© 2015 McGladrey LLP. All Rights Reserved. Mexican Tax Overview U.S. Mexico Chamber of Commerce...

© 2015 McGladrey LLP. All Rights Reserved.© 2015 McGladrey LLP. All Rights Reserved.

Mexican Tax Overview

U.S. Mexico Chamber of Commerce Mexico as a Global Partner

© 2015 McGladrey LLP. All Rights Reserved.

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Edgar Lopezlena

Mexican Tax Practice Leader

Based in our Chicago / Schaumburg offices, serving clients nation-wide

Native of Mexico City. Mexican CPA (Universidad Iberoamericana) and Mexican Institute of CPAs

Specializes in U.S.-Mexican cross border taxation 20 years of experience providing advise on

complex Mexican tax issues to U.S. companies with a footprint or interest in Mexico

Areas of expertise include: Maquiladora taxation, Value-Added Tax, treaty application, transfer pricing, tax aspects of international transactions, international assignments, among other

Mexico as a Global Partner – Mexican Tax Overview


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Today’s agenda

Mexican tax environment vs. other OECD Countries Maquiladora taxation – A brave new world BEPS Additional reporting requirements Dividend taxation Questions / comments?



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Mexican tax environment vs. other OECD Countries

Mexico is an OECD member since 1994 Mexican income tax rate – Flat 30% for enterprise taxpayers Competitive when compared to other OECD members BUT: Government still struggles to obtain tax dollars



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Switz

erland

Germ

anyChile

Hungary

Slovak R

epublic

Icela

nd

Turkey

Luxembourg

Isra

el

Denmark

Netherla

nds

United K

ingdom

Italy

Norway

Japan

Spain

France

0

5

10

15

20

25

30

35

40 Corporate Income Tax Rates in the OECD

Pe

rce

nta

ge

Source : OECD Tax Database


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Maquiladora taxation – A brave new world

Significant changes in the Maquiladora tax framework came into force in 2014- Income tax- Tests to prevent permanent establishment- Transfer pricing- Value-Added Tax



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Income tax- Repeal of a long-standing tax stimulus that reduced the

Maquiladora’s effective tax rate to approximately 17% (even less in some cases)

- All Maquiladoras are now subject to the statutory 30% tax rate- Some Maquiladoras have limitations on the amounts of salaries

paid that are not includable in the employee’s taxable income- Possibility of appealing this limitation through legal proceedings

Tests to prevent permanent establishment- More clarity (GOOD)- More stringent rules (BAD)



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Tests to prevent permanent establishment (Continued)- Maquiladoras can no longer sell finished product in Mexico- More restrictive measures to source inputs from local vendors- Production assets owned by the foreign related party should represent at

least 30% of the aggregate production assets used in the Maquila activity

Failure to comply: Foreign related party will be subject to Mexican taxes on at least a portion of the products manufactured or transformed by the Maquiladora, even if the products are sold outside Mexico

Action item: Re-examine Maquiladora’s structure



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Transfer pricing- “Safe Harbor” alternative approach still applicable (determine a

minimum amount of profit based on a mechanism established by the law) – Highest between 6.5% cost plus or 6.9% ROI on production assets and other assets

- Certain subtle changes in the rules can trigger a large net minimum taxable income under the “Safe Harbor” option

- Alternative: Negotiate a transfer pricing policy with the Mexican tax authorities through an “Advanced Pricing Agreement” procedure

- Lack of clarity on acceptable methodologies to opt for the APA- A significant portion of Maquiladoras are opting for the APA instead

of the “Safe Harbor”



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Value-Added Tax- Maquiladoras now have to pay Value-Added Tax upon

introducing into Mexico inputs and production assets used in the Maquila activity, unless they obtain a special certification

- Additional reporting requirements to maintain the special certification and thus wave paying the Value-Added Tax

Changes in maquiladora taxation have caused that some Companies are opting-out or considering opting-out of Maquiladora status for their Mexican manufacturing / transformation activities



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BEPS

BEPS = Base Erosion and Profit Sharing OECD Action Plan on BEPS requires OECD member

countries (including Mexico) to adopt complex practices and detailed reporting requirements

Transfer pricing compliance becomes more complex and granular

Additional reporting requirements for taxpayers



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Additional reporting requirements

As a consequence of BEPS, Mexico now has two additional reporting requirements

Monthly electronic filing of accounting books and records to a secure website administered by the Mexican federal tax authorities

Reporting of “Relevant Transactions” as they occur 36 types of Relevant Transactions, including, among other:

- Adjustments in transfer pricing- Opting-out of Maquiladora structure- Payments to foreign related parties for certain intangibles- 16 complex financial transactions- Reorganizations- Changes in ownership



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Dividend taxation

Until 2013 dividends paid by a Mexican entity were not subject to any level of Mexican taxation if the amount distributed was up to the CUFIN (Mexican version of “Accumulated Earnings and Profits”)

Excess dividends triggered a tax of 43% on the distributing entity In 2014, dividends paid from post-2013 retained earnings paid to

individuals or foreign resident are subject to a 10% withholding tax in addition to the corporate 43% tax on excess dividends

Under Treaty provisions, the 10% withholding may be reduced to 5% if the beneficial owner is a U.S. Company, and to 0% if the beneficial owner is a more than 80% owner of the Mexican entity

No relief for U.S. individuals that are the beneficial owners of dividends



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Questions? / Comments?

Thank You



This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person.

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© 2015 McGladrey LLP. All Rights Reserved. Mexican Tax Overview U.S. Mexico Chamber of Commerce...

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