IVA VAT Fundamentals for USU.S. Companiesmedia.straffordpub.com/products/...for-u-s-companies-2012-07-26/... · [email protected] Juan Carlos Valles Zavala, Baker & McKenzie

Presenting a live 110‐minute teleconference with interactive Q&A

Mexico's IVA Tax: VAT Fundamentals for U S CompaniesVAT Fundamentals for U.S. CompaniesObtaining Deductions and Refunds, Complying With VAT Withholding, and Meeting Other Challenges

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, JULY 26, 2012

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

Gabriel Andrade, Partner, International Tax Services, KPMG, Monterrey, Mexico, , , , y,

Scott Sneckenberger, Partner, Plante Moran, Auburn Hills, Mich.

Luis Carbajo-Martinez, Principal, Baker & McKenzie, Juarez, Mexico

Juan Carlos Valles Zavala, Attorney, Baker & McKenzie, Juarez, Mexico

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M i ’ IVA T VAT F d t l f Mexico’s IVA Tax: VAT Fundamentals for U.S. Companies Seminar

July 26, 2012

Scott Sneckenberger, Plante [email protected]

Gabriel Andrade, [email protected]

Juan Carlos Valles Zavala, Baker & [email protected]

Luis Carbajo-Martinez, Baker & McKenzie [email protected]

Today’s ProgramIVA Overview Slide 7 – Slide 72[Gabriel Andrade]

Exempt And 0%-Rated Transactions[Scott Sneckenberger]

Slide 73 – Slide 76

IMMEX/Maquiladora Program, And Potential IVA Benefits[Scott Sneckenberger]

IVA And Importations By Non Mexican Companies


Slide 84 – Slide 86IVA And Importations By Non-Mexican Companies[Scott Sneckenberger]

Impact Of Elections On IVA Policy[Luis Carbajo-Martinez and Juan Carlos Valles Zavala]

Slide 84 Slide 86


Hot IVA Topics, From A Legal Perspective[Luis Carbajo-Martinez and Juan Carlos Valles Zavala]


Handling IVA Refunds[Gabriel Andrade]


IVA OVERVIEWGabriel Andrade, KPMG

IVA OVERVIEW

Characteristics

1. It is an indirect tax

2. Federal tax

3. Value added Tax (VAT) is levied on consumption and it is present along alli ti iti ’ d ti d i li ti h i VAT ieconomic activities’ production and commercialization chains. VAT is

applicable to goods and services acquired or received, respectively,within the national territory, as well as imports

4. It is an efficient tax collection instrument.

5. Reduces tax evasion5. Reduces tax evasion

6. Its application is merely inter‐territorial

8

7. It is inflationary.

GeneralProvisions(Articles1Through7oftheMexicanVATLaw(VATL)

Elements of the VAT

• Subject and object to this tax:

I di id l

GeneralTaxRate16%

Individuals Legal entities

• That carry out in Mexican territory any of the following activities:• That carry out, in Mexican territory, any of the following activities:

Sale of goods Rendering of independent servicesRendering of independent services Grant temporary use or enjoyment of goods Imports goods or services

9

TransferOfTheVAT

• The VAT shall be explicitly transferred to the buyer and separatelypresented from the pricepresented from the price.

• The seller or service provider must charge the tax whenever anindividual or an entity:y Acquires or, uses or enjoys temporarily goods Receives a service

• This is mandatory even when the VATL establishes that thecorresponding tax is to be withheld by the buyer.

10

WithholdingOfVAT

• The VATL establishes that the following persons are obliged to withhold thetax that is transferred to them by the suppliers or service providers:

Financial institutions that receive goods in lieu of payments or acquired b l l l igoods by legal resolutions or trusts

Legal entities that:

‐ Receive independent personal services from individuals, ortemporarily use or enjoy good property of individuals. Thewithholding will be performed for 2/3 of the corresponding VATwithholding will be performed for 2/3 of the corresponding VAT.

‐ Acquire scrap to be used as raw material in industry or for itscommercialization. The withholding will be performed for the entire

11

g pcorresponding VAT.

Continued

WithholdingOfVAT(Cont.)

Legal entities that:

‐ Receive freight services from individuals or legal entities. Thewithholding will amount to 4% of the price.

‐ Receive services from commission agents that are individuals.The withholding will be performed for 2/3 of the correspondingVATVAT.

Individuals or legal entities that acquire goods, or temporarily useor enjoy goods from foreign residents with no permanentor enjoy goods, from foreign residents with no permanentestablishment in Mexico.

Entities with special trade attributions authorized by the Ministry

12

p y yof Economy when they acquire products related with the specialtrade attributions fromMexican suppliers

WithholdingOfVAT(Cont.)

• All VAT withholdings will apply and must be performed at the moment ofthe payment carried out in favor of the seller or service provider, and onlyfor the amount that was effectively paid.

13

EffectivelyPaid

For VAT purposes, Mexican tax provisions establish that a transaction isconsidered effectively paid when:y p

The price is received in cash.

Goods or services are received in lieu of the payment, even if they arereceived as advances or deposits.

Th i t t f th ll i f lfill d b f ti f ti f The interest of the seller is fulfilled by any means of satisfaction ofobligations.

When the agreed price is paid by check it can be considered that the value ofWhen the agreed price is paid by check, it can be considered that the value ofthe transaction is effectively paid at the date of collection, or when the check isendorsed in favor of other individual or entity.

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MeansOfSatisfyingObligations

• Offset: Takes place when two persons have, reciprocally, accounts payableand accounts receivable from the other. The offset consists in canceling thedebts between each other insofar as the amount of the smallest.

• Right confusion: The obligation is satisfied when the same person is theb fi i d th d bt f th d btbeneficiary and the debtor of the debt.

• Debt remission: Any person can renounce his right on a debt, even if itrenounces partially except on those cases that it is prohibited by lawrenounces partially, except on those cases that it is prohibited by law.

• Renewal of debt: Takes place when the first obligation is substituted by anew obligationnew obligation

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EffectivelyPaid(Cont.)

• In case of documents receivable derived from financial factoring, thetransaction will be considered effectively paid at the moment in whichthose documents are transferred.

• In connection with the foregoing taxpayers may consider the transaction• In connection with the foregoing, taxpayers may consider the transactionderived from financial factoring effectively paid when the document ispaid, as long as the following requirements are fulfilled:

This option is expressly stated in the contract. The person transferring the document must pay the corresponding VAT. The bank statements that reflect the payment are delivered to thep ytransferees within the first 10 days of the month following thetransaction.

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VATRateForBorderRegion

• VAT will be calculated at a rate of 11% in the following scenarios:

Activities subject to VAT performed by residents of the region close tothe border with neighboring countries, as long as the goods orservices are delivered or rendered, respectively, within such region

• The region close to the border covers 20 kilometers in a parallel line withthe border. Additionally, this region also includes the states of BajaC lif i d Q i t R d i i liti i SCalifornia and Quintana Roo, and some municipalities in Sonora amongothers.

• In case of imports the tax rate applicable would be 11% as long as the• In case of imports, the tax rate applicable would be 11%, as long as theimported goods or services are alienated or rendered within the regionclose to the border.

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• Notwithstanding the foregoing, in case of alienation of real state, theapplicable tax rate would remain at a 16%.

