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Mexico City, December 10, 2007
THE U.S. GOVERNMENT RECOGNIZES THE
CREDITABILITY OF THE BUSINESS FLAT RATE TAX
The Ministry of Finance and Public Credit
(SHCP) informs that the U.S. government,
through
the Department of the Treasury and the
Internal Revenue Service (IRS), has
announced that
U.S. taxpayers may credit against their U.S.
income tax liability, the Business Flat Rate
Tax
(IETU) paid in Mexico without such
creditability being challenged by U.S. tax
authorities.
Creditability will not be challenged while
the U.S. tax authorities undertake a study
(described
below) of the IETU. It is important to note
that a credit applied during the period of
the study
may not later be challenged by U.S. tax
authorities.
Following the approval by Mexico’s Congress
of the Finance Reform for the less favoured,
in
which the IETU was introduced, the Mexican
Government, complying with the obligations
set
forth in double tax agreements, entered into
exhaustive communications with the
authorities
of other countries with the aim that, by
explaining the characteristics of this tax,
it would be
considered as a tax covered by such
treaties, granting thereby the corresponding
benefits for
the avoidance of double taxation of foreign
investment flows entering our country.
Due to the great importance of U.S.
investment in our country, the SHCP has
reviewed, in
conjunction with U.S. authorities, the
interaction of the IETU and the Convention
Between the
Government of the United States of America
and the Government of the United Mexican
States for the Avoidance of Double Taxation
and the Prevention of Fiscal Evasion with
Respect to Taxes on Income. The results of
this dialogue with the U.S. Treasury
Department
and the Internal Revenue Service are great
importance, and the interest of both
countries in
generating a tax environment that favours
investment flows between both nations have
prevailed. Several meetings were held which
resulted in the aforementioned acceptance.
As indicated above, the IRS and U.S.
Treasury Notice states that the U.S. foreign
tax credit
will be available while the U.S. Treasury
Department and the IRS undertake a study
once the
IETU is in its full operation, in which the
interaction of the new tax with the Income
Tax will be
analyzed. For purposes of this study, the
SHCP will cooperate with the U.S. Government
by
providing the necessary information which,
from among other sources, will derive from
the
reviews that the own Mexican Government is
required to undertake as regards the IETU
and
that will be presented before the Mexican
Congress in 2011, the year in which such tax
will be
fully operational. The purpose of this
cooperation is that the study will be
conducted in a
satisfactory manner to both parties.
The SHCP considers that this result will
grant a much more favourable treatment to
existing
and future investments since they will not
have to pay taxes twice, a situation that is
different
from that of the Asset Tax which was not
considered as a tax covered by the Treaty,
thus
generating a double taxation.
It is essential to note that up to date the
countries that have agreed to consider the
IETU as a
covered tax in the respective Conventions
are Germany, Austria, Australia, Barbados,
Belgium, Canada, Denmark, Ecuador, Finland,
France, India, Ireland, Iceland, Italy,
Japan,
Luxembourg, Norway, New Zealand,
Netherlands, Poland, United Kingdom, Czech
Republic,
South Africa and Spain.
The Mexican Government reassures its
commitment to strengthen the security and
certainty
conditions for investments in our country,
at the time it will seek, by mutual
agreement with its
commercial partners, to take the appropriate
measures to avoid double taxation between
countries seeking to build a more
competitive fiscal system at the global
level, thereby
encouraging economic activity, the creation
of employment and better life conditions for
all
Mexicans.
Source: Secretaría de Hacienda y Crédito
Público (Mexico)
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