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Protecting Your Investment in a (Possible) Post-NAFTA World

The North American Free Trade Agreement (NAFTA) is in peril. President Trump has threatened to withdraw from NAFTA if key terms are not renegotiated, and U.S. negotiators are reportedly having a difficult time convincing their Mexican and Canadian counterparts to accept U.S. demands. One of those U.S. demands, moreover, is to permit the U.S. to opt-out of NAFTA’s investor-state dispute resolution system.  This has unsettled investors, who have relied on NAFTA’s protections to safeguard their assets.

Currently, NAFTA guarantees investors that they will not have their assets expropriated; will receive fair and equitable treatment by the government and its courts; will receive treatment no less favorable than domestic investors, and as favorable as any other foreign investor; and that they will be able to refer any issue to a dispute settlement body separate from local courts. If NAFTA falls, however, investors will be stripped of these protections, and it could be years before a new bilateral investment treaty, if any, is signed between the U.S. and Mexico.

In the face of this uncertainty, investors should consider taking action to protect their investments.  Among the steps that investors may take are the following options:

1. Providing that any disputes arising out of their investments be resolved by international commercial arbitration.  This may avoid some of the risks associated with domestic court systems, where an independent judge cannot be taken for granted and executive interventions in court proceedings, or a sense of judicial loyalty to the forum state, may influence the outcome. 

2. Where international commercial arbitration is not an option, investors may want to consider providing for dispute resolution by federal courts situated in major commercial centers such as Mexico City and New York, where there will be less of a “home town” advantage for a domestic counterpart.

3. Investors should also consider structuring their investment to benefit from bilateral investment treaties to which the host state is a party so as to gain international protection from national and/or local governments.  Investors can do so by forming a company in a country that is a party to a bilateral investment treaty with Mexico or the United States, and using that company as a vehicle for their investment, or by transferring ownership rights to a foreign investor who is already protected by that treaty. Some tribunals have rejected the use of such corporate structuring as so-called “treaty shopping,” so counsel should advise on any such structuring efforts.

4. Finally, investors can hedge the risk of unpredictable government action by carrying political risk insurance. While costly, it can provide compensation in cases of expropriation, adverse regulation, and political instability. Crucially, tribunals have ruled that compensation from an insurance policy does not foreclose an investor from seeking compensation from a host state.

In short, investors may be able to do more than hope for the best during the ongoing NAFTA negotiations, and should consider how to proactively prepare for any outcome. 

-- Julissa Reynoso, Marcelo Blackburn, Michael A. Fernández, Ariel Flint


The Ontario Limited Partnership as an Investment Vehicle for International Private Clients
Diana Garcia Breinich

The Ontario Limited Partnership (“LP”) can be an efficient vehicle for international clients investing in the United States that want not only protection from the US estate tax but also the ability to claim the income in their personal tax returns. LPs established in Canadian provinces have been used for many years as suitable vehicles for corporate and individual investors to structure international transactions. We usually suggest to set up such structures for our clients in Ontario and this is a summary of the main characteristics noted by tax advisors that make the Ontario LP an attractive vehicle for portfolio holding. We always insist that clients consult with an advisor with expertise in international wealth planning before creating any structure.

For example, some advisors recommend this structure to Mexican families that have brokerage accounts in the U.S. in order to protect their investments from the U.S. estate tax by using the “check the box election” and qualifying as a corporation for U.S. tax purposes. At the same time the Ontario LP has a transparent legal and fiscal treatment in Canada and Mexico which provides other advantages. From the Canadian perspective as long as there is no activity in Canada or Canadian source income there is no tax liability in Canada and the partners are taxed as individuals in their home country, in this case Mexico. From the Mexican viewpoint, this pass-through feature is important because there is a favorable tax rate for Mexican individuals when investing in certain stocks such as those listed in the International Quotation System (Sistema Internacional de Cotizaciones) of the Mexican Stock Exchange.

According to the Ontario Limited Partnership Act, a limited partnership must have one or more persons who are general partners and one or more persons who are limited partners. “Persons” has been defined to include among others, an individual, a sole proprietorship, a trust or a corporation. The partnership is formed when a declaration is filed with the Registrar of the Ministry of Government and Consumer Services. The partners can reside abroad but the partnership will require a local address to serve as its registered office.

The General Partners manage the affairs of the partnership and represent it in dealings with third parties. They are also fully liable for any debts of the partnership and for these reasons some advisors recommend having a corporation serving as a General Partner. If that is the case, the corporation will be required to make an application for an extra-provincial license in Ontario, which has to be renewed every year. The Limited Partner may be an individual, a legal entity or a trust. Some international private clients also use a trust or a Private Foundation as Limited partner in order to add an estate planning element to the structure. The liability of the limited partners is restricted to the amount of capital that they contribute to the partnership and the limited partners are prohibited from directly managing the affairs of the partnership. If the
Limited Partners do not observe the management restriction they may forfeit their right to the limited liability protection and would become fully liable as if they were general partners.