VATRateAt0%VAT will be calculated applying a rate of 0% for the following activities (certainparticularities or exceptions may apply), among others:

• Sale of: Non‐industrialized animals and vegetables

d d d d h Medicine and products oriented to nourishment

Ice, fresh water

Machinery for the first sector

Materials and products destined to be used in the first sector

Hydroponic greenhouse equipment

Gold, jewelry and artistic pieces

18

j y p

Books, newspapers or magazines edited by the taxpayer

VATRateAt0%(Cont.)

• Rendering independent services to the following:

T fi t t ti iti To first sector activities

Grain mill

Milk pasteurizing

To hydroponic greenhouses

Reinsurance

Domestic water supply

• Grant use or enjoyment of machinery oriented to the first sector

• Export of goods or services that are subject to VAT

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Export of goods or services that are subject to VAT

CreditableVAT

• Taxpayers can subtract the creditable VAT against the VAT payable for themonth determined by the VATL.

• Creditable VAT refers to the VAT that has been transferred to the individual orentity by its suppliers, and the VAT that was paid for the import of goods andservices, if any.

• The right over creditable VAT is personal and cannot be transferred by anymeans other than merging. In the event of a spin‐off, the right remains with theoriginal entityoriginal entity.

ConceptConcept AmountAmount

Activity subject to VATActivity subject to VAT 500,000500,000ActivitysubjecttoVATActivitysubjecttoVAT 500,000500,000

(x)(x) VATrateVATrate 16.00%16.00%

(=)(=) PayableVATPayableVAT 80,00080,000

(( )) Creditable VATCreditable VAT 55 00055 000

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((--)) CreditableVATCreditableVAT 55,00055,000

(=)(=) VATinchargeVATincharge 25,00025,000

RequirementsForCreditableVAT

In order to be under conditions to subtract the creditable VAT from the VAT payable,taxpayers must fulfill the following requirements:

• It must correspond to goods or services strictly necessary for the activitiesperformed by the taxpayer.

• The expenses related to the creditable VAT must be deductible, for income taxpurposes.

• Where the Mexican tax law establishes partial deductions for income taxWhere the Mexican tax law establishes partial deductions for income taxpurposes, the creditable VAT may be subtracted from the payable VAT in thesame proportion.

l d h• Separately presented in the invoice

• Creditable VAT must be effectively paid.

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• VAT withheld by suppliers can be considered creditable VAT in the month afterthe withholding took place.

PartiallyCreditableVATForExemptActivities

In the event that a taxpayer carries out activities that are not subject to VAT,creditable VAT related to those activities would not be subtracted from theVAT blVAT payable.

In case the creditable VAT is related to both activities, subject and not subjectto VAT the creditable VAT may be subtracted proportionallyto VAT, the creditable VAT may be subtracted proportionally.

In order to determine the aforementioned proportion, refer to the followingslide:slide:

22

CreditableTax:ProcedureOfAccreditationWhenPerformingTaxableAndExemptActs

1. In the case of VAT disbursements that are used exclusively to taxed acts(16%, 11% and 0%), VAT will be credited in full. VAT is paid on theimportation of goods or services.

2. In the case of VAT disbursements that are used exclusively to acts exempty p(not subjected for VAT), VAT will NOT be creditable. It includes the paid VATby the importation of goods or services.

3. In the case of VAT disbursements that are used interchangeably to performany taxed or exempted acts, VAT will be credited in proportion to thetaxable activities.

4. To determine the proportion above, it will be necessary to apply thefollowing formula:

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following formula:

CreditableTax:FormulaToDetermineTheProportionp

Concept

Totalvalueofthetaxableactivities,includingthe0%ofthemonthinquestion

Totalvalueoftheactivitiesofthemonthinquestion

(=) TheproportionofcreditableVATonthemonthtocalculate

24

CreditingForInvestments:(FixedAssets,DeferredChargesAndExpenses)( g p )

1. The VAT will be creditable, considering whether the investment is intended toperform taxed or exempt acts. If you alter the destination of investment, a creditableVAT adjustment will have to be performed, derived from the investment.

2. If the investment is used to do only taxed activities (16%, 11% or 0%), VAT will befully creditable. It includes the paid VAT by the motive of the importations.y p y p

3. If the investment is used for exempt activities, VAT of such investment will not becreditable.

4. If the investments are destined to taxable and exempt activities, VAT will becreditable on proportion to the activities that are taxed (16%, 11%, 0%), relatedwith the total of acts or activities (taxed plus exempt)with the total of acts or activities (taxed plus exempt).

5. If the investments described in 2 and 3 above change the normal fate of the incometaxed obtained or exempted, an adjustment must be made to creditable VAT of such

25

taxed obtained or exempted, an adjustment must be made to creditable VAT of suchinvestments.

CaseForPractice

Case for practice:

1. A business entity is dedicated in the sale of real estate and wants todetermine the creditable VAT for fixed assets of July 2010.

2. The company makes home sales (exempt) and locals commercial(taxable).

3. The fixed asset data are as follows:

26

CaseForPractice(Cont.)

Investment VAT investment

Usedl i l f $ 200 000 00

Investment VATinvestment

$ 32 000 00exclusively foractstaxed

$200,000.00 $32,000.00

Usedexclusively foractsexempted

$150,000.00 $24,000.00

Usedinterchangeably with

acts taxed and$300,000.00 $48,000.00

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actstaxedandexempt


Duringthemonth,thefollowingoperationswereperformed:

Actsoractivitiestaxableon16% $2’000,000.00ActsoractivitiesexemptedonVAT $1’850,000.00The total value of the acts or activities $ 3’850 000 00Thetotalvalueoftheactsoractivities $3 850,000.00

Solution:

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IVAtrasladadoal Nivelde

Exclusivelyusedith ti iti All creditable VAT

contribuyente acreditamiento

withactivitiessubjecttoVAT $32,000.00

AllcreditableVATmaybe

subtracted

ExclusivelyusedwithactivitiessubjecttoVAT

$24,000.00 NorighttosubtractthecreditableVAT

Indistinctlyusedforbothkindofactivities

$48,000.00 Proportionallyactivities

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PartiallyCreditableVATForExemptActivities

For the amount of $ 45,000.00, which corresponds to both activities, subject to andexempt from VAT, the proportion factor would be applicable according to the followinginvestments:investments:

Concept Amount

Value of all activities subject to VAT (including 0%) of thecorresponding month 2’000,000

Value of all activities of the corresponding month (including notsubject to VAT) 3’850,000

(=) ProportionapplicabletothecreditableVAT 0.5195

(x) 100% 100ProportionofcreditableVATthanmaybesubtractedfrompayable

30

(=)p y p y

VAT 51.95%

PartiallyCreditableVATForExemptActivities(Cont.)p ( )

Creditable VAT that can be subtracted from the payable VAT:

Concept Amount

VAT transferred by the supplier to the taxpayer

48,000

(x) ProportionapplicabletothecreditableVAT 51.95%

Creditable VAT that can be subtracted from the

(=)

Creditable VAT that can be subtracted from thepayable VAT 24,936

31

PartiallyCreditableVATForExemptActivities(Cont.)p ( )

Total creditable VAT that can be subtracted from the payable VAT:

Concept Amount

Creditable VAT subject to the proportionCreditable VAT subject to the proportion24,936

(+)Other creditable VAT

32,000

(=)TotalcreditableVATthatcanbesubtractedfromthepayableVAT 56,936

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VATBalancesInFavor

When the VAT tax return results in a balance in favor, the taxpayer may:

Off h b l i f i VAT i h f h f ll i h‐ Offset such balance in favor against VAT in charge of the following months

‐ Request the refund of the balance in favor before the tax authorities. It mustbe for the total amount of the balance in favorbe for the total amount of the balance in favor.

