Mexican tax reform 2014

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Mexican tax reform 2014

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Please enter valid email addresses Recipient name s: Email yourself a copy? Though income tax regulations are expected to be issued shortly and administrative regulations have just been issued on June 6the Income Tax Law means there is already plenty for financial sector taxpayers to contend with.

This additional withholding tax is equally applicable to distributions made by branches to their head offices. Withholding tax on interest paid abroad There is no change in the 4.

Tax residency certification is required for Mexican interest payers to apply this reduced rate. Treaty application Treaty relief for non-resident taxpayers is available provided domestic and treaty requirements are met. One relevant aspect of the reforms is that for treaty relief the tax administration may require certain documentation to prove that double taxation arises with respect to transactions between related parties that is, a declaration under oath.

Administrative regulations contain some exceptions to this rule. Considering that this provision is not intended to override tax treaties, it would be desirable that tax authorities issue additional regulations in this regard to clarify that this rule would be enforceable only if a treaty contains a similar rule.

However, tax authorities would still have the power to request this information. It should be noted that some Mexican treaties contain specific exclusion clauses that have an impact on the financial sector that should be taken into account when applying a treaty.

These features are common in the Mexican treaty network and particularly in the most recently signed treaties. Limitations for deductions Limitations for deductions concerning technical assistance, interest and royalty payments between related parties when a Mexican resident controls or is controlled by a related party were introduced.

This limitation applies in the following cases: The deduction of payments is not allowed when made to tax haven jurisdictions as defined in the Income Tax Lawunless supported by transfer pricing documentation. Some taxpayers have considered that some of these limitations go against constitutional provisions and therefore have filed injunctions before the Mexican courts.

Depreciation The reform eliminates the option to depreciate certain assets on an accelerated basis.

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Installment sales The new law repeals the provision that allows companies to defer income recognition on installment sales. Real estate investment companies The tax reform eliminates the special tax treatment for real estate investment companies REICs or SIBRAS for its acronym in Spanish and increases from one to four years the minimum leasing period to apply the exemption applicable to pension funds on the sale of real estate or shares representing such real estate.

Registry for foreign financial institutions and funds The Tax Administration Service will no longer hold a register for foreign financial institutions FFIs, such as banks, pension and retirement funds, investment banks and non-bank banksa former requirement to apply income tax exemption or a low withholding rate for interest.

Although this was meant to simplify tax obligations, this measure may give rise to uncertainty regarding documentation that is needed to apply such exemption or rate that may be required under a tax review.

In some instances a written confirmation from the tax authorities may be desirable to avoid controversies. Further, the elimination of this registry may give rise to an increase in the administrative burden regarding the documentation to be provided to each of the withholding agents by financial institutions.

As a result administrative regulations to minimise these burdens would be desirable. Deduction of contingency reserves The option to deduct contingency reserves for banking institutions has been eliminated and currently banks are allowed to deduct bad debts once they are not collectable from a legal standpoint pursuant to the Income Tax Law to the extent that these bad debts were not previously deducted under the rules applicable to the deduction of contingency reserves.

From a legal standpoint, bad debts would be considered uncollectable when such debts are considered as such pursuant to the National Banking and Securities Commission rules. Transitory provisions are included in the law in this regard.

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These rules provide that banks will continue to recognise taxable income from the decrease of the balance of contingency reserves as of December 31 Such transitory provisions also provide that where the deduction for bad debt in the corresponding year is lower than 2.

In cases where the remaining balance of the contingency reserves as of December 31 has been fully deducted, banks have the right to deduct write-offs, rebates, waivers and discounts on loan portfolios and losses from the sale of such portfolios, as well as losses arising from foreclosure.

Mexican tax reform 2014

Administrative regulations establish another procedure applicable to this deduction. This item of the reform applicable to banks was under the review of the tax authorities and as a result of this review new regulations were issued in this regard. In accordance with such new regulations, beginningan option is available for the banking institutions as a transition rule to deduct bad debts generated in in lieu of applying the transitory provisions mentioned above.

For these purposes, such regulations provide that the deduction of losses of bad debts arising inincluding writ-offs, rebates, waivers, discounts of loan portfolios and losses from the sale of such portfolios, as well as losses arising from foreclosure, may be deducted within certain limits and considerations, provided that the amount of these items is equal to the remaining accounting balance of the contingency reserve as of December 31 considering the annual limit of 2.

While the above procedure is completed, banking institutions are allowed to deduct every year the excess of contingency reserves that has not been deducted as of December 31considering for this purpose the limitation of 2.

Additionally, banking institutions would have to compare the balances of the contingency reserves of December 31 and against the balance of such reserves of the following years to determine a potential taxable income when the final balance is lower than the previous balance; the reference to is unclear.Find out which law firms are representing which Tax clients in Canada using The Legal 's new comprehensive database of law firm/client pfmlures.comtly search over , relationships, including over 83, Fortune , 46, FTSE and 13, DAX 30 relationships globally.

Access is free for in-house lawyers, and by subscription for law firms. The tax reform package repeals the flat tax and tax on cash deposits. These changes in force from the beginning of have a significant impact on the industry, especially on companies with affiliates or other investments in Mexico.

Mexican tax reform passed in changs the maquiladora industry landscape. Reduce Production Costs 50% or More If are you considering setting up manufacturing in Mexico fill .

Mexico Tax Alert. 4 January New decree and rules may ease effects of tax reform on maquiladora industry. The Mexican president issued a decree on 26 December (Presidential.

The Catholic Campaign for Immigration Reform. In June , the United States Conference of Catholic Bishops' Committee on Migration and The Catholic Legal Immigration Network, INC.

SUBJECT MEXICAN TAX REFORM: UPCOMING DEADLINES FOR IMMEX AND MAQUILADORA COMPANIES DISCUSSION As discussed in a previous BDO Tax Alert,1 Mexico reformed several of its tax laws, effective January 1,

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