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IRS Provides New Options for Taxpayers with Undisclosed Foreign Financial Assets and Accounts

The Internal Revenue Service (“IRS”) and U.S. Department of Justice have increased their efforts to encourage those taxpayers with undisclosed foreign financial assets and accounts to voluntarily come into compliance with their U.S. tax reporting and filing requirements.  The government offers two programs for taxpayers that have failed to comply in the past:

  • “Streamlined Procedures” – generally for taxpayers that had not “willfully” failed to report.
  • Offshore Voluntary Disclosure Program (“OVDP”) – generally for taxpayers that had “willfully” not reported their non US income.

Under either program, taxpayers will be required to file delinquent tax returns, and the appropriate related information returns, for the past three years under the Streamlined Procedures and for the past eight years under OVDP and to file delinquent FBARs for the past six years under the Streamlined Procedures and for the past eight years under OVDP.

Changes to the Available Taxpayer Options
Under the Streamlined Procedures, the IRS recently announced changes that relax the rules for non-willful taxpayers.  The changes to the Streamlined Procedures include the following:

  • The availability of the program is extended to certain US taxpayers residing in the United States;
  • The requirement that the taxpayer have $1,500 or less of unpaid tax per year is eliminated; and
  • The taxpayer is now required to certify that previous failures to comply were due to non-willful conduct.

All penalties will be waived for eligible US taxpayers living outside the United States.  Eligible taxpayers living in the United States will only incur a 5% miscellaneous offshore penalty on the foreign financial assets that gave rise to the tax compliance issue.

Under the OVDP, the IRS recently announced changes that potentially increase the penalties for willful non-compliance.  The changes to the OVDP include the following:

  • Additional information will be required from taxpayers applying to the program;
  • The existing reduced penalty percentage for non-willful taxpayers will be eliminated;
  • All account statements, as well as payment of the miscellaneous offshore penalty, must be submitted at the time of the OVDP application;
  • Taxpayers will be able to submit important amounts of records electronically; and
  • The miscellaneous offshore penalty will be increased from 27.5% to 50% if, prior to the taxpayer’s pre-clearance submission, it becomes public that a financial institution where the taxpayer holds an account or another party facilitating the taxpayer’s offshore arrangement is under investigation by the IRS or the US Department of Justice.

Tax Compliance for Unreported Foreign Financial Assets and Accounts
Both programs require the taxpayer to file tax returns reporting the previously unreported income and pay tax, interest, and penalties.  The taxpayer must also comply with any required information reporting.  That is where WTAS’s extensive experience and network of experts can help.

Author’s Biography: 

Joe Kluemper – Managing Director, New York.  Joe has over 15 years of experience in income tax and family wealth planning for international families.  He advises on pre-immigration tax planning, outbound expatriation, trusts, and compliance for U.S. persons with foreign activities. Joe also assists clients with the IRS offshore voluntary disclosure program and the streamlined process. 

Carolina I. StrobinoSenior Manager – New York.  Carolina heads the dedicated Latin American Desk within New York's International Private Client Services Group. Carolina has over 5 years of experience working with Latin American high net worth individuals and families on tax and financial matters. She assists Latin American clients on planning and compliance for pre-immigration and expatriation, U.S. taxpayers residing overseas, inbound U.S. investments and planning for multijurisdictional families with U.S. connections.

Lessons learned from IBM
Authored by: Brian Shube

I confess; I never worked for IBM.  Not that I didn’t want to.  I have submitted applications over the years for various positions with the company, but, never generated any interest on their side. 
I have, however, learned some valuable lessons from the company over the years that are worth sharing here as a reminder to us all.

Appearance is importan:t  IBM has always insisted that its employees dress appropriately.  The mantra in the ‘70s, which I assume still continues today, is that employees should dress like the CEO of the company they are visiting.  For the most part, that meant dark suit, white shirt, tie, patent leather shoes, etc.  One notable exception at that time involved the garment industry.
Back in the ‘60s and ‘70s, New York was the center of a thriving garment industry.  CEOs at those companies typically wore jeans or even shorts to work and IBMers working there were permitted the same.  I think the lesson here is that people respect and will take advise from those who look like them.  You can see that in most corporate board rooms.  Diversity is hard to come by, even in 2014.  Boards continue to be dominated by gray haired white men.

If you want to try an experiment; Google any major corporation and go to the web page that shows the board members.  Cover the titles and see if you can pick out the Chairman or CEO.  Chances are it won’t be easy.  If you want these decision makers to listen to you, it’s best to make sure they feel comfortable with you.  This is a lesson that I tend to forget and need to work harder at.