‐ Offset such balances in favor against other federal taxes in charge

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Exemptions

Alienation Article9VATL A ti l 22 d 22 RVAT Articles22and22RVAT

Renderingofindependentservices. Article15VATL Articles 28 to 31 RVATL Articles28to31RVATL

Temporaryuseorenjoymentofgoods Article20VATL Article 34 RVATL Article34RVATL

Importation Article25VATL Articles38and39RVATL

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TaxRate0%AndExemptions

.0%TaxRateExemptions

• It is expressed in support documentation.

• Allows acreditation

d d h f d

• It is recorded as a expenditure.

• Does not allow accreditation

• It is considered in the VAT refund request.

• Although it is a virtual tax, takes tax implications

• VAT refund request is not allowed

• Does not have tax implications

35

Alienation(Articles 8 Through 13 Of The Mexican VAT Law (VATL)For purposes of this law, the concept of alienation includes, in addition to theprovisions of the Federal Fiscal Code, missing items a decrease in the

’ i t i I th l tt thi ti d it id t

(Articles8Through13OfTheMexicanVATLaw(VATL)

company’s inventories. In the latter case, this presumption admits evidence tothe contrary.

The transfer of goods by death or by donation is not taxable unless suchThe transfer of goods by death or by donation is not taxable, unless suchdonation is made by a company for which the donation is not deductible forincome tax purposes.

If the transfer of goods is not effectively made, the corresponding value addedtax may be refunded, provided that the requirements of the first and secondparagraphs of Article 7 hereto are satisfied. If tax has been withheld pursuantgto Articles 1‐A and 3, third paragraph of this law, the tax is not refundable andthe provisions of Article 7, third paragraph of this law will apply.

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ExemptedAlienations(Article9OftheMexicanVATLaw,VATL)

VATwillnotbepaidonthetransferofthefollowinggoods:

• Land

( , )

• Constructions attached to land, either intended or used for residential purposes

• Books, newspapers and magazines, as well as the author’s right to use or exploit a workp p g g p

• Used personal property, unless transferred by enterprises

• Tickets and other receipts that permit participation in lotteries, raffles, drawings or games ofp p p p g gchance and contests of any kind; as well as the respective prizes, as established in the IncomeTax Law

• National and foreign currency, as well as gold or silver pieces that had been regarded asg y g p gcurrency and those pieces known as “troy ounces”

• Partnership interests, documents pending collection and negotiable instruments

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• Gold ingots with a minimum gold content of 99%, provided that the transfer is made by retailsales to the general public

ExemptedAlienations(Article9OfTheMexicanVATLawVATL),Cont.

VATwillnotbepaidonthetransferofthefollowinggoods:

T f f d b t f i id t b f i id t t

( ),

• Transfer of goods between foreign residents, or by a foreign resident to alegal entity having an authorized program under the Decree forImplementation of Temporary Import Programs to Produce Export Items orthe Decree for Development and Operation of Export In Bond Corporationsthe Decree for Development and Operation of Export In‐Bond Corporations(Maquiladoras), or under a similar tax regime on the terms of the CustomsLaw; or companies in the terminal automotive, auto transportation vehicle,or auto parts manufacturing industries for placement into a bondedor auto parts manufacturing industries for placement into a bondedmanufacturing warehouse, provided that the goods have been exported orintroduced into national territory under a program authorized by suchdecrees or similar tax regime in accordance with the Customs Law …g

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AlienationInMexicanTerritory(Article10OfTheMexicanVATLawVATL)

For purposes of this law, transfers are understood to be made in nationalterritory if the goods are located therein at the moment of shipping the

( )

y g pp ggoods to the transferee and, in the absence of shipment, physical delivery ofthe goods is made in the country by the transferor.

Transfers or alienation of goods subject to Mexican matriculation orregistration are considered made within Mexican territory oncematriculated or registered, even though the goods are physically outsideM i d id d th t th t f i id t f M i f iMexico, and provided that the transferor is a resident of Mexico or a foreignresident’s establishment in the country.

In the case of intangible goods the transfer is considered to take place in In the case of intangible goods, the transfer is considered to take place innational territory if the transferee and the transferor are residents therein.

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MomentOfAlienation(Article11OfTheMexicanVATLawVATL)

Transfers of goods are made at the moment the consideration is effectivelycollected, and on the amount of each one of such considerations.

( )

In the case of transfer of negotiable instruments that evidence real propertyrights to the delivery and disposition of goods, the goods covered by suchnegotiable instruments are deemed transferred at the time of payment fortransfer of the negotiable instrument. If no transfer is made, transfer occurswhen the goods covered by such instruments are physically delivered to a

th th th i f th ti bl i t tperson other than the issuer of the negotiable instrument.

In the case of participating real estate trust certificates, the goods coveredby the certificate are deemed transferred when the certificate is transferredby the certificate are deemed transferred when the certificate is transferred.

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AlienationTaxableBase(Article12OfTheMexicanVATLawVATL)

In order to compute the tax on transfers, the value is the price or agreedupon consideration, as well as the additional amounts charged to or

( )

p gcollected from the transferee for other taxes, fees, ordinary or late interest,contractual penalty or any other amounts.

41

RenderingOfServices(Articles14Through18OfTheMexicanVATLawVATL)

Thefollowingaredefinedasrenderingindependentservices,forVATpurposes:A ffi ti t b t f i f f th

( g )

• An affirmative covenant by one person to perform in favor of another person,regardless of the act from which such covenants arises and the name or classificationgiven to said act by other laws

• Transportation of persons or goods

• Insurance, bonding and re‐bonding

• Agency, commission, mediation, representation, brokerage, consignment anddistribution

• Technical assistance and technology transfer

• All affirmative covenants to give, or negative covenants to not do or allowundertaken by one person in favor of another provided that such obligations or

42

undertaken by one person in favor of another, provided that such obligations orcovenants are not defined hereunder as a transfer or temporary use or enjoyment ofgoods

RenderingOfServices The rendering of independent services does not include the rendering ofdependant services for remuneration or the rendering of services fori hi h th I T L d fi i il t id tiincome which the Income Tax Law defines as similar to said remuneration.

The rendering of independent services is deemed personal if the servicesare activities described under this article as not having the characteristics ofare activities described under this article as not having the characteristics ofbusiness activities.

