Mexico: Claiming Tax Treaty Benefits In Mexico As Of January 1

The new Mexican Income Tax Law (“MITL”) that entered into force on January 1 modified the so-called procedural provisions concerning the application by multinational companies of benefits set forth under tax treaties negotiated and executed by Mexico.

Accordingly, foreign residents claiming tax treaty benefits (either for a tax exemption or for a reduced withholding tax rate) should comply with the following requirements; otherwise, withholding agents will not apply these benefits and could withhold taxes up to a 35 percent general tax rate for Mexican-source taxation for foreign residents:

• Provide a certificate of tax residency issued by foreign tax authorities or a certification from these authorities that the foreign resident filed its tax return (this is the only requirement that was needed up to 2013).
• Appoint, through a power of attorney (granted before a foreign notary and apostilled or legalized by the Mexican consulate) a Mexican tax resident as its legal representative for tax purposes in Mexico.
• File, through the legal representative for tax purposes, either an informative tax return or a tax report.

For related party transactions, the tax authorities may request that the filer, through the legal representative for tax purposes, file a declaration under oath stating that the income subject to income tax in Mexico is also subject to income tax in the country of its residence. This declaration should expressly indicate the specific legal grounds for such foreign taxation, as well as any other documentation that, to the taxpayers’ criteria, may be useful to prove such circumstance.

According to Article 26, Section V of the Federal Tax Code, and Article 208 of the MITL, Mexican taxpayers that accept the role of legal representative (for tax purposes) of a foreign taxpayer will be jointly and severally liable for the unpaid taxes of the foreign taxpayers and will be obligated to keep, for a period of five years, all documents and information related to Mexican source income of said foreign taxpayers.