It isn’t what they ask for:  This is a lesson I learned while working at Citibank in the late 1970s.  I took a job in their Foreign Exchange Department managing their back office computer operations.  The bank decided that it was time to upgrade their aging hardware and applications in that area and pulled together a taskforce to find a replacement.
Our team spent countless hours developing a very detailed RFP which specified various performance requirements which we felt were critical in the high volume environment we were in.

For those of you not around in the 1970s or were too young to remember, the computer hardware industry was crowded with players.  In addition to IBM, the competition included Hewlett Packard, Digital Equipment Corporation, Prime, Tandem, NEC, and others.  At the time, those of us in the industry all believed that it was all about the platform.  The applications were secondary and derided as SMOP (simple matter of programming).  I think Bill Gates was one of the first to recognize that we had it backwards.

Anyway, we sent our RFP to every hardware manufacturer on the planet.  The results demonstrated something that I will never forget.  Roughly 80% of the companies chose not to bid on the project.  They could not see any way to meet our requirements with the technology they had available to them.  Everyone else, with the exception of IBM submitted detailed proposals on how they could meet our specifications.

IBMs response was an eye opener to me.  They carefully explained how our specifications were wrong and told us what we should be really asking for.  They essentially rewrote our RFP to match their solution.  In the end, even though their proposal was significantly higher than the competition, they won the bid.  IBM recognized that they did not literally have to meet the requirements as spelled out in the RFP.  Instead, they provided a solution that met the business problem we were trying to address.  And, by the way, matched what they could provide!

It is important to recognize what’s behind the question and not necessarily to respond to the question as asked.  By helping clients to redefine the question, it gets to the root of the problem they are trying to solve.
When dealing with your customers, in whatever industry you are in, keep these IBM lessons in mind.  They will help you to be a better business person.

Mexico Infrastructure Investment :
Authored by: Roberto Erana & Alexander P. Trueba 

Mexican President Enrique Peña Nieto and his administration are making major efforts to improve infrastructure within Mexico.  Despite being Latin America’s second largest economy, Mexico ranked 66th out of 148 countries in infrastructure quality according to the WEF’s “Global Competitiveness Report for 2013-2014.” President Peña Nieto recently proposed a bold National Infrastructure Program (PNI, by its Spanish acronym) for 2014-2018, which, combined with new federal Private-Public Partnership (PPP) laws, is expected to help modernize and rehabilitate the nation’s infrastructure capabilities, draw private sector investment and make a significant impact on the long-term health of the Mexican economy.

Peña Nieto’s PNI:  On April 28th 2014, Peña Nieto unveiled an ambitious US $596 billion infrastructure initiative to increase Mexico’s economic competitiveness and help lure more foreign private investors to the country.  An estimated 63% of the plan’s total programmed investment will be financed with public funds, while the private sector will contribute the remaining 37%.  Peña Nieto’s proposed initiative is nearly double the size of the 2007-2012 program, introduced by former President Enrique Calderón, which called for US $234 billion in infrastructure investment for some 300 projects.  The ex-president’s program was a step in the right direction for Mexico, lifting infrastructure spending from 3.0% of gross domestic product (GDP), to 5.0%.  However, as with any inaugural project, there were some delays and incomplete projects. Peña Nieto’s proposed PNI plans to build on the positive momentum of its predecessor, while working out the previous kinks and increasing funding. The President’s proposed initiative consists of 743 projects spanning six sectors — energy (262), communications and transportation (223), water (84), tourism (83), health (87) and urban development and housing (4) — and mainly targeting three regions: North, Central and South-Southeast Mexico. 

Sector Breakdown:  Mexico’s energy sector is on track to receive the most funding; approximately 50% of the PNI’s overall funds (US $300 billion) will go towards 262 projects. Specifically, state-owned oil company Petróleos Mexicanos (Pemex) will receive 85% of the allotted energy sector funding, approximately US $254 billion.  Pemex will utilize a majority of the funds to ramp up exploration and production activities, as well as to modernize and expand its processing capacity.  The drilling of development wells in Mexico’s three most productive oil fields, Ku-Maloob-Zaap (US $19 billion), Cantarell (US $18 billion), and Tsimin-Xux (US $8.0 billion), will take center stage. Meanwhile, the Comisión Federal de Electricidad (CFE) will receive the remaining 15% of allocated energy sector funds (US $46 billion) to assist in the construction and enhancement of 138 projects.  The capital will mainly be contributed towards enhancing generation operations, such as the construction of combined cycle and hydroelectric power plants, natural gas transportation, and wind turbines. 

