Problems relating to Trade and Investment on Mexico

 
14. Taxation Systems
Issue
Issue details
Requests
Reference
(1) Frequent Amendment of Taxation System - Amendment in taxation system in each year forces taxpayers into great expenses in time and cost (i.e., fees paid to external consultants in order to understand the new taxation system), (i.e., change in the rate of deductible expenses, such as meal coupon handed to employees as part of fringe benefits - to what extent (in percentage) such coupon is deemed deductible expenses.)
- Expanded conceptual denial. The foregoing reduction in the deductible expenses inflates the tax burden upon the company's operation.
- Frequent legislative changes in temporary import. Promulgated legislations are ambiguous on enforcement deadline MFS has managed to cope with the problem by keeping vigilant on perpetual changes on tax legislation. However, it is requested that GOM provides clarity of the contents and the enforcement timing. (Eg., application of EC, nebulous benefits and obligations accompanying the shift to OEA (Operadores Economicos Autorizados), formerly known as NEEC (Nuevo Esquema de Empresas Certificadas), is Mexico's equivalent of C-TPAT (Customs-Trade Partnership Against Terrorism) in the U.S.
- Due to the frequent amendments/revisions of tax legislation, MFS incurs extra time and cost of retaining external tax experts. The electronic accounting system made compulsory by the amendment of last year that contains full of ambiguities requires much time and expenses, having to develop new software to make it compatible with the existing in-house own accounting system.
- Taxation scheme amendments take place almost every year, forcing tax payers into assumption of heavy cost for human resources, and for revising the system. Especially burdensome was provision of accounting information in electronic data format for the 2014 Accounting Information.		 - It is requested that GOM discontinues yearly amendment of its taxation system.
- It is requested that GOM affords Foreign Funded Enterprises (FFEs) opportunities to exchange dialogues with GOM and provides due and sufficient explanation to FFEs in order to secure transparency of its policy.
- It is requested that GOM ensures including the Enforcement Date in its promulgation of New Legislation.
- It is requested that GOM develops and implements its tax system renovation plan based on a much longer-term perspective.
- It is requested that GOM:
-- develops comprehensive tax levy system, for example, introduction of electronic TAX ID, and
-- refrains from effecting substantive large changes.		 - Tax Act of Mexico
- Resolucion Micselanea Fiscal 2010 Annex 3"Standard"
(Official Gazette of 7 December 2010)
- Resolucion Miscelanea Fiscal 2015 (Diario Oficial de la Federacion 30 December) http://www.sat.gob.mx/
informacion_fiscal/
normatividad/Paginas/
resolucion_miscelanea_
2015.aspx
- Legal Basis Article 28 of Federal Fiscal Code
- Promulgation of SAT
  (Action)
- On 31 October 2013, federal congress of Mexico approved the Bill for amending 2014 tax scheme, which has been enforced since January 2014. Major amendments are:
(1) Repeal of IETU and IDE,
(2) 10% Withholding tax on dividends paid by the domestic enterprise in Mexico to individuals (resident and non-resident), shareholders and foreign corporate shareholders,
(3) Continuation of the going 30% income tax (which was due for reduction in stages, 29%, 28% beginning 2014),
(4) Raise of personal income tax to 35%,
(5) Restricted inclusion into deductible expenses of the specified remuneration to employees such as bonus, overtime allowance, etc.,
(6) Unification at 16% of IVA tax rate,
(7) IVA tax levy in principle on temporary import on use of the IMMEX Programme, etc.,
(8) Repeal of 17% tax incentive upon Maquiladora enterprises by application of 30% corporate income tax, and
(9) Comparable uncontrolled price method is no longer possible based on the going Maquiladora transfer pricing study so that Maquiladora enterprises must choose between the safe-harbour (where taxable income is higher of 6.9% of the total assets or 6.5% of the total expenses) and advance pricing agreement (APA).
(2) Nebulous exemption measures on Value Added Tax - Ambiguous terms and conditions for obtaining VAT exemption, while the consultation window is unknown, so that MFS incurs heavy consultancy fees from- having to rely on law firms. - It is requested that GOM:
-- prepares and distribute materials elucidating amended IMMEX in detail, and
-- sets up consulting windows.		 - The Federal Official Gazette amending the Decree for the Promotion of the Manufacturing, Maquiladora and Exportation Services Industry ("IMMEX Decree") of 24 December 2010)
- IMMEX Decree
(3) Vexatiously Complex Application Procedures for Approval on VAT In-Bond Exemption - 2014 Amended Taxation System restricts the preferential measures on in-bond VAT enjoyed by IMMEX enterprises, etc, halving the attractiveness for continuing business or investing newly into Mexico.