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VAT‐ExemptServices(Article15OfTheMexicanVATLawVATL)

Value added tax is not paid on the rendering of the following services:

• Commissions and other consideration paid by the debtor to the creditor on account of

( )

Commissions and other consideration paid by the debtor to the creditor on account ofmortgage loans given for the purchase, enlargement, construction or repair of residential realproperty, except for those resulting after the authorization of said loan or which are payable tothird parties by the debtor

• Commissions collected by retirement fund managers or, if applicable, by banking institutionsfrom employees for the management of their funds derived from the retirement savingssystems and services related to said management, as established in the Law for the RetirementSavings System (SAR) and the Law of the State Workers Social Security and Services InstituteSavings System (SAR) and the Law of the State Workers Social Security and Services Institute,as well as in all other provisions derived therefrom

• Services rendered free of charge, unless the beneficiaries of the services are members, partnersor associates of the legal entity rendering the serviceor associates of the legal entity rendering the service

• Educational services rendered by the Federal Government, the Federal District, the States, theMunicipalities and their decentralized agencies, and by private establishments with officialauthorization or official validation of studies pursuant to the General Education Law as well as

44

authorization or official validation of studies pursuant to the General Education Law, as well aspreschool educational services

• Public land transportation of persons, except by railroad

VAT‐ExemptServices(Article15OfTheMexicanVATLawVATL),Cont.


• International maritime transportation of goods rendered by foreign residents

( ),

• International maritime transportation of goods rendered by foreign residentswithout a permanent establishment in the country. In no case will the provisions ofthis section apply in the case of coastal navigation services within national territory.

• Insurance against agribusiness risks, housing loan insurance covering debtor defaultrisk on mortgages loans or loans secured by fiduciary guarantee for the purchase,enlargement, construction or repair of residential real property; financial guarantyinsurance covering the risk of issuer default on securities, negotiable instruments orinsurance covering the risk of issuer default on securities, negotiable instruments ordocuments which are the subject of public offerings or stock exchangeintermediation, provided that the funds derived from the placement of suchsecurities, negotiable instruments or documents are used to finance mortgage loans

d b fid i f h h l ior secured by fiduciary guarantee for the purchase, enlargement, construction orrepair of residential real property, and life insurance whether it covers the risk ofdeath or grants annuities or pensions, as well as the agent's commissions on saidinsurance.

45



• Those resulting in interest:

( ),

g

a) Derived from transactions in which the transferor, the service provider or the grantor of thetemporary use or enjoyment of goods provides financing related to activities on which thepayment of this tax is not required or levied at the rate of 0%p y q

b) Received or paid by banking institutions, credit unions, limited purpose financial corporations,savings and loan corporations and financial factoring corporations in financing transactions forwhich authorization is required and under the concept of discount on documents pendingq p p gcollection; interest received and paid by multiple purpose financial corporations that forincome tax purposes are part of the financial system, due to the granting of loans, factoring ordiscounting on documents pending collection; received by general deposit warehouses forloans given and secured by pledge bonds; as well as the commissions for agents andg y p g gcorrespondents of credit institutions for said transactions

c) Received by bonding, insurance and mutual insurance corporations, in financing transactions,excepting the case of loans granted to individuals who are not entitled to the exemption set

46

forth in (b) above



• Those resulting in interest:

( ),

g

d) Derived from mortgage loans or loans secured by fiduciary guarantee for the purchase,enlargement, construction or repair of residential real property

e) Derived from employees' saving banks and from savings funds establish by businesses, providedthat the deductibility requirements under the Income Tax Law are satisfied

f) Derived from notes issued in accordance with the provisions of the General Law of NegotiableInstruments and Credit Operations

g) Received or paid by public institutions that issue bonds and manage savings plans with theunconditional payment guarantee of the Federal Government in accordance with the Law

h) Derived from securities payable by the Federal Government and listed in the National Registry ofSecurities and Intermediaries

i) Derived from negotiable instruments placed with the large investing public in accordance with the

47

i) Derived from negotiable instruments placed with the large investing public in accordance with theapplicable general rules issued by the Ministry of Finance and Public Credit, or from transactionsinvolving the loan of negotiable instruments, securities and other fungible goods referred to in(III), Article l4‐A of the Federal Fiscal Code



( ),

• DerivedfromfinancialderivativetransactionsmentionedinArticle16‐AoftheFederalFiscalCode

• Providedtomembersasordinaryconsiderationforduesandprovidedthattheservicesrenderedaresolelyrelatedtotheparticularpurposesoftheentity,inthecaseof:

a)Legallyrecognizedpoliticalparties,associations,coalitionsandfronts

b) Laborunionsandconfederations

c) Chambersofcommerceandindustry,agricultural,stockbreeding,fishingorforestrygroups,aswellastheirfederations

d) Employerassociationsandprofessionalassociations

e) Civillawassociationsorpartnershipsorganizedforscientific,political,religiousandculturalpurposes,exceptforthosethatprovideserviceswithsportsfacilitieswhenthe

48

valueofthelatterrepresentsmorethan25%ofthetotalvalueofthefacilities



( ),

• Derived from the entry ticket for public events, except for theater and circus events,if h d i i h h S h D f h F d lif the agreement entered into with the State or the Department of the FederalDistrict in which the event takes place does not fall into the provisions of Article 41,(VI) of VATL. The exemption established in this section is inapplicable to the entryticket for cinema functions.

Eventspresentedinrestaurants,bars,lounges,partyordancehallsandnightclubsarenotconsideredpublicevents

• Professionalmedicalservicesiftherenderingthereofrequiresamedicaldegreeunderlaw,providedsuchservicesarerenderedbyindividuals,whetherindividuallyorthroughanycivilassociation

• Professional medical, hospital, radiology, laboratory services and clinical testsrendered by the decentralized agencies of the Federal Public Administration, theFederal District the state or municipal public administrations

49

Federal District, the state or municipal public administrations



( ),

• For those on which authors receive consideration in the following cases:

a) For authorizing third parties to publish written works of their creation in newspapers andmagazines, provided that the newspapers and magazines are intended for sale to the publicby the person making payment of such consideration

b) For temporarily transferring the economic rights or temporarily granting licenses to use tothird parties, corresponding to works of their authorship as established in Article 13 (I)through (VII), (IX), (X), (XII), (XIII) and (XIV), and article 78 of the Federal Copyright Law,registered in the Public Copyright Registry of the Ministry of Public Education

c) The provisions of the preceding paragraphs do not apply:

‐ In the case of advertising ideas or phrases, logos, emblems, distinctive seals, industrialdesigns or models, operating manuals or works of applied art

‐ If the consideration derives from the exploitation of written or musical works in business

50

activities other than the sale to the public of the author's works, or the rendering of services

ServicesRenderedInMexico(Article16OfTheMexicanVATLawVATL)

For the purpose of this law, the service is defined as rendered in national territory ifthe service is rendered, whether wholly or partially, by a person resident in thecountry

( )

country.

In the case of international transportation, the service is defined as rendered innational territory, independently of the residence of the carrier, if the transportationbegins in national territory, even if it is a round trip.

In the case of international air transportation, only 25% of the service is consideredto be rendered in national territory. Air transportation to Mexican towns located into be rendered in national territory. Air transportation to Mexican towns located inthe 20‐kilometer border strip parallel to the northern and southern internationaldividing lines will be treated the same.

I h f i d h id i id b M i id f i In the case of interest and other consideration paid by Mexican residents to foreignresidents granting credit by credit cards, the service is understood to be rendered innational territory if the card is used therein.

