Mexico Industry

This Week in Mexico – February 20, 2020

This Week in Mexico

Mexico’s 2020 Tax Reform Focuses on Income

The new tax reform for the tax year 2020 was published in in the Federal Official Gazette of Mexico, amending provisions of the Income Tax Law, the Value-added Tax (VAT) Law and the Federal Tax Code, among other laws, on December 9, 2019. The tax legislation already contains measures against hybrid mechanisms or mismatches (i.e. cases where an expense deduction is authorized by the Mexican tax legislation and the correlative income is tax exempted or not subject to tax abroad), the Mexican government has acknowledged that these measures have not been effective, and that the most recent recommendations of the OECD to combat this practice need to be included in our tax legislation.Based on the above, the reform considers as a non-deductible expense, payments made by a Mexican tax resident to a related party directly or through a structured agreement (under which the consideration to be paid involves payments to entities subject to preferential tax regimes which benefit the Mexican taxpayer or its related parties). Measures that limit the deduction of interests between related parties, such as thin capitalization rules, the Mexican government deemed it necessary to include new rules regarding interest payments made not only to related parties but also to independent parties. Under the new rule, any amounts exceeding 30% of the adjusted tax EBITDA (earnings before interest, taxes, depreciation, and amortization) of a legal entity will not be deductible for tax purposes. This limitation is only applicable when the amount of the interest payments made by a Mexican resident entity and its Mexican-resident related parties exceeds in the aggregate 20 million pesos ($1 million). Carryforward of non-deductible interest is permitted for the following 10 fiscal years taking into consideration the limit established by the rule. It is worth noting that certain interest payments are excluded from the deduction limit rule, such as interest on loans obtained to finance public infrastructure works and real estate developments located in Mexico, as well as interest paid on loans taken to finance projects in the extractive industries, and those derived from public debt instruments. Corporate groups are allowed to calculate the adjusted tax profit on a consolidated basis, in the terms that will be later established in the Miscellaneous Tax Regulations.


Mexico will probably miss 3% inflation target this year

The private sector of renewable energies in Mexico could face a new regulatory obstacle with the proposal proposed by the Energy Regulatory Commission (CRE), which in essence would force the elimination of self-supply and cogeneration contracts. As detailed in the regulation proposed to the regulatory oversight entity of Mexico, Conamer, the validity of the current self-supply and cogeneration permits will be respected; however, future modifications to these agreements will not be allowed; for example, by expanding or reducing generation or by incorporating new partners or customers into energy purchase agreements.The measure is consistent with what happens in other areas of energy policy development, for example, is aligned with recent statements that allow continued participation of already operational companies such as Talos and ENI in the oil and gas sector, but the administration of AMLO has made it clear that it will not enter into new contracts for deep water or exploration and production. This CRE play could have serious implications for companies that have already invested heavily in self-supply, such as the Mexican subsidiary of Sempra Energy, IEnova. However, you must still pass the final CRE approval process before it goes into effect. The text specifically states: “Applies to requests for modification of persons authorized as beneficiaries of electricity in self-supply permits or establishments associated with cogeneration permits, as well as those that were expressly included in the expansion plans upon approval. the permit title or in the last modification approved by the CRE “.


US Threatens Mexican Agribusiness Sector

New threat against the Mexican agribusiness sector emerged after the US Trade Representative Office (USTR) reported that it will request the International Trade Commission to monitor unfair commercial practices in seasonal and perishable products imports. In a letter to senators and congressmen, US Trade Representative Robert Lighthizer said that within 60 days of the USMCAís effective trade date, he will offer a ìcorrective action planî that could lead to anti-dumping investigations, Reforma has reported.The USTR, the Department of Commerce and the Department of Agriculture will hold hearings in Florida and Georgia with US producers. According to Bosco de la Vega, President of the National Agricultural Council (CNA), this decision is an internal US affair but it is also a breach of the USMCA trade treaty and goes against Word Trade Organization (WTO) regulations. ìWe already went through this with the tomatoes,î De la Vega warned, saying that Mexico will not give additional concessions. Deputy Minister of Foreign Trade Luz MarÌa de la Mora said Mexico will not allow ìthis seasonal issue to enter through the back doorî. De la Mora explained that Mexico is working with the US and Canada on methodology and formulas to be implemented in the USMCAís standardized rules. For agribusiness, this means compliance to sanitary and phytosanitary regulation. he agribusiness sector has a great opportunity to open new markets in the face of the Comprehensive and Progressive Trans-Pacific Association Treaty (CPTPP), said the Director of Food and Fishery Goods at the Ministry of Economy (SE) Arturo Juarez.


Infra, 5G, startups: How would net neutrality change Mexico’s ICT

Far from achieving full net neutrality in Mexico, supporters of this principle say it will boost investment in telecommunications infrastructure, give rise to new companies and contribute to the deployment of 5G networks. The Mexican telecommunications regulator, IFT, was required to publish a new set of regulatory guidelines to establish net neutrality, in a market dominated by few internet providers, shortly after the Federal Telecommunications Law was published in 2014. However, The IFT ignored this requirement until August 2019, when a court ruled in favor of Network in Defense of Digital Rights (R3D), a Mexican non-profit organization that defends digital rights, and forced the regulator to publish a draft of regulation in November.The transit to net neutrality is in the second stage of five, which corresponds to the reception of opinions from experts, academics and the general public. The public consultation opened in December and will close on March 6. However, the first draft of regulatory guidelines has been much criticized in the consultation, as it seems to create gaps for internet providers to favor certain platforms, according to R3D . Even more worrying, the NGO says that the current draft does not require service providers to invest in infrastructure. To learn more about the pros and cons of this principle, BNamericas talks with the director of R3D, Luis Fernando GarcÌa, who led the team that forced IFT to open the debate on net neutrality.