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Special tax incentive decree for interest on corporate debt bonds and IPOs

President Lopez Obrador issued a special decree (the Decree) granting tax incentives related to the withholding tax on interest paid by Mexican residents for publicly traded corporate debt bonds and a reduction on the tax rate on the gain obtained from the sale of public shares through an initial public offering (IPO).

The Decree points out the need to promote debt and capital markets in Mexico given that the corporate debt bonds market in Mexico is underdeveloped because of the asymmetric tax treatment depending on the tax residence of the investor or issuer of the bonds and that the stock market is an important source of capitalization for medium-sized companies, which is limited because of the different tax rates applying to the capital gains from the sale of shares in the stock exchange.

Tax credit on the withholding tax on interest from corporate debt bonds

In general terms, a tax credit of 100% on the income tax for interest payments made by residents in Mexico to a resident in a jurisdiction with which Mexico has a broad agreement for the exchange of information is granted, the tax will be creditable against the withholding tax that should be paid on the interest payments provided that no withholding is made. The tax credit will not result in taxable income for the Mexican payor.

Reduced capital gains tax

For tax years 2019 to 2021, the capital gains tax rate is reduced 10% when shares issued by Mexican companies are sold through the Mexican stock exchanges by Mexican resident individuals or non-Mexican residents to the extent that the sale is registered under the terms of the Securities Market Law, placed among the general investing public and carried out through an IPO of a Mexican company that has not previously traded on stock exchanges.

To apply the incentive, the stockholders’ equity value in the corresponding Mexican company should not exceed MXP $25,000 million pesos (approximately USD $1.2 billion) before the IPO.

The reduced capital gains tax rate will not apply if the sale is made by a person or group of persons controlling the issuing company. However, the reduced tax rate may be granted to a person or group of persons that control the issuing entity when at least 20% of the shares of the Mexican company have been acquired by a Mexican venture capital investment trust (FICAP in Spanish).

Over-allocation operations (follow-ons) may be classified as IPOs, provided that the corresponding agreement establishes that those operations are considered IPOs. However, the follow-on must take place within 30 days of the date on which the placement price of the shares of the IPO are determined and other requirements are met.

The acquisition of Mexican shares by a publicly traded “special purpose acquisition company” (SPAC) and the exchange of shares derived from the merger of a Mexican company into a SPAC may be subject to the benefits of the Decree if certain requirements are complied with.

-- By Enrique Perez Grovas and Eduardo Isidro


Elimination of tariffs imposed by the United States of America on Mexican and Canadian Steel and Aluminum under Section 232, and retaliatory measures by Canada and Mexico.
By José Alberto Campos-Vargas, María Luisa Mendoza-López, Juan Carlos Jiménez-Labora Mateos, Laura Elisa Sánchez-Barrón, and Ernesto Vega-Zaldívar.

On May 19, 2019, the President of the United States published the “Proclamation on Adjusting Imports of Steel into the United States” and the “Proclamation on Adjusting Imports of Aluminum into the United States,” whereby Mexico and Canada were excluded from the tariffs imposed on steel and aluminum for representing a threat to U.S. national security (Section 232 measures).

Accordingly, today the President of Mexico published in the Federal Official Gazette a Decree modifying the Decree published on June 5, 2018 (see here), thus eliminating the retaliatory measures imposed on U.S. goods as a response to Section 232 measures.

Consequently, as of May 20, 2019, the retaliatory measures will no longer be in force and U.S. goods listed in the Decree of June 5, 2018, may be imported into Mexico under North American Free Trade Agreement (NAFTA) preferential treatment.

The elimination of both measures (Section 232 and the retaliatory measures) derives from the discussions between the NAFTA countries on alternative means to address the alleged threat to national security posed by imports from Canada and Mexico

According to the “Joint Statement by the United States and Mexico”, the Parties:

Eliminate the measures.

  • Will terminate all pending litigation in the World Trade Organization.
  • Implement measures to prevent importation under unfair trade competition (dumping or subsidies); and transshipment of non-originating steel and aluminum.
  • Establish consultations in case imports of steel and aluminum “surge meaningfully beyond historic volumes of trade on a period of time”.

The elimination of these measures is good news for the pending ratification of the United States, Mexico and Canada Agreement (USMCA), since those were the greatest obstacles standing between the Parties.

Our team of experts in foreign trade and customs is closely monitoring this matter and will keep you updated on the USMCA ratification and the effects this will have on your international trade operations.

Self-Regularization Program in Money Laundering Prevention

By Daniel Maldonado-Alcantara, Alberto Lascurain-Grosvenor, Oscar Alejandro Quiroz-Chávez, and Alejandro Jaime García-Escárzaga

The Ministry of Finance and Public Credit introduced the General Provisions regulating the Self-Regularization Programs (the “Provisions”).

These Provisions include the rules that will need to be complied with by obligated parties in breach of their obligations set forth in articles 17 and 18 of the Federal Law for the Prevention and Identification of Transactions with Funds from Illegal Sources (the “Mexican Anti-Money Laundering Law”), for the period of July 1, 2013 to December 31, 2018, with prior authorization from the Tax Administration Service (SAT), provided that they are up to date with their 2019 obligations.

For the abovementioned purposes, the obligated parties, in order to obtain authorization to participate in the self-regularization program, must submit their application through the Anti-Money Laundering Website (SPPLD), within thirty business days from the date in which the Provisions enter into force, this is, by and including August 02, 2019, stating under oath their wish to correct their irregularities or omissions.