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AirTransportationServices(Article16OfTheMexicanVATLawVATL)( )

Theplaneiscomingfrom: Taxrate Landing theplanein:Any of the Mexican RepublicAnyoftheMexicanRepublicstates(exceptforthebelowmentioned)

16% AnystateoftheMexicanRepublic

Territories of Baja California and 11% Any state of the Mexican RepublicTerritoriesofBajaCalifornia andQuintanaRoo 11% AnystateoftheMexicanRepublic

Inaddition tothecross‐borderdistanceof20KMparallelofthe 11% AnystateoftheMexicanRepublicdivisorinternationalnorthandsouthlines

11%

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AirTransportationServices(Article16OfTheMexicanVATLawVATL),Cont.( ),

Theplaneiscoming from: Taxrate Landingtheplanein:

Any of the Mexican Republic statesAnyoftheMexicanRepublic states(except forthebelowmentioned) 4% Abroad

Territories ofBajaCalifornia andQuintana Roo 2.75% AbroadQuintanaRooInaddition tothecross‐borderdistanceof20KMparallelofthedivisorinternationalnorthand 2.75% Abroad

southlines

From abroad 4% AnyoftheMexican Republic states(except forthebelowmentioned)

From abroad 2.75% Territories ofBajaCalifornia andQuintanaRoo

Inaddition tothecross‐border

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From abroad 2.75% distanceof20KMparallelofthedivisorinternationalnorthandsouthlines

MomentOfVATPayment(Article17)

Payment of tax for rendering services is required at the moment theconsideration is effectively collected and on the amount of each suchconsideration is effectively collected and on the amount of each suchconsideration, except for interest mentioned in Article 18‐A hereto, in whichcase the tax is paid as the interest is accrued.

54

TaxableBase(Article18)

In order to compute the tax in the case of services rendered, the value isdefined as the total consideration convened, as well as the additional amountscharged to or collected from the person receiving the services for other taxes,fees, travel and other expenses, reimbursements, ordinary or penalty interest,contractual penalties or any other item.

In the case of legal entities rendering services mainly to their members,partners or associates, payments made by the latter, including contribution tocapital to absorb losses are considered as value for purposes of taxcapital to absorb losses, are considered as value for purposes of taxcalculation.

In the case of loan agreements and other financing transactions the interest In the case of loan agreements and other financing transactions, the interestand all other consideration other than the principal received by the creditor isconsidered as value.

55

TemporaryUseOrEnjoymentOfGoodsArticles19To23)

For purposes of this law, temporary use or enjoyment of goods is defined to bethe lease, usufruct and any other act, independently of the legal form used for, y , p y gsaid purpose, whereby one person allows another person to temporarily useor enjoy tangible goods for consideration.

The tax treatment established in this law for temporary use or enjoyment ofgoods will be applied to the rendering of time‐share services.

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Exemptions(Article20)

Tax is not be paid for the temporary use or enjoyment of the following goods:

• Real property exclusively intended or used as a residence. If real property isintended for multiple purposes or uses, tax is not be paid on the part intended orused for residential purposes. The provisions of this section do not apply to real

t th ti th f id d f i h d i t d d dproperty or the portion thereof provided as furnished or intended or used ashotels or boarding houses.

• Farms intended or used solely for agricultural or cattle breeding purposesFarms intended or used solely for agricultural or cattle breeding purposes

• Tangible goods for which use or enjoyment is granted by foreign residents, withno permanent establishment in national territory, and for which the tax was paidpursuant to Article 24 of this law

• Books, newspapers and magazines

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Articles21And22

LeasinginMexicanterritory

TemporaryuseorenjoymentoftangiblegoodsisgrantedinMexicanterritoryifthegoodislocatedthereinatthemomentofitsphysicaldeliverytothepersonwhoistouseorenjoysuchgood.

Moment ofVATpayment

If t j t f t ibl d i t d th t i bl Iftemporaryuseorenjoymentoftangiblegoodsisgranted,thetaxispayableatthemomentthecorrespondingconsiderationsarecollectedbythegrantor,andthetaxiscomputedontheamountofeachsuchconsideration.

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TaxableBase(Article23)

In order to calculate the tax in the case of temporary use or enjoyment ofgoods the value of the consideration agreed upon in the favor of the grantorgoods, the value of the consideration agreed upon in the favor of the grantorwill be taken into account, as well as any additional amounts payable by orcollected from the person using or enjoying the goods on account of othertaxes, fees, maintenance expenses, constructions, reimbursements, ordinarytaxes, fees, maintenance expenses, constructions, reimbursements, ordinaryor late interest, contractual penalties or any other amounts.

59

ImportsOfGoodsOrServices(Articles24To28)

For purposes of this law, the following are considered to be importation of goodsor services:

•The introduction of goods into the country

Th h b M i id f i ibl d f d b f i•The purchase by Mexican residents of intangible goods transferred by foreignresidents

•The temporary use or enjoyment in Mexican territory of intangible goods•The temporary use or enjoyment in Mexican territory of intangible goodsprovided by foreign residents

•The temporary use or enjoyment in Mexican territory of tangible goods, forwhich physical delivery was made abroad

•The utilization in Mexican territory of services mentioned in Article 14, ifrendered by foreign residents This section does not apply to internationalrendered by foreign residents. This section does not apply to internationaltransportation.

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Exemptions(Article25)

Valueaddedtaxisnotpaidonthefollowingimports:

I Those that under the customs law are not finalized are temporary are regarded asI. Those that under the customs law are not finalized, are temporary, are regarded asreturning temporarily exported goods, or are in transit or transshipment

II. Those of baggage and household goods referred to in the customs law

III. Those of goods and services for which transfer in the country or rendering innational territory, respectively, does not result in the payment of value added tax orif such goods or services are indicated in Article 2‐A of this lawif such goods or services are indicated in Article 2‐A of this law

IV. Those of goods donated by foreign residents to the federal government, states,municipalities or any other person authorized through generally applicable rules bythe Ministry of Finance and Public Credit

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Exemptions(Article25),Cont.

Valueaddedtaxisnotpaidonthefollowingimports:

h f k f h d h l d l l lV. Those of works of art that, due to their quality and Mexican cultural value, arerecognized as such by competent official institutions, provided that they areintended for permanent public exhibition

VI. Those of works of art created abroad by Mexicans or by residents that, due to theirquality and cultural value, are recognized as such by competent official institutions,provided that the author carries out the importatio.

VII. Those of gold, containing at least 80% of such material

VIII. That of vehicles in accordance with Article 62 (I) of the Customs Law, provided it( ) pcomplies with the requirements and conditions indicated by the Ministry of Financeand Public Credit by means of generally applicable rules

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ImportationOfGoodsAndServices(Article 26)(Article26)

Importation of goods and services is considered carried out:

At th t th i t fil th t d l ti f i th f• At the moment the importer files the customs declaration for processing thereofpursuant to the customs law

• In the case of temporary import, when converted to finalp y p

• In the cases set forth in Article 24 (II) to (IV), of this law, at the time the considerationis effectively paid

If periodic considerations are contracted, the moment at which each consideration inquestion is paid

• In the case of utilization in national territory of services rendered abroad, theprovisions of Article 17 of this law apply.

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TaxableBaseForImportationOfGoods(Article27)( )

In order to compute the value added tax on imports of tangible goods, thevalue used for general import tax purposes is considered adding to thevalue used for general import tax purposes is considered, adding to thevalue the amount of the latter tax and other taxes payable on account ofimportation.

The value taken into account in the case of importation of goods or servicesmentioned in Article 24 (II), (III) and (V) is that corresponding under thislaw for transfer of goods, use or enjoyment of goods or rendering ofservices, in national territory, as applicable.