For all these reasons and the possibility of using different types of entities as general and limited partners, the Ontario LP is a versatile tool for tax and estate planning and we have noticed an increased interest among some clients and practitioners in this structure as a result.

CITCO CORPORATE SERVICES INC.
Citco has assisted multinational companies, international investment funds and high net worth private clients with a variety of corporate secretarial, fund administration and related services for more than 75 years. Diana Garcia Breinich is a Business Development Manager at Citco Corporate Services Inc. She has an LLB from Universidad del Rosario in Bogota, Colombia; an LLM from Fordham Law School and an MBA from the Yale School of Management. She is an attorney admitted to practice in New York and Colombia.

The Citco Group Limited is the indirect parent of a network of independent companies. The Citco Group Limited provides no client services. Such services are provided solely by the independent companies within the Citco group of companies (hereinafter, the “Citco group of companies”) in their respective geographic areas. The Citco Group Limited and the Citco group of companies are legally distinct and separate entities. They are not, and nothing contained herein shall be construed to place these entities in the relationship of agents, partners or joint venturers. Neither Citco Group Limited nor any individual company within the Citco group of companies has any authority (actual, apparent, implied or otherwise) to obligate or bind The Citco Group Limited in any manner whatsoever.

Citco DISCLAIMER
The information contained in this document is for informational purposes only. The information contained in this document is presented without any warranty or representation as to its accuracy or completeness and all implied representations or warranties of any kind are hereby disclaimed. Recipients of this document, whether clients or otherwise, should not act or refrain from acting on the basis of any information included in this document without seeking appropriate professional advice. The provision of the information contained in this document does not establish any express or implied duty or obligation between Citco and any recipient and neither Citco nor any its shareholders, members, directors, principals or personnel shall be responsible or liable for results arising from the use or reliance of the information contained in this document including, without limitation, any loss (whether direct, indirect, in contract, tort or otherwise) arising from any decision made or action taken by any party in reliance upon the information contained in this document.

Mr. Trump won, what happens to Mexico now?

The World of Virtual Reality: a hard-nosed sales and marketing tool for Mexican Powerhouse Companies Servicing the Real Estate Markets and Residential Clients in the United States

 

The technology and its uses: Virtual Reality (VR)
CHARLESMATZ and Mythic VR, offer an innovative way for Mexican companies – Law firms offering commercial, institutional or residential real estate services; real estate agencies working with clients to garner sales, and developers who concentrate their US sales efforts on the Latin American / Mexican markets – to visualize remote, distant or speculative, unbuilt properties, apartments, homes, offices and industrial centers.

 

While there are a variety of emerging VR solutions, our efforts are focused towards creating the most immersive experience possible, with the hardware that is currently and readily available. The virtual experience is realistic, interactive and exciting. We focus on sophisticated, Personal Computer-based VR, which enables tracking at the size of a room and interactivity within the experience via hand-held controllers. A client can physically walk their prospective location within a 3m x 3m space and visualize the physical attributes of any apartment, retail store, institutional center, business or medical office at full scale.

 

Clients can also visualize remote properties from the comfort of their location without traveling. So, from Mexico City or Buenos Aires, a potential buyer of a residential property overlooking Central Park in New York, a corporate center in Texas, or the strip in Miami Beach – or senior decisionmaker, in charge of leasing or organizing the configuration of an office, or an user group of professionals doctors – can ‘visit’ and ‘walk through’ virtually the properties at will, previewing all of their functions in advance from where they are situated. Providing, early in the process, feedback and critical information before money is spent on travel, renovations or new construction.

 

Filling in design gaps and the approach to success
Our virtual environments are realistic and accurate. From construction drawings and material selections, we can quickly provide a full-scale and real-time VR simulation. And we can fill in elements that have not yet been defined.

 

The company’s current clients include architecture firms, real estate developers, and larger corporations, such as PepsiCo and West Elm. We work with businesses to help them integrate VR into both the design and sales process. We work with each client to discover how virtual reality can augment their existing workflows. For enterprise market, all a company needs is a single powerful computer, a HTC Vive headset, and an internet connection - and they’ll be able to visualize and interact with properties around the world from their own office.

Mexico: INFONAVIT Implements Support Measures for Employers and Employees Located in the Various Mexican States Impacted by the Recent Earthquakes
By Tania Terrazas and Joaquin Junco on October 5, 2017

The INFONAVIT announced the implementation of support measures for employers and employees located in the states of Oaxaca, Chiapas, Puebla, Guerrero, Morelos, Tlaxcala, and/or Mexico City, which are areas declared to be in a state of disaster due to the September 8 and 19, 2017 earthquakes.  The “Instituto del Fondo Nacional de la Vivienda para los Trabajadores” (INFONAVIT) is the federal authority that requires employers in Mexico to withhold a percentage of an employee’s salary to fund the employee’s housing benefits. 

