General administrator of the Large Taxpayers Unit, Mexican Tax Administration (SAT)
As head of the Large Taxpayers’ Unit of the Mexican tax authority, Oscar Molina has this year tried to balance the vigorous pursuit of tax payments (within the context of a global focus on BEPS) with the promotion of an open relationship with taxpayers.
Molina talks to International Tax Review about the challenges and concerns he has faced up to during 2013, and how he was indirectly instrumental in pushing through Anheuser-Busch InBev’s $20 billion acquisition of Mexican brewer Grupo Modelo.
And with a Mexican tax reform proposal that is widely being viewed as anti-business awaiting President Pena Nieto’s signature, Molina faces another 12 months of uphill struggle to continue his pursuit of a friendly, cooperative relationship between his unit and big business.
International Tax Review: What do you consider to be your biggest achievement in taxation?
Oscar Molina: As the head of the Large Taxpayers Unit, I believe our biggest achievement was the publication of non-binding criteria in connection with the interpretation of the Mexican Income Tax Law (MITL), where we concluded that the exemption provided in the MITL for the sale of shares through the Mexican Stock Exchange Market was restricted to shares that were acquired by the general public in a public offer.
In other words, we interpreted that former shareholders (the original owners of a company before this company transformed into a public company) and shareholders with the control of a public company, did not qualify for this exemption.
Before this, taxpayers were applying this exemption without any distinction. They believed the only requirement to obtain the exemption was that the disposals of the shares were through the stock market.
The first transaction where our non-binding criteria was applied was the Public Offer for an amount of $20 billion conducted in Mexico by Anheuser-Busch in order to acquire control of Grupo Modelo, the largest brewer of beer in Mexico, and the producer of a third of all beer sold in the US. Modelo’s Corona Extra brand is one of the top selling beers in the world.
We accomplished the collection of a 5% withholding tax on this transaction. This withholding tax is a prepayment, and the balance should be paid in their annual tax return that should be filed no later than April 2014.
ITR: If you had one message for taxpayers in Mexico, what would it be? What is the overriding theme you are trying to convey to large taxpayers at the moment?
OM: The OECD has identified the negative effects of base erosion and profit shifting (BEPS) conducted by multinational enterprises. We have suffered it. Therefore, we have initiated a programme to challenge the structures where we have legal grounds to sustain that BEPS is occurring.
For instance, we have identified several restructures conducted in the past, where a multinational changed a full business structure in Mexico for a supply chain structure. According to these new structures, the functions performed in Mexico are reduced to manufacturing of inventory and the delivery of these inventories to clients in Mexico. All other functions are conducted by a principal which is, generally, resident in a low tax jurisdiction.
So in this context our message is that the SAT is aware of the BEPS occurring through these schemes and we will take the necessary steps to prevent their adverse effects on the Mexican tax system.
ITR: What do you hope to achieve within the next 12 months? And what will be an indicator of success in that pursuit?
OM: Our goal is that all taxpayers that have implemented supply chain schemes are regularised’ therefore our task is to find a balance between what legally corresponds to collection for the Mexican state for past fiscal years, without interfering in the future with the taxpayers’ operations. In this sense, we seek to achieve such balance by approaching taxpayers to find appropriate solutions.
During 2004-2005, when the supply chain schemes were first detected, we used to think there were a lot of elements to consider that multinational entities implementing this type of tax planning constituted a permanent establishment in Mexico, considering that a large part of their business cycle was performed in Mexico without paying the taxes that truly belonged to this kind of operation.
However, it seemed that both the doctrine and the international trend considered that the solution for these operations was through transfer pricing which, in retrospect, yielded poor results.
BEPS has confirmed the view held since 2004 in the sense that the implementation of such types of schemes would undoubtedly constitute a permanent establishment for the entities using them.
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The Global Tax 50 2013