In the case of temporarily exported goods returning to the country withi d l h l ill b h d f f h lincreased value, the value will be that used for purposes of the generalimport tax, with the additions mentioned in the first paragraph hereto.

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TaxPaymentOnImportationOfGoods

In the case of imports of tangible goods, payment is regarded as estimatedand is made jointly with the general import tax, even if payment of thelatter tax is deferred by reason of the fact that since the goods are inbonded deposit in general deposit warehouses. However no credit isapplicable against said tax payment.

In the case of goods for which payment of general import tax is notrequired, taxpayers will pay the tax established hereunder through taxreturns presented at the corresponding customs authorityreturns presented at the corresponding customs authority.

Value added tax paid upon importation of goods will result in a credit onthe terms and with the requirements established by this law.the terms and with the requirements established by this law.

Merchandise may not be taken from the customs, tax or bondedwarehouse, unless the corresponding payment in conformity with this law

65

p g p y yhas been made.

ExportationsOfGoodsOrServices(Articles29Through31)

ForpurposesofthisVATL,exportationofgoodsorservicesis:

• Thatregardedasfinalunderthecustomslawg

• Thetransferofintangiblegoodsbypersonsresidinginthecountrytopersonsresidingabroad

• Thetemporaryuseorenjoymentabroadofintangiblegoodsgrantedbypersonsresidinginthecountry

• Theutilizationabroadofservicesrenderedbyresidentsundertheconceptof:

a) Technical assistance, technical services related thereto, and information related toindustrial commercial or scientific experiencesindustrial, commercial or scientific experiences

b) Maquila and sub‐maquila export operations pursuant to the customs law and theDecree for the Development and Operation of Export In‐Bond Corporations

66

(Maquiladoras). For these purposes, services are understood utilized abroad if thegoods under maquila or submaquila are exported by the maquiladora company.

ExportationsOfGoodsOrServices• Theutilizationabroadofservicesrenderedbyresidentsundertheconceptof:

) Ad ti ic)Advertising

d)Commissionsandintermediation

e)Insuranceandreinsurance,aswellasbondingandre‐bonding

f)Financingtransactions

g)Filmingorrecording,providedthattherequirementssetforthintheregulationstothislawaresatisfied

h)Callservicecentersforcallsoriginatingabroad,contractedandpaidforbyaforeignresidentwithoutapermanentestablishmentinMexico

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ExportationsOfGoodsOrServices(Cont.)

• International transportation of goods, rendered by residents in the countryand port services of cargo, carriage, warehousing, custodial, stowage andp g , g , g, , gcarriage within ports and port facilities, provided that such services arerendered in merchandise exportation maneuvers

• Air passenger transportation rendered by persons residing in the country,for that portion of the service which under the terms of the second‐to‐lastparagraph of Article 16 is not considered rendered in national territory

• Hotel and related services rendered by hotel companies to foreign touristsentering the country to participate exclusively in congresses, conventions,expositions or fairs to be held in Mexico; provided that said foreignersexpositions or fairs to be held in Mexico; provided that said foreignerspresent the immigration document evidencing such status pursuant to theGeneral Immigration Law, and the services in question are paid with aforeign‐issued credit card, and the event organizers have contracted the

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foreign issued credit card, and the event organizers have contracted thehotel and related services

ObligationsOfTaxpayers(Articles32Through37)

Persons required to pay this tax and persons engaged in the activitiesmentioned in Article 2‐A to this law, have the following obligations, indditi t th i di t d i th ti l h taddition to those indicated in other articles hereto:

To keep accounting in accordance with the Federal Fiscal Code, theregulations thereto and the regulations to this law and to separate inregulations thereto, and the regulations to this law, and to separate, inaccordance with the latter regulations, those activities for which the tax ispayable at different rates from those activities exempted from the taxhereunderhereunder

In case of commission agents, to separate in the accounting books andrecords those transactions made on their own account from those made onaccount of the principal

To issue supporting documentation, indicating therein in addition to the

69

requirements, the value added tax charged expressly and separately tothose who purchase or temporarily use or enjoy the goods or receive theservices

ObligationsOfTaxpayers

If the supporting documentation covers activities for which value added tax ispayable, it must expressly state whether the consideration is paid in a lump sum or ininstallment paymentsinstallment payments.

When consideration is paid in installments, for installment payments made after thedate on which the document mentioned in the preceding paragraph is issued,taxpayers shall issue a supporting document for each such installment payments,which shall comply with the requirements set forth in Article 29‐A (I), (II), (III), (IV)and (VIII) of the Federal Fiscal Code. Said documents shall state as well the amount ofthe installment payment covered thereby, the way in which the installment paymentthe installment payment covered thereby, the way in which the installment paymentwas paid, the amount of tax charged, the amount of tax withheld, if any, and thenumber and date of the document issued under the terms of the preceding paragraphcovering the transfer of goods, the granting of temporary use or enjoyment of goods

h d i f h i i ior the rendering of the service in question.

Taxpayers opting for entering on the reverse of the supporting document the amountof the installment payment made under Article 134 (II) of the Income Tax Law will

70

p y ( )enter the payment date, the amount of charged tax and, as applicable, the amount oftax withheld. In this case, taxpayers are not required to issue supportingdocumentation for each one of the installment payments.

ObligationsOfTaxpayers(Cont.)

In the case of transactions or activities undertaken with the general public,the tax is included in the price at which the goods or services are offered,

ll i th d t ti i das well as in the documentation issued.

In the case of taxpayers rendering personal services, each paymentreceived on account of rendered services is considered a lump sum and notreceived on account of rendered services is considered a lump sum and notan installment payment.

To file at authorized offices the tax returns indicated in this lawTo file at authorized offices the tax returns indicated in this law

To issue certifications for tax withholdings made in the cases set forth inArticle 1‐A, upon receipt of the document mentioned in (III) of this article,( )and provide on a monthly basis to the tax authorities, by the electronicmeans and forms established by the Tax Administration Service,information on the persons from whom the tax established hereunder was

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withheld. Said information will be presented no later than the 17th day ofthe month immediately following the month to which said informationcorresponds.

ObligationsOfTaxpayers(Cont.)

To notify the tax authorities within 30 days following the firstwithholding made by those persons that regularly make the withholdingsreferred to in Article I‐A and Article 3, third paragraph hereto

To provide value added tax information as requested on income taxtreturns

To provide on a monthly basis to the tax authorities, by electronic meansand forms indicated by the Tax Administration Service information onand forms indicated by the Tax Administration Service, information onpayment, withholding, crediting and charging of value added tax intransactions with suppliers, breaking down the value of transactions andactivities by the rate at which the value added tax was charged, includingactivities by the rate at which the value added tax was charged, includingactivities for which the taxpayer is not required to pay such tax. Saidinformation will be presented no later than the 17th day of the monthimmediately following the month to which said information corresponds.

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y g p

EXEMPT AND 0% RATED Scott Sneckenberger, Plante Moran

EXEMPT AND 0%‐RATED TRANSACTIONS

Exempt Vs. 0%-rated Transactions/Taxpayers

• Exempt transactions

• Residential real estate, land

• Medical services by a doctor

• Exempt taxpayers do not charge their customers VAT.

• Credits/refunds for VAT paid are generally not available.

• 0%-rated transactions

• Exports, IMMEX (maquiladora transactions)

• Food and medicine

• Transaction is part of the VAT system; it is just subject to a 0% rate.