- The 2014 Mexican Tax Reform removed the IVA 16% exemption which has been granted by acquisition of IMMEX. While affected enterprises are given to understand that continued tax exemption may be granted by filing application to the taxation authority. However, there is no practical guideline that gives substantive details.
- Tax Law Amendment for 2014 brought about changes in preferential measures under IMMEX. IVA (16%) becomes payable unless the taxpayer completes the procedures for establishing during 2014 the official lawful importer status. Due to the change in the capital environment, financing cost increases.
- Changes in IVA scheme are frequent. While filing application is no longer necessary to obtain approval on VAT in-bond exemption, additional requirements (record and maintenance of shipment/inventory/production) snowball and increase work time.		 - It is requested that GOM considers enabling IMMEX enterprises correctly operating under the Bond Scheme to enjoy continually the bond scheme, without complex requirements or procedures.
- It is requested that GOM gives practical explanation in detail by giving an ample prior notice to the taxation authority.
- It is requested that GOM affords Foreign Funded Enterprises (FFEs) opportunities to exchange dialogues with GOM and provides due and sufficient explanation to FFEs in order to secure transparency of its policy.
- It is requested that GOM simplifies the IVA refund procedures.		 - VAT Act for 2014
- Miscellaneous Resolution Fiscal for 2014 notified by Ministry of Finance on 1 January 2014 in Federal Gazette
- IVA TAX LAW
- 2014 Mexican Tax Reform
(4) Delayed Administrative Procedures on Tax Refund, etc. - The Taxation Authority's tax refund on IVA, etc. lags behind. Inability to predict when the refund actually takes place makes it difficult for MFS to manage cash flow in its operation.
- MFS's cash flow plan had been interrupted by the delay in VAT refund paid during the construction period for the infrastructure projects far beyond the refund period stipulated in the Tax Law. The delay jeopardises the MFS's cash flow.		 - It is requested that the Taxation Authority:
-- shortens the time required for tax refund, and
-- considers public disclosure of the tax refund timing.
- It is requested that GOM cuts down the tax refund period.
(5) Raise in Personal Income Tax Rates - Because the taxation authority raised the cap from 30% to 35% on progressive personal income tax (PIX), PIX burden on individual expatriates had gone up.
- Increase in Income Tax. Income Tax rate had gone up for high-income earners. It will impact upon employment of medium-income earners hereafter.		 - It is requested that GOM considers:
-- cut down of the tax refund time and
-- disclusure of the expected refund date.
- It is requested that GOM affords Foreign Funded Enterprises (FFEs) opportunities to exchange dialogues with GOM and provides due and sufficient explanation to FFEs in order to secure transparency of its policy.		 - 2014 Mexican Tax Reform
(6) Repeal of Consolidated Tax Payment Schem - The 2014 Taxation System Reform in effect terminated Consolidated Tax Payment Scheme, disabling the realisation of the efficient Tax Payment Structure. - It is requested that GOM takes step to resurrect the Consolidated Tax Payment Scheme.
(7) Repeal of Preferential Treatment under Maquiladora - The 2014 Tax Reform had repealed the Reduced Corporate Income Tax Rate of 17.5% (CRIT Rate) so that new tax rate of 30% applies.
The 2014 Tax Reform had repealed Transfer Price Taxation System from the calculation formula of Compulsory Profit Rate (CPR), increasing CPR as a result.		 - It is requested that GOM:
-- restores RIT Rate for promotion of export industry, and
-- restores the calculation method by Transfer Price Taxation System.		 - Mexican Tax Laws
(8) Increased Burden upon Clerical/ Electronic System Work from Mexican Tariff Reform (MTR) - In 2014 Gazette, the taxation authority released the MTR requiring submission of electronic accounting record. In addition to matching the individual account items on the financial statement to the specific chart of account items designated by the taxation authority, alignment of the internal electronic accounting system is necessary to prepare monthly electronic accounting record. - It is requested that GOM considers streamlining its requirement, including acceptance of the existing financial statement normally prepared by individual reporting enterprises. - The 2014 tax reforms transitory articles of the MTR.

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