Mexico Incorporates New BEPS Rules into Its Domestic Legislation

2020 Fiscal Package

Mexico incorporates new BEPS rules into its domestic legislation.

On Sunday, September 8, the Ministry of Finance and Public Credit (SHCP) submitted to Congress the draft decree amending various tax provisions, including the following BEPS related issues:

1. Update of the concept of a permanent establishment.
2. Rules to combat hybrid instruments.
3. Treatment of payments to foreign fiscally transparent entities and foreign legal figures.
4. Treatment of income earned by Mexican residents or permanent establishments in Mexico through foreign fiscally transparent entities and foreign legal figures.
5. Income subject to preferential tax regimes obtained by controlled foreign entities.
6. Limits on the deduction of interest from debt with independent third parties or related parties, based on the following formula: “adjusted” taxable income * 30% = limit on net interest deduction.
7. Tax treatment of income tax (ISR) and value-added tax (VAT) for digital platforms.
8. Establishment of a general anti-abuse rule (business purpose other than obtaining a tax benefit).
9. Alignment of national rules for the mutual agreement procedure.
10. Rules for the disclosure of aggressive tax planning schemes (“reportable schemes”).

As can be seen, through the issuance of these rules, the Mexican government continues to implement BEPS actions and strengthens the fight against practices that contribute to the erosion of the tax base. In future articles, we will analyze the general context of the application of these new BEPS rules in Mexico and their connection to the transfer pricing regime.