However, energy is not Mexico’s only sector gearing up for improvements.  A substantial portion of funds from the PNI, over US $100 billion (17% of total PNI funds), will go towards 223 communications and transportation projects.  Over 54% of projects will involve the expansion and modernization of existing infrastructure, while the remaining 46% will consist of brand new construction.  Private sector contribution in the communications and transportation sector is projected to exceed US $57 billion, with many projects falling under the Public-Private Partnership (PPP) model.  The lion’s share of total investment for this sector will go towards telecommunications and road infrastructure projects, US $52 billion and US $30 billion, respectively.  The respective funds will be allocated amongst only 5 telecommunications projects and 151 road infrastructure projects. Major projects include the installation of a shared mobile service network and the conservation and rehabilitation of over 48,300 kilometers of federal toll-roads.  Railway and Port projects will also see significant investment, US $11 billion and US $5.0 billion respectively. The construction of the Querétaro-Mexico City fast train (US $3.3 billion), and the Mexico City-Toluca intercity train (US $3.0 billion), highlight the railway projects and expected completion is estimated by 2017; the expansion of the Port of Veracruz (US $1.8 billion), headlines port sector investment.

Meanwhile, investment in urban development & housing will be featured prominently in Peña Nieto’s proposed plan, 24% of all PNI funds will be directed to the segment.  The government expects to fund 53% of the projected $143 billion investment, with the balance of funds coming from the private sector.  The government will provide continued financing to workers for the procurement of housing.  The remaining sectors, water, tourism, and health, will receive a total US $52 billion in funding, roughly 9.0% of the PNI’s overall investment. Of the 254 proposed water, tourism and health projects, the Central Region’s East Drainage Tunnel (US $2.9 billion), North Region’s Aqueduct (US $1.4 billion), and Central Region’s Zapotillo Dam (US $1.2 billion) will receive the highest level of investment.

Private-Public Partnerships:  Lending appeal to the PNI is the recent introduction of a new PPP law aimed at attracting foreign capital by providing investors and developers with a more stable investment environment.  The new PPP guidelines, passed in 2012 and a major step up from previous legislation, include a variety of provisions ranging from a more efficient and transparent bidding process, to dispute resolution by way of arbitration.  Private sector resources will play an active role in funding Peña Nieto’s PNI, contributing over US $160 billion.  The communications and transport, tourism, urban development and housing, and energy sectors will benefit most from the new PPP framework.  Fifty-eight percent (58%) of the capital dedicated to the communications and transport sector, US $58 billion, will come from private investment.  Meanwhile, private investment will make up 62%, 47%, and 27%, respectively in the tourism, urban development and housing, and energy sectors.
To qualify as a PPP, the project company (winning consortium) must build new infrastructure or make improvements to existing infrastructure.  In turn, the contracting government authority is responsible for helping the developer obtain any necessary permits for the project.  Upon completion of the contract, which can range between three and forty years, control and ownership of the infrastructure project is given back to the contracting authority.

Contract terms under the new PPP framework lay out, among other things, minimum terms and conditions, permits and authorizations, temporary step-in rights for the lender, assignment rights, clear risk allocation, security interests, termination causes, and renegotiation terms.  These features provide the government and the private sector with a well-structured framework as infrastructure projects move through the conception, construction, and operation phases.

The Road Ahead:  Looking onward, Peña Nieto’s proposed PNI appears to be the necessary push to modernize and strengthen Mexico’s infrastructure sector.  In tandem with Mexico’s new PPP law, which protects developers’ and private investors’ interests more thoroughly, the PNI will fashion a more positive investment climate. Overall, the PNI will create over 350,000 jobs yearly, attract new foreign investors, target previously overlooked areas of the country and strengthen economic growth for years to come

For the full article, please visit:

Author’s Biography: 

Roberto Eraña – Vice President
Roberto Eraña is a Vice President at Frontera Capital Advisors, LLC. He has 13 years of experience advising clients on transactions primarily throughout the United States and Latin America. His technical expertise includes debt capital raising, credit analysis, transaction structuring, due diligence, financial modeling and valuations.

