance, a foreign resident that has an office in Mexico would be able to conclude if such office triggers a PE in this country only after analysing whether or not in such office business activities are conducted or services are rendered. As noted, although the presence of a foreign resident may frequently raise a red flag for tax purposes; the mere fact of having an office in Mexico cannot be conclusive as to whether or not a PE is triggered. To arrive at a conclusion on potential PE risk in Mexico, the specific facts and circumstances should be analysed in light of the Mexican tax provisions and the tax treaties signed by Mexico and the relevant OECD commentaries, when applicable.

Although the Mexican tax authorities' criteria is not mandatory and it does not have the weight of the Mexican tax law (since such criteria is not approved by the Mexican Congress), it provides a realistic guidance for taxpayers when determining the existence of a Mexican PE, which is a very complex topic that should be carefully analysed by foreign multinationals that have or are planning to have presence in Mexico.

David Cuellar ( and Blas Montemayor (


Tel: +52 55 5263 5816

Fax: +52 55 5263 6010


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