• Credits/refunds for VAT paid are available, subject to normal VAT regulations.

• This is an IMPORTANT, and often misunderstood, difference between VAT exempt companies/transactions and 0%-rated transactionsexempt companies/transactions and 0%-rated transactions.

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Exempt Vs. 0%-Rated Transactions: Example

• Client: Residential construction company

― All inputs (i.e., bricks and mortar) are purchased with IVA tax.IVA tax.

― No VAT on the land purchased by builder (perhaps VAT on some land improvements?)

A ll d l h― No IVA tax collected on sale to homeowner

― All indirect costs (i.e. accounting, architect, land development) will include IVA.p )

― The builder must include the VAT on all inputs, to cover this cost. This is often a surprise – and an expensive one!one!

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Exempt Vs. 0%‐Rated Transactions: Example (Cont.)

• The following chart represents the exempt IVA transaction flow

Brick‐and‐mortar Indirect

P hpurchases Purchases

Purchased with VAT

Purchased with VAT

Residential Construction Company

Residence sold with no VAT

Residence sold to

Residence sold with no VAT

consumer

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IMMEX/MAQUILADORA Scott Sneckenberger, Plante Moran

IMMEX/MAQUILADORA PROGRAM, AND POTENTIAL IVA BENEFITS

IMMEX P O iIMMEX Program: Overview

• The maquiladora program was started by a former secretary of the economy in Mexico in the late 1960s, to promote employment in northern Mexico.

• In September 2006, the maquiladora and PITEX programs were combined into a single export program called IMMEX The term combined into a single export program called IMMEX. The term “maquiladora” is still widely used to describe a Mexican company involved in manufacturing for export .

• The goal was to simplify the administration of the two programs, which were already very similar.programs, which were already very similar.

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IMMEX Program: Traditional Sales Flow Chart

Invoices customer

USAU.S. Company U.S. Customer

MEXICO

Supplies raw material and

id M&E

Exports final

product

Bills labor + overhead + 3% mark‐up

provides M&E

Pays maquila service

Ships final product to customer with a pro forma

invoiceVirtual exportVirtual import

Company de Mexico Customer Mexico

Virtual import

Pays labor + 3% mark‐up Supplies labor to operationServices

Company

3% mark up Supplies labor to operation

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IMMEX Program: VAT Overview

• The traditional format for an IMMEX operation includes:

― Foreign company

― Owns inventory (raw materials and finished goods)

― Provides machinery and equipment on a free bailment lease

― Intangibles and essentially all other substantial assets

― Pays no VAT for material purchases, IMMEX services

― No VAT on temporary importation of equipment

― IMMEX operation

― Provides manufacturing services to the foreign company

― Bills the U.S. parent company for its services, with 0% value added tax

― Temporarily imports raw materials and M&E

D t th t i l k i fi i h d ― Does not own the raw materials, work in process or finished goods

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IMMEX Program: VAT Overview (Cont.)

• An IMMEX, in general, is a bonded warehouse. As such, you must strictly account for the goods on temporary importation. Full control and accounting of the goods on temporary importation is required.

• In general, a maquiladora exports (either directly or virtually) the majority of its goods to either another maquiladora or a company with an export program.

• Additional complexities occur for direct sales into the Mexican pmarket.

• Must complete a cost/benefit analysis to determine the optimal Must complete a cost/benefit analysis to determine the optimal structure

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IMMEX Program: VAT Overview (Cont.)

• For IMMEX operations, three common types of transactions are 0%-rated, from a VAT perspective:

― Temporary importation of raw materials and sub-assemblies

i i f li i d ― Temporary importation of tooling, equipment and related items

― Purchases of goods from Mexican suppliers for use in the g ppmanufacturing process

― Invoices from IMMEX operation to U.S. parent company

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IMMEX Program: Limitations On VAT Benefits

• Limitations on beneficial VAT treatment

― Goods or inventory may only remain in Mexico for a ― Goods or inventory may only remain in Mexico for a maximum of 18 months, duty and VAT-free.

― For sales of product for final use in Mexico, the customs f h d b h d d d i d status of the good must be changed, and any duties and

VAT are due on the fair market value of the goods in question.

― Equipment may remain in Mexico VAT-free for the life of the IMMEX operation.

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IVA AND IMPORTATIONS BY Scott Sneckenberger, Plante Moran

IVA AND IMPORTATIONS BY NON‐MEXICAN COMPANIES

Value‐Added Tax Issues For Non‐Mexican Companies

• Foreign companies may be subject to VAT on certain activities,including:

― Importation of products in to Mexico – importance of Importation of products in to Mexico importance of the importer of record

― Purchases of certain services

i i il bl h A i i • Treaty protection is not available, as the VAT is not an income tax.

• Foreign companies should not be an importer of record.g p p

― Importer of record should be a Mexican subsidiary or Mexican customer.

No IVA credit if importer of record is foreign company― No IVA credit if importer of record is foreign company

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Value‐Added Tax Issues For Non‐Mexican Companies (Cont.)

• For services paid for by a foreign company, consider whether they could be deemed an export. If so, the 0% rate applies.

― Are the services paid for by a company that does not Are the services paid for by a company that does not have a permanent establishment in Mexico?

― Are the services paid for from a bank account located outside Mexico?outside Mexico?

― If so, the 0% VAT rate applies.

― Services to which the 0% rate may apply include:y pp y

― Advertising

― Technical assistance – wide range of applications

― Other services?

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Luis Carbajo‐Martinez, Baker & McKenzie

IMPACT OF ELECTIONS ON IVA

Luis Carbajo Martinez, Baker & McKenzieJuan Carlos Valles Zavala, Baker & McKenzie

POLICY

Impact Of 2012 elections On VAT Policy Increase of VAT rate? Increase of VAT rate?

– Tax reform to sustain universal health coverage and other priorities– Decision to be taken in Congress – A VAT rate increase is not per se a campaign promiseA VAT rate increase is not, per se, a campaign promise.

– New structure of the Mexican Congress:

As the PRI does not have control over the Mexican Congress it will be

88

As the PRI does not have control over the Mexican Congress, it will be necessary to negotiate with other political parties.

I t Of 2012 El tiImpact Of 2012 ElectionsOn VAT Policy (Cont.)

What are the proposals from the PRI?– Traditional PRI position: Food and medicines shall be VAT-exempt.

B lt G l VAT t f 16% ll t ti i l di– Beltrones: General VAT rate of 16% on all transactions, including food and medicines– 3% refund available to certain consumers

– Luis Videgaray: Need to increase tax collections and eliminate special regimes and privileges that erode the potential for tax collection

What is the general position of the PAN?– VAT on all transactions, including food and medicines

89

– Need to eliminate special regimes PRD: Not clear

Luis Carbajo‐Martinez, Baker & McKenzie

HOT IVA TOPICS, FROM A

Luis Carbajo Martinez, Baker & McKenzieJuan Carlos Valles Zavala, Baker & McKenzie

,LEGAL PERSPECTIVE

Relevant VAT Court Cases

VAT-exempt: The purchase and sales transaction of goods subject to the customs regime of fiscal deposit (in a duty free warehouse) are not deemed to take place within the Mexican territory. p y

The VAT paid upon the change of customs regime by a maquiladora, of goods not belonging to the maquiladora, cannot be credited or offset (erroneous interpretation)offset (erroneous interpretation).