Prior to joining Frontera, Mr. Eraña was a senior consultant at a publicly-traded, multinational consulting firm in their corporate finance Latin America practice. Prior to that, Mr. Eraña was a Vice President in Banc of America Securities’ Media and Telecom banking practice, where participated in over 45 transactions with deal volume exceeding $19 billion. In this role, he originated, structured and underwrote leveraged debt transactions covering the cable, radio and television broadcasting, publishing and telecom industries. Mr. Eraña also managed an $850 million credit portfolio with credit ratings ranging from AA- to CCC+. He assisted both strategic and financial buyers in evaluating acquisition opportunities, capital restructurings, dividend transactions, interest rate hedging strategies and executing leverage buyouts.

Some of the companies Mr. Eraña has worked with include: Alta Communication, Boston Ventures, Chiquita Brands International (Panama), Connexion Technologies, Conversent Communications, Gemstar TV Guide, Language Line, Liberty Cable (Puerto Rico), Liberty Media, Millennium Digital Media, NorthStar Travel Media, NuVox Communications, Powdr Resorts, Providence Equity Partners, Regent Broadcasting, Walt Disney, Wave Broadband and Wide Open West.
Mr. Eraña graduated with an M.B.A., magna cum laude, from Babson College’s F.W. Olin Graduate Business School in finance and strategy, where he was the recipient of a Babson Fellow full merit scholarship, and with a B.S., cum laude, from Babson College in finance and investments. He has resided in Mexico and is fluent in Spanish.

Alexander P. Trueba – Analyst
Alexander Trueba is an analyst at Frontera Capital Advisors, LLC where he brings significant financial and analytical skills to each client engagement. Mr. Trueba contributes to all aspects of the firm’s M&A, Turnaround and Restructuring and Forensic and Litigation services.
Mr. Trueba has provided financial analyses, including but not limited to, financial due diligence, valuations, litigation services and forensic reviews on multiple client matters related to the real estate, hospitality and manufacturing sectors. He has developed cash flow models and has assisted in interim management oversight to several business operations throughout the Latin American region.
Prior to joining Frontera, Mr. Trueba’s relevant experience included work at national accounting and tax advisory firms where he served clients in various audit and tax support functions. Mr. Trueba also worked for City Year Miami, a non-profit organization, as a mentor and a teacher to underprivileged elementary school children. He currently serves as the chairman for the City Year Miami Alumni Board and as a member of the City Year Miami Site Board. In addition to his contributions to City Year, he is active in other local charities and community organizations such as the YMCA, Boys Town, Best Buddies and Leadership Florida. Mr. Trueba graduated from Boston College’s Carroll School of Management with a B.S. double major in Accounting and Marketing and minor in History. He is fluent in Spanish.

Oslo & Munich: Hotter Markets Than New York & Paris?
Authored by: Colin Dyer

Mid-sized estate plays crucial role in rapidly-evolving retail strategies, says report by JLL, “Investment Intensity Index”

Real estate investors are getting more aggressive.

As they move across borders searching for attractive returns, and as multinational corporations extend their footprints into new markets around the world, many are asking strategic questions about the dynamics of different cities. In recent years, we’ve seen a gradual shift in the mindsets of many of our investor clients: they’re recognizing cities as emerging political and business powerhouses.

Cities compete with one another for capital, corporations and talent. Their governments are increasingly recognizing the role of real estate as a contributor to – rather than a consequence of – city competitiveness. With more than half a trillion US dollars of commercial real estate traded each year across the globe, knowing which cities attract the most capital provides valuable insights into city success.

Reviewing the top 30 destinations for real estate capital over the past three years supports the traditional perspective: the global major business hubs are dominant, and the top 30 account for nearly half of all commercial real estate investment (with few notable exceptions – like Shanghai, Beijing and Moscow, which were added recently – they’ve been the same group of cities). At the top of the list are four “Super Cities:” London, New York, Tokyo and Paris, which are responsible for nearly 20 percent of commercial investment activity. They possess a powerful combination of economic scale and influence, deep corporate bases, highly liquid real estate investment markets and large, diverse and high-quality commercial real estate stocks.

No surprises here.

But further investigation tells a more complex story.

What makes a city “intense?”:  Scaling cities’ intensity - ranking cities and real estate investment by volume relative to the city’s economic size (rather than sheer volume alone) - dramatically changes the picture. This ‘Investment Intensity Index’ provides a useful barometer of a city’s health and real estate liquidity.

Measuring investment intensity, London maintains the top market position. You’ll need to look down the list for its fellow “Super Cities,” though: Paris is 12, and New York is 25, while Tokyo is well down the list at number 65.

Why the reshuffle?

