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Mexico: New Mexican mining tax

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David Cuellar


Salvador Esquivel

Several proposals to implement a new mining royalty have been considered by the Mexican Congress. In December 2012 the three main political parties in Mexico (PRI, PAN and PRD) executed a collaboration agreement called Pact for Mexico which intends to reconcile the proposals of the parties and reach the agreements that the country needs for its development. On March 2013, PRI, the governing party in Mexico, submitted a proposal to the Mexican Congress to introduce a Mexican mining tax. The proposal has been approved by the House of Representatives and has been passed to the Senate for review and approval.

The Senate postponed the approval of this reform until the Second Sessions' Period of September to December 2013, unless there is a call for an Extraordinary Sessions' Period during the summer.

The initiative, as approved by the House of Representatives, aims to establish the payment of a mining tax on exploration and extraction of minerals for the benefit of the states and municipalities where mining takes place.

This new mining tax will likely impact many multinational mining companies with Mexican projects. Below is a summary of the most relevant provisions of the Bill as currently drafted by the House of Representatives.

The tax is determined on an annual basis by applying a 5% rate to the taxable income as determined under Mexican Income Tax Law rules, with certain income – such as interest and taxable annual inflationary adjustment – and deduction – such as interest and depreciation – exceptions.

The tax should be paid by the end of March of the following year. Non-compliance or reporting false information should give rise to cancellation of the concession. No tax loss carry forwards are allowed.

As the tax should be deductible for income tax purposes, the effective tax rate would be 3.6% instead of 5%.

In the case of idle properties, holders of the relevant mining concession will be required to pay an additional 50% of the mining fee they currently pay under the Federal Rights Law for their mining concession, where no exploration or exploitation work is performed on such properties for two consecutive years within the first 11 years following the issuance date of the corresponding concession title.

While for properties where the issuance date of the relevant concession title is 12 years or older, and where no exploration or exploitation work is carried out for two consecutive years, the concession holder would be required to pay an additional 100% of the mining fee they pay under the Federal Rights Law for their mining concession.

Also proposed is the creation of a State Committee for the Regional Development of Mining Areas, comprised by representatives from the federal, state and municipal governments from the relevant communities involved and from the most relevant mining companies operating therein. They will be responsible for managing the funds and shall determine the works for sustainable community development.

David Cuellar (david.cuellar@mx.pwc.com) and Salvador Esquivel (salvador.esquivel@mx.pwc.com)

PwC

Tel: +52 55 5263 5816

Fax: +52 55 5263 6010

Website: www.pwc.com

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