Jurisprudence confirming that the application of o% VAT rate on sales of ice and water in containers of less than 1 liter capacity p y

Sale of goods in Mexico between non-residents, with no material delivery or shipment, is subject to VAT regardless of VAT rules.

91

VAT C id ti OVAT Considerations OnCustoms Transactions

Sale of goods subject to IMMEX import is VAT-exempt.

Sale of goods that are exported is subject to 0% VAT.g j

Manufacturing services provided by IMMEX company (maquila) to non-residents are subject to 0% VAT.

Virtual customs transactions prescribe a deemed export-import of goods within Mexican territory.

Temporary imported goods may only remain in Mexico for a limited period ofTemporary imported goods may only remain in Mexico for a limited period of time.

Customs regime change from temporary to definitive import is subject to 16% VAT

92

16% VAT.

S l B M i P t T NSale By Mexican Party To Non-Resident, With Delivery In Mexico

Non-resident

Outside MX

Sale of goods16% VATMX

1

MX Co 1 MX Co 2Delivery of goods

2

1 Sale from MX Co 1 to non resident is subject to a 16% VAT

93

1. Sale from MX Co 1 to non-resident is subject to a 16% VAT.2. Delivery of goods within Mexican territory

S l B t N R id t Of G dSale Between Non-Residents Of GoodsSituated And Delivered In Mexico

1

Non-resident 1

Outside MX

VAT-able transaction;shipment while goods

are in Mexico

Non-resident 2

MX

MX Co 1

2

MX Co 2MX Co 1 MX Co 2Delivery of goods

1. Sale of goods between non-residents is subject to VAT, as long as:- There is shipment from MX Co1 to MX Co2- There is material delivery of goods in Mexico

2 Seller needs to comply with formal obligations

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2. Seller needs to comply with formal obligations 3. VAT not creditable to buyer

Sale Between Non-Residents Of GoodsSituated In Mexico, With No Delivery

Non-resident 1Sale of goods

NO VAT

Non-resident 2

1

Outside MX

NO VAT

MX2

MX Co

2Goods remain in third

party possession

1. No shipment and no material delivery; virtual delivery2 C t d t th t

95

2. Court precedent on the contrary3. Risky position

Sale By Mexican Company To Foreign Company,With Delivery To Third Foreign Company

Non-resident 1 Non-resident 2

Outside MX

Sale of goods0% VATMX

1

2

MX Co

Exportation of goodsNo VAT

1. Sale from MX Co to Non-resident 1 is subject to a 0% VAT (due to subsequent exportation).2. MX Co shall act as the Mexican exporter of record – not a VAT-able transaction.

96

Note: MX Co owns the goods; goods are of Mexican origin or imported under definitive basis.

Change Of Customs Regime

Outside MX 1

Non-resident

Temporary importation of goodsNO VAT

MX

MX CoMX Co

Change of customs regime from temporary importation to definitive

importation16% VAT

2

1. Temporary importation is VAT-exempt.2. Goods may only remain under temporary importation for a limited period of time.3. Change of customs regime to definitive importation is subject to 16% VAT.

97

g g p j4. There are other tax implications associated with this transaction (i.e., not having a “maquila

operation” or non-creditable issues if MX Co is not the owner of the goods).

Sale By Non Resident To A Third Party (Not ASale By Non-Resident To A Third Party (Not AMaquila), With Delivery In Mexico By Maquila

Non-resident

Outside MX 1

Sale of goods16% VAT

WTH b MX C

2

Outside MX

MX

1

3

Temporary importationNO VAT

WTH by MX Co

Maquila MX CoPhysical delivery

with customs transfer(virtual export - importation)

16% VAT on permanent

1. Temporary importation by Maquila is VAT-exempt.2. Sale from non-resident to MX Co is subject to regular VAT taxation.3. MX Co carries out a deemed permanent importation of goods from abroad, subject to 16% VAT rate.

16% VAT on permanent importation

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NOTE: Goods are deemed returned/exported by maquila (qualifies for a “maquila operation”),4. Double-VAT issue5. Service by maquila subject to the 0% VAT rate as export.

Sale By Maquila To Non-Resident, WithDelivery In Mexico To Third-Party Maquila

Non-resident

1

Outside MX Sale of goodsNO VAT

MXTemporary importation

NO VAT

Maquila 1 Maquila 2

2

0% VATPhysical delivery

with customs transfer

1. Sale from non-resident to maquila 1 is VAT-exempt (due to temporary importation customs regime).

(virtual export -importation)

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2. 0% VAT on delivery of goods between maquilas with IMMEX program3. Goods may only remain under temporary importation for a limited period of time.

S l B N R id t 1 T N R id t 2Sale By Non-Resident 1 To Non-Resident 2,With Delivery In Mexico To Third-Party Maquila

2

Non-resident 1 Non-resident 2Sale of goods

NO VAT

2

Outside MX

MX1

Temporary importationNO VAT

Maquila 1 Maquila 2

3

0% VATPhysical delivery

with customs transfer

1. Sale between non-residents is VAT-exempt (due to temporary importation customs regime).2 0% VAT on delivery of goods between maquilas with IMMEX program

(virtual export -importation)

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2. 0% VAT on delivery of goods between maquilas with IMMEX program3. Goods may only remain under temporary importation for a limited period of time.4. Maquila 1 may qualify for a “maquila operation,” for other tax purposes.

Export Of Services Technical assistance, technical services, royalties

Mediation (mediación) - Commission

Maquila services/sub-maquila

AdvertisementAdvertisement

Call centers

H t l/ ti i Hotel/convention services

Independent personnel services

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HANDLING IVA REFUNDSGabriel Andrade, KPMG

HANDLING IVA REFUNDS

TaxRefundProcessInMexico:MainAspects

‐ Tax authorities are obliged to refund amounts paid in error and inexcess according to the tax laws. There are two options to request arefund:‐ Conventional‐ CPA certification (submitting statutory tax report)El t i i 2012 T th it W b‐ Electronic process since 2012 – Tax authority Web page

‐ The tax authority should pay the amounts to be refunded,considering updated figures, with interest.Potential issues:‐ Potential issues:‐ Many requests for information by the authority‐ Requirements without concrete legal basis‐ Delayed response to the procedure by the authorityDelayed response to the procedure by the authority‐ Refunds for a lower amount; would require further clarification

by the authority‐ Refund term is sometimes not respected

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p

TaxRefundProcessInMexico:TimeFrame

‐ The maximum period to obtain a refund is:‐ 40 days, or‐ 25 days in the case of companies submitting statutory tax

reports , or‐ 20 days if the taxpayer omits digital invoices and/or operates

d th IMMEXunder the IMMEX program, or‐ 5 days for “empresa certificada.”

In case of errors in the request the authority may require additional‐ In case of errors in the request, the authority may require additionalinformation within 20 days following the filing, and the companynormally has 20 days to respond. A new request may take place onlywithin 10 days after the reply from the last requirement, and thewithin 10 days after the reply from the last requirement, and thecompany will have 10 days to answer it.

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Documents

IVA VAT Fundamentals for USU.S. Companiesmedia.straffordpub.com/products/...for-u-s-companies-2012-07-26/... · [email protected] Juan Carlos Valles Zavala, Baker & McKenzie