The Rise of Vibrant, Tech-rich Cities:  Mid-sized, vibrant and frequently tech-rich cities are punching above their weight on this measure. They include a number of European cities – such as Oslo, Munich, Stockholm and Copenhagen –scalable, tightly planned cities with a good quality of life that is attractive to corporate tenants. These factors are increasingly being incorporated into investment strategies.

Effects of Transparency:  The transparency of a city’s real estate market offers another measure of investment attractiveness. We just issued the latest Global Real Estate Transparency Index, a survey that we undertake every two years to help clients assess the risks of transacting and operating in international markets.

Comparing city investment intensity with levels of real estate transparency reveals a remarkably good fit and highlights the importance that investors place on high transparency, with a combination of robust regulatory and legal frameworks, fair transaction processes and good quality market intelligence.

Transparent and liquid real estate markets, supported by a high quality commercial stock, can provide significant competitive advantage and are key indicators of successful cities.

Author’s Biography:

Colin Dyer is President and CEO of Jones Lang LaSalle

Entering New Geographic Markets
Authored by: Luis Ricardo Rodríguez

In the past few decades, the phenomenon of internationalization has brought about major competitive position change within the business environment, due to increased global competition and easier access to new markets.
Consequently, new companies in different industries have decided to expand their operations with a view to lowering production costs, creating larger markets and reducing their dependency on a single market. Similarly, their objectives also include: rising profits and stability, seeking alternatives to critical situations in their jurisdictions and using technology infrastructure.
The entry into new geographic markets presents opportunities and risks for companies. Meanwhile, different country legislations play a significant role in expansion plan decisions; hence the importance of conducting a prior analysis for finding out the potential and opportunities of a particular market.
Costs are the primary determinant in expanding into new markets, since they vary as a result of differences, among others, in:

  • Technology availability
  • Workforce availability and qualification
  • Distribution systems
  • Infrastructure

According to “Perspectivas de la Alta Dirección en México 2014” (2014 Top Management Perspectives in Mexico) survey, among strategies for driving organizations towards growth in the medium term, penetrating new geographic markets, both domestic and foreign, was deemed important by over 40% of the surveyed officers.
Additionally, more than 40% of the survey executives said they are planning to expand their operations to other countries. The top three preferred countries are: the United States of America, Colombia and Brazil.

Over 60% of the companies do have plans for expanding to other Mexican states. This year, preferences have switched to the center of the country, with Jalisco, Queretaro and Nuevo Leon being the top choice, followed by the Federal District and the State of Mexico.

Nuevo Leon has a unique geographical location, which brings it closer to the U.S.A. and Canadian markets. Its competitive edge is attributable to the establishment of companies in the automobile, household appliances and electronic equipment sectors, which have also made possible the development of clusters (aerospace, software, specialized medical services and biotechnology).

Likewise, the manufacturing vocation of Queretaro has recently been strengthened. Queretaro is perceived as a safe state, which crime rates are amongst the country’s lowest. Furthermore, the state government offers various incentives for attracting investment, including training programs.

According to Mexico’s General Direction of Foreign Investment (Dirección General de Inversión Extranjera or DGIE), the Federal District is the Mexican state that has attracted the most Foreign Direct Investment (FDI) since 2000, followed by Nuevo Leon and the State of Mexico. Jalisco and Queretaro rank 6th and 11th, respectively. 

Prior to entering new geographic markets, companies must conduct a thorough analysis, which should include a cost analysis. This will allow them to develop strategies and mechanisms for increasing their competitiveness and determining the profitability of the various markets. This effort has been recognized currently by the business community, an advantage offered by globalization.

For more information visit:

Author’s Biography:

Luis Ricardo Rodríguez is a Business Location and Expansion Partner at of KPMG in Mexico

5 Qualities Entrepreneurs Need for a Successful Business Sale Transactions

This is part 1 of a 3 part series highlighting leadership characteristics that can lead to great business success or dismal business failure when not managed correctly. In each part of the series the author addresses key business leadership characteristics and shares insights into making sure these characteristics do not stand in the way of success.