The support measures established by the INFONAVIT fall under five categories. As noted, the relief measures may vary by municipality:

  1. Employers’ withholding and credit amortization obligation:
    1. During September, October, November and December of 2017, employers located in the affected municipalities of Oaxaca, Chiapas, Puebla, Guerrero, Morelos, Tlaxcala and/or Mexico City, will not be obligated to withhold employees' housing credit payments and remit them to the INFONAVIT.  Employers that fail to meet their withholding and credit amortization obligation during this period will not incur in any related liability. Employers’ withholding obligation will be reinstated in January 2018.
        
  2. Employers’ tax-related matters:
    1. Until October 31, 2017, employers in the states of Puebla, Guerrero, Morelos, Tlaxcala, Oaxaca, Chiapas and/or Mexico City will not be subject to debt verification actions, except for cases that may impact the tax interest.
    2. All tax actions undertaken by the Institute (including audits of bank accounts and cash receipts) will be suspended, to resume on November 1, 2017.
        
  3. Employers’ late payments:
    1. For employers in the affected municipalities of Oaxaca, Chiapas Puebla, Guerrero, Morelos, Tlaxcala, and/or Mexico City, the deadline to receive payments for the 5th and 6th bimonthly periods for 2017 is extended. The 5th bimonthly period can be paid no later than January 17, 2018, and the deadline for the 6th bimonthly period is extended until March 19, 2018. Such payments can be made in monthly installments, without surcharges, fines or the need to provide warranty pursuant to the current program to help bring employers up-to-date on their accounts.
    2. For employers in the affected municipalities of Oaxaca and/or Chiapas, any surcharges or fines generated for late payments for the 5th and 6th bimonthly periods of 2017 are forgiven.
        
  4. Insurance against damages for employees in the affected municipalities of Oaxaca, Chiapas, Puebla, Guerrero, Morelos, Tlaxcala and/or Mexico City, holding an INFONAVIT credit who prove damage to their homes:
    1. All housing that serves as guarantee for INFONAVIT credits is insured against damages.
    2. In cases where the credit has not been paid timely, INFONAVIT will inspect and evaluate the damages to the home.  Payments for property damage will be made once the employee has executed an agreement to normalize payments. 
    3. The property damage insurance will cover damages and losses caused to the home’s interior, anywhere from $4,000.00 to $10,000.00 Mexican pesos, depending on the damage.

See complete article here.

Tania Terrazas advises national and international companies on labor issues including compensation and benefits, termination processes, employer substitutions, international assignments and immigration matters. She also conducts customized training for executives and employees on labor-related issues including company policies, codes of conduct and best practices.

The 5 Languages of Global Economy
By Lucía Galvan

Usually, people who are looking to learn a new language turn to English as their first choice. However, many executives have stated that speaking only this language is not enough to fulfill the expectations of world class companies abroad. By stating this we ask ourselves the question, what are the most sought out languages in the market?

  1. Mandarin

China is the largest economy and has the largest consuming capacity in the world according to the International Monetary Fund. Ever more demanding, resumes that include Mandarin as a second or third language have a clear advantage over those who do not. Mandarin has become a necessary language and despite its pronunciation, its grammatical structure is fairly simple and has no verbal conjugations, gender or number distinctions. An advantage for students seeking to learn it.

  1. English

Even though we are evaluating other options besides English, it is impossible not to mention this language that has been the most dominant and used for many years in the business world worldwide. English is the language of diplomacy, business and popular culture. Spoken by more than 1,500 million people (and 1,000 million teaching it). 85% of all internet content is in this language. Not having a fluent knowledge of English immediately restricts access to millions of news, courses and specialized information. A leader in the technology sector and a must in the use of digital platforms, specially those with the most up to date software. It is safe to say that English is necessary in present time.

  1. Spanish

Spanish is the second native spoken tongue worldwide. As a first language it is spoken by 437 million people, right behind English and Mandarin. It is also one of the official languages spoken in the UN, UE, WCO and NAFTA. The importance of this language has increased dramatically due to the growth in Latin American countries. Being fluent in Spanish gives those who speak it a competitive advantages doing business with Mexico, LATAM, Spain and a huge Spanish speaking sector in the US.

 

  1. German

Germany has long since been the leading economy in Europe and a huge player in the global market. German in the business world is considered a specialty area. It is centered in how the professional and business world communicate, not only covering vocabulary and terms but also negotiations, presentations, written word redacting and telephone conversations. This language helps companies in the business world stand out form the rest.

  1. Portuguese

Every day the Portuguese language becomes more important in the business sector, due to the fact that Brazil has the conditions to overcome the United Sates as the leading supplier in food and agricultural supplies worldwide according to a report posted by the UN for Food and Agriculture. Said to be similar to Spanish, there are numerous differences politically, in their social constitution, the way they do business and their international projection.

Multi language learning is getting bigger and bigger every year. Learning a second or third one now a days is not only necessary but fundamental

 

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