Mexico's Tax Service Administration (SAT) released interpretative guidance on August 29 2017 that affects taxpayers who have elected to take advantage of the capital repatriation programme that was launched on January 18 2017.
The capital repatriation initiative allows taxpayers (both entities and individuals) that earned income from previously unreported direct and indirect offshore investments, which were held abroad until December 31 2016, to bring the funds back to Mexico. Taxpayers can pay a specified tax on the funds and be deemed to have met their tax obligations in Mexico for the fiscal year in which the payment is made and for the previous fiscal years in which the investment was held. The requirements to benefit from the capital repatriation initiative include the following:
- The taxpayer must pay an 8% tax on the repatriated amount within 15 days following the date the amount is brought back into Mexico;
- The repatriation must be made during the period January 19 2017 to October 19 2017 (the previous deadline of July 19 has been extended by three months); and
- The funds must be invested in Mexico for at least two years.
Initially, funds were deemed to be invested in Mexico if the investment was made through financial instruments issued by residents of Mexico or in shares issued by Mexican companies. The SAT has now re-interpreted the "investment" requirement, so that the benefits of the repatriation initiative may not be available in one of two circumstances:
1) The repatriation transaction is carried out after October 19 2017, and/or the Mexican taxpayer is able to exercise control over the investment decisions taken by the company whose shares have been acquired; or
2) The repatriated funds are used by the Mexican company whose shares were acquired to invest abroad.
In both cases, the SAT will consider the transactions to constitute unacceptable practices and the benefits of the capital repatriation regime may be forfeited.
Additionally, any person that advises, renders services or participates in the implementation of such a transaction will be deemed to have engaged in an unacceptable practice and may be subject to examination and sanctions by the SAT.
The SAT has taken the position that, since one of the purposes of the capital repatriation initiative is to encourage capital investment, allowing an investment in the shares of a Mexican company and then allowing the capital to leave the country thwarts the objective of the programme.
It is important for persons that have control over corporate decisions to invest abroad to remember that they potentially are subject to the unacceptable practice consequences. Such persons should perform a careful analysis to ensure that they do not have any exposure in the context of the capital repatriation regime.
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