Part I – 5 Deal Making Lessons Learned“Sometimes Entrepreneur’s Success Instincts Need A Second Look”
Each of these transactions involves complex business, financial and strategic decisions as well as complex personal emotions and interactions. Entrepreneurial characteristics and instincts that played valuable roles when building a business often fail or fail to play out as intended when selling a business. While working closely with business owners I have had the opportunity to evaluate some classic entrepreneurial characteristics and instincts and this is what I have learned:
I was recently asked, “What makes a great deal maker?” In my experience there is no one magical quality but several qualities which, when well managed and executed, contribute to success. In this series I summarize the most important lessons I have learned while representing entrepreneurs for over 25 years, who are embarking on one of the most important business transactions of their entrepreneurial lives; selling their business or raising capital.
Each of these transactions involves complex business, financial and strategic decisions as well as complex personal emotions and interactions. Entrepreneurial characteristics and instincts that played valuable roles when building a business often fail or fail to play out as intended when selling a business. While working closely with business owners I have had the opportunity to evaluate some classic entrepreneurial characteristics and instincts and this is what I have learned:

Vendors- Your Best Small Business Advisors:  Small business advisors come in many forms including vendors. They can be instrumental in growing your business.

Does your growing company recognize the “Board of Directors” it likely has in its professional vendors?  If not, you could be missing out on valuable advice and guidance.
One major challenge that many small companies face during the early stages of rapid growth is getting good advice. The good news is that even if you can’t afford to hire a true Board of Directors, you’re likely already working with many professionals who can serve the same function by offering counsel and guidance:

  • All companies need a Board, but a smart small business can get creative in where those small business advisors are found by making use of the wisdom of the professionals you’re already engaged.
  • Professionals such as attorneys, CPAs, insurance agents, and web developers can provide valuable advice in their areas of expertise based on years of experience with other companies like yours.
  • Recognize the value these professionals can offer your company beyond the function you’ve hired them for, and reap the rewards.

Good advice often doesn’t come cheap. But the good news is that even if you don’t have the financial resources or growth to attract a true Board of Directors, you can often leverage the investment you’ve already made in your professional vendors to create your own quasi-“Board,” getting you the solid guidance that a growing small company desperately needs.

11 Deal Making Lessons Learned By an Investment Banker – One Quarter of a Century later

Hiring the right professionals-

The first 5 Qualities of Successful Business Sales Transactions…more here:

Mexico: New Regulations Clarify the Requirements for Outsourcing

Mexico’s Federal Conciliation and Arbitration Board recently published regulations to set a uniform standard for all labor boards to follow when determining whether outsourcing has occurred.  These regulations, entitled “Employment Relationship within the Outsourcing Framework” (“Relación de Trabajo en el Régimen de Subcontratación”), interpret the new outsourcing requirements established in the labor law reform of 2012 and serve as guidance to determine who – whether the contractor that hired the worker to perform services or the contractor’s customer (the business that benefits from the services) – is liable for any employment obligations owed to that worker.

Employment Relationship within the Outsourcing Framework
The labor law reform of 2012 introduced heightened restrictions on outsourcing, defining “outsourcing” as follows:

Outsourcing occurs when work is performed or services are rendered through workers hired by and working under a contractor’s control, for the benefit of a customer, whether the customer is a legal or natural person, and the customer supervises and sets the tasks for the contractor in rendering the services or performing the contracted work:
This type of work must comply with the following conditions:

  1. It cannot cover the totality of the activities, whether equal or similar in totality, undertaken at the center of the workplace
  2. It is justified due to its specialized character.
  3. It cannot include tasks equal or similar to the ones carried out by the customer’s workers.

The new regulations clarify that when a business (customer) hires a service provider (contractor) in order to outsource a service, the relationship between that customer and the contractor must be governed by a written contract.  Further, all conditions – factors “a,” “b” and “c” outlined above – must be met.  That is, if the labor board finds that one of these factors has not been met, the activity does not meet the outsourcing requirements under the law.  Where it is determined that the activity was outsourced to avoid the customer’s employment obligations under the law, the labor boards may deem the customer to be an employer, for purposes of holding the customer responsible for any wages or benefits owed under the law to the workers who performed the services.

Further, the regulations clarify that where a customer has been found to be an employer, secondary liability (as opposed to joint liability) applies.  Secondary liability (known in Mexico as “subsidiary liability”) means that the labor court may impose liability only for any employment-related obligations not paid by the contractor as the primary party responsible to pay the workers.

See complete article here.


