Mexico’s Congress Approves Tax Reform 2020

; posted on
November 7th, 2019

Mexico’s congress approved, with some adjustments, the package of tax reforms for 2020 that was submitted by Mexico’s president Lopez Obrador on September 8, 2019. The final package now needs to be signed by the president, which is likely to happen shortly. Most of the provisions of the 2020 Tax Reform will be become effective as of January 1, 2020.

Provisions

The Reform consists of significant provisions that may affect multinationals that operate in Mexico. Mexico continues incorporating the recommendations included in the OECD’s BEPS project. To avoid surprises, corporates should examine the financial structures and cross-border transactions with Mexican affiliates.

Important changes

Important changes in the Reform include, among others:

  • The Reform subjects taxpayers with interest expense over MxP$20 million to a net interest expense deduction limitation equal to 30 percent of "adjusted taxable income";
  • Modification of the tax treatment of payments made, directly or indirectly, to residents of a low-tax jurisdiction;
  • Modification of the definition of permanent establishment;
  • Introduction of new anti-hybrid rules for entities or legal arrangements treated as fiscally transparent under foreign tax regulations;
  • Introduction of a new set of CFC rules;
  • Changes in VAT and income tax related to the digital economy (digital services);
  • Introduction of a general anti-avoidance rule;
  • Alignment of Mexican law with BEPS Action 12 through mandatory reporting requirements.

Earlier this month, IMF requested Mexico to accelerate the implementation of the tax reforms. 

White & Case   Financial Times

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