“EXPATRIATE EMPLOYMENT IN MÉXICO: Strategies for Meeting the Challenges”
By Mónica Schiaffino and Jeremy Roth, Littler*

Mexico’s increased trade importance has resulted in a corresponding growth in expatriates living and working there.  However employers must first consider Mexican local labor laws before assigning expatriates.
Mexico’s Federal Labor Law (“FLL”) and Social Security Law (“SSL”) apply to all employment in Mexico, regardless of any contravening choice of law provision in the assignment letter, employer or employee nationality, or the situs where the salary is paid or the employment agreement is executed. Expatriates in Mexico enjoy the same statutory rights as Mexican employees under the FLL and the SSL, including rights to vacation, vacation premium, Christmas bonus, profit sharing, and severance in the event of dismissal without cause.
Mexican law also presumes a joint employment relationship by both the Mexican subsidiary and the non-Mexican parent company. When such a joint employment relationship is found to exist, Mexican law requires both companies to comply with Mexican labor law.
Therefore, hiring expatriates in Mexico requires careful planning to avoid unanticipated problems for the parent.  These options may help minimize risk:

  • A.           Termination of Employment by Parent - To help limit exposure under the FLL the parent should consider terminating its employment relationship with the expatriate before s/he begins working in Mexico; and then the expatriate may then enter into a new employment contract with the Mexican subsidiary covering the full salary and benefits to be paid.
  • B.            Mirror Payroll - Use a “Mirror (“Shadow”) Payroll” in which: (1) The parent and the Mexican subsidiary enter into a secondment agreement; the parent agrees that the Mexican subsidiary will hire the expatriate for a certain period of time; and (2) The Mexican subsidiary and the expatriate then enter into an employment agreement specifying the terms of employment according to Mexican legal framework.
  • C.            Split Contract - This option requires three separate contracts to clearly delineate the relationships between the expatriate, the Mexican subsidiary, and the parent: (1) A “disruption contract” executed between the parent and the subsidiary;  (2) A “sleeping employment contract” executed between the expatriate and the parent to suspend the employment relationship; and (3) An employment contract between the expatriate and the subsidiary, which should comply with the FLL and clearly establish the date on which the expatriate begins work at the subsidiary and his total salary and fringe benefits.

This Split Contract strategy creates a strong argument that the FLL is inapplicable to the parent, and that the Mexican labor board lacks jurisdiction over the parent’s employment contracts if a wrongful dismissal action is filed by the expatriate against the parent in Mexico.

Under any scenario, expatriates need a work visa to enter and work in Mexico.  Failure to have the appropriate visa may result in the imposition of fines (or deportation) levied against the expatriate, and possible employer fines.  Tax issues must also be considered before a final decision is made.
They may be reached, respectively, at or

*Ms. Schiaffino is a shareholder in the Mexico City and Monterrey, Mexico offices of Littler, and Mr. Roth is Co-President of Littler, based in the firm's San Diego, California office.

Oro Negro: Mexico Passes Secondary Legislation Making Energy Reform a Reality
Authored by Luis Fernando Gomar

Mexico’s long-awaited energy reform became a reality with the promulgation of secondary laws needed to effect amendments to the Mexican Constitution passed in December 2013. Private participants, both foreign and domestic, will soon (by early to mid-2015) be able to participate in hydrocarbon activities in Mexico.  Brief highlights of the new laws as they apply to the oil and gas industry follow. (For a more in-depth analysis, please see our newsletter published here.)

The new regime provides the Ministry of Energy (“SENER”) with the authority to regulate upstream, midstream and downstream activities in Mexico with the assistance of the National Hydrocarbons Commission (“CNH”) for upstream activities, and the Energy Regulatory Commission (“CRE”) for midstream and downstream activities, with certain exceptions.

The implementation of the new laws began with SENER’s publication of the results of “Round Zero” on August 13, 2014.  PEMEX presented to SENER a list of exploration and production assets it proposed to retain, based on existing data.  SENER granted PEMEX the right to retain 83% of proven and probable reserves and 67% of possible reserves. The remaining assets will be opened up to the private sector through subsequent bidding processes.  SENER and CNH will establish which assets will be available for public bid to the private sector in “Round One”, which may take place during the first quarter of 2015.

As background, CNH is required to grant designations of certain blocks for upstream activities to PEMEX and other State Productive Enterprises (including those awarded to PEMEX under Round Zero), or contract with the private sector to explore and/or produce hydrocarbons in other blocks (beginning with “Round One”). Contracts with private parties will be awarded through public bidding overseen by CNH.

Contracts awarded to the private sector for upstream activities consist of four main types:  License Agreements - granting a licensee rights to explore, produce and commercialize hydrocarbons within a specified area; Production Sharing Agreements - allowing a contractor to explore, produce and commercialize a portion of the products produced within a specified area, with the other portion belonging to the Mexican government; Profit Sharing Agreements - requiring a contractor to provide all of its production to the Mexican government for commercialization and then share in profits; and Services Agreements – which will resemble current  PEMEX services agreements.

CRE will regulate and award permits for midstream and downstream activities, except for refining or processing activities, which will be granted by SENER. SENER will issue permits to export or import refined products.

Mexico has taken great steps towards creating an oil and gas industry that may transform Mexico’s economy and instigate broader positive social impacts for the country and its people. Unanswered questions remain, many of which we hope will be answered as “Round One” evolves.  Expectations are high; this author and his partners are actively following events as they unfold and looking forward to sharing them with our clients and contacts.

One of the fastest growing law firms in Texas, Strasburger & Price, LLP stands ready to fill the full range of legal needs for Texas-based, middle-market companies, while also performing “run the company” work for national and international clients. The firm, which celebrates its 75th anniversary this year, has consistently been recognized as a premier Texas law firm, in both the courtroom and the boardroom. With experience in more than 30 practice areas, Strasburger attorneys provide legal advice to a variety of businesses – from start-ups to Fortune 500 companies, both publicly and privately held – as well as individuals and governmental entities. Strasburger has Texas offices in Austin, Collin County, Dallas, Houston, and San Antonio, as well as offices in New York City, Washington, D.C. and, as Strasburger & Price, S.C., in Mexico City. For more information about Strasburger, please visit

Author’s Biography:

Luis F. Gomar is Partner-in-Charge of Strasburger’s Mexico City office and focuses his practice on corporate and securities matters. He advises a variety of clients on the numerous aspects of domestic and international business transactions, including mergers and acquisitions, divestitures, financing, capital raising and fund formation. Luis frequently represents U.S. based clients with their investments in or expansion of their operations abroad; particularly Latin America, as well as foreign clients with their investments in or expansion into the U.S. Luis also advises funds, management companies and private issuers pursuing a variety of fundraising and investment strategies.

Banking in Mexico? Make Sure You File Your FBARs
By: Eduardo S. Chung, WeiserMazars LLP

On July 1 of 2014, the Internal Revenue Service (IRS) and its counterparts worldwide began implementation of FATCA (the Foreign Account Tax Compliance Act).  FATCA is a federal law that requires foreign financial institutions (FFIs) to report account information on U.S. citizens and resident aliens to the IRS.  Congress created the law to prevent taxpayers from evading U.S. taxes through unreported foreign accounts.
Mexico became the third of more than 100 countries worldwide to adopt or agree to adopt a FATCA Inter-Governmental Agreement (IGA).    The Mexico-U.S. IGA will allow a reciprocal exchange of bank account information between tax authorities and financial institutions.

Individuals who are U.S. citizens or resident aliens (wherever they reside) need to report certain foreign financial accounts by filing an “FBAR” (i.e., FinCen Form 114), as well as through submission of IRS Form 8938.  FBARs must be filed by June 30 of each year for the preceding year in which foreign financial accounts had aggregate balances in excess of $10,000 at any point during the year.  The FBAR requirement applies to any U.S. person having a financial interest or signatory authority over a foreign financial account.  
Failure to file an FBAR creates the possibility of severe penalties.  The maximum non-willful penalty is $10,000 which can be mitigated by a reasonable cause argument. The maximum willful penalty is the greater of US$100,000.00 or 50% on the balance of the account.  More importantly, an intentional violation can carry a criminal penalty of as much as five years in prison. Mexican-Americans and expatriates living in Mexico should correct any non-compliance to avoid these potential penalties.

For those that have not been filing their FBARs in the past, the IRS has instituted two programs to allow them to get back into compliance: the Offshore Voluntary Disclosure Program (OVDP) and the “Streamlined Procedures” process.  The OVDP was created for willful taxpayers that require protection from criminal prosecution.  Streamline, in turn, was created for non-willful taxpayers that unintentionally failed to file their FBARs.  Both programs afford taxpayers the opportunity to comply and pay reduced penalty rates.

In the past, Streamline was generally restricted to a small category of non-resident individuals.  In June of 2014, however, the IRS expanded its program to remove the limiting conditions for non-residents and, in addition, permit U.S. resident taxpayers to participate in the program.  Depending on which category they qualify for, a potential Streamline participant may be able to become current on all of their foreign filing requirements without the imposition of penalties or, in the alternative, greatly reduced penalties.   Therefore, for those living and/or working in Mexico that were unaware of their FBARs filing requirements, Streamline may provide an excellent opportunity to resolve their issues. The Streamlined program will cover 3 years of income tax returns and six years of FBARs. The IRS will scrutinize any filings that claim to be non-willful and have to be signed under penalty of perjury.  


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