This request must include the following:

  1. The description of the irregularities or breaches.
  2. Details of the circumstances that led to said irregularities or breaches.
  3. Description of the actions that are to be adopted to correct the breach.
  4. Proving that they do not fall under any inadmissibility provisions.

The self-regulation program must be completed within six months, starting from August 3, 2019.

The authorization of the self-regularization can be requested through the SPPLD. This will not limit the SAT’s verification or compliance monitoring.

These Provisions enter into force 45 business days after their publication in the Official Gazette of the Federation, this was, on June 21, 2019.

At Sanchez Devanny we are at your service to assist you with the regularization of anti-money laundering obligations, including advice and training of your staff, as well as for the development and/or adjustment of your anti-money laundering policy/program and to review and assist you with the filing of notices on the anti-money laundering website.

Demystifying Energy Investment Disputes in Mexico Through the New USMCA
By Carlos Vejar and Juan Pablo Moyano

Each of the three participating countries in the U.S.-Mexico-Canada Agreement (USMCA) is about to submit the new free trade agreement for its respective Congress' approval. Some stakeholders have interpreted Chapter 8 of the agreement as having no obligations for Mexico in the hydrocarbons sector. However, even without a specific chapter regulating the energy market, an energy investment from a U.S. investor will be covered through the more general investment protections, although subject to certain caveats.

This Holland & Knight alert identifies several key provisions for U.S. investors in Mexico's hydrocarbons market.

Read the full article »

The USMCA and What Could Change on Industrial Property Enforcement in Mexico

By Jose Luis Villareal

The United States-Mexico-Canada Agreement (USMCA) was signed by the participating countries on Nov. 30, 2018, and has been ratified by the Mexican Senate, but there is no full certainty as to when the agreement will take effect or whether it will be ratified by all its parties, including both the U.S. Congress and Canadian Parliament.

The USMCA reflects the concern of properly protecting intellectual property (IP) rights in all jurisdictions. Although Mexico has already been reforming its laws and regulations with the purpose of strengthening its IP legislation, certain amendments still might be necessary to fulfill the objective of USMCA's IP-related provisions.

Read the full article »

Mexico: Preliminary Analysis of the Project to Reform the Federal Labor Law
By Littler Mendelson

In a work session held on April 3, 2019, the Labor & Social Welfare Commission of Mexico’s House of Representatives issued the last draft of the decree to reform the Federal Labor Law (the “Law”). On April 11, the House voted and approved the general terms of the decree by an overwhelming vote of 417-1. The decree is now pending in the Senate.

Pursuant to changes made to Mexico’s Federal Constitution in February 2017 addressing labor matters, as well as new commitments the Mexican Government took on as part of the United States-Mexico-Canada Agreement negotiation, the reform project seeks to reinforce workers’ rights, judicialize labor justice and regulate the creation of unions, as well as strengthen workers’ freedom to unionize and bargain collectively.

Although the project may face specific modifications in order to be approved in the plenary session, the following are the most relevant provisions that have been kept throughout the various work meetings of the labor commission:

Individual Employment

  • Individual employment agreements—i.e., agreements between a worker and the employer—must include the appointment of the workers’ beneficiaries for payment of accrued salary and benefits in case of the employee’s death or disappearance due to a criminal act. In the latter instance, the beneficiary must obtain a Special Declaration of Absence, which may be requested three months following the disappearance report or a complaint before the National Human Rights Commission.
  • The acknowledgement of internet-based tax certificates (comprobantes fiscales digitales por internet or “CFDI” for its acronym in Spanish) can be substituted for printed salary receipts. The Tax Administration Service (Servicio de Administración Tributaria) website can be used to verify their validity. Using the internet-based tax certificates would not relieve employers of the requirement to issue printed salary receipts upon the worker’s request. Such printed salary receipts will require worker’s actual written signature.
  • Each company must implement, in agreement with its workers, an internal protocol to prevent discrimination, address violence and sexual harassment cases, and eradicate forced labor and child labor.
  • A new provision mandates social security insurance for domestic workers. This provision will take effect once regulations are issued under the corresponding laws.
  • New provisions expand the eligibility criteria for workers’ beneficiaries in case of death or disappearance. Those eligible for benefits who will not need to demonstrate economic dependency include not only the surviving spouse, but also children under 18, children 18 or older who have a disability of 50% or more (as it is legally determined), and children up to age 25 who are studying in Mexico.
  • Requests to void private termination agreements (i.e., without the certification of the Conciliation Center) may only be sought for agreements containing waivers of workers’ rights.
    Labor and Collective Relationships
  • Reform to the Law will implement an open and transparent model of union elections that will require workers’ input into the content of the collective bargaining agreements (“CBAs”) and the ability to revise agreements prior to their filing with the registration authority.

See full article here »

Mexico: Strikes and Illegal Work Stoppages Hit the Maquiladoras Industry in Matamoros, Tamaulipas

By Monica Schiaffino and Ignacio Bermudez

More than 30,000 workers at approximately 45 companies in Matamoros, Tamaulipas, recently went on strike demanding a 20% salary increase, plus a one-time annual bonus of MXN $32,000 (approximately USD $1,700), to reach an agreement and resume their work activities. Matamoros, located near the Mexico-US border, is home to a conglomeration of manufacturing factories known as “maquiladoras.” To date, the strikes reportedly have caused the maquiladoras industry a loss of USD $50 million a day. 1

The strikes were called by the members of the Union of Laborers and Industrial Workers of the Maquiladora Industry (known as “SJOIIM”).2 Their demands disregard the government’s recent increase in the minimum wage. As we recently reported, on December 26, 2018, the CONASAMI (Mexico’s National Commission of Minimum Wage)3 increased the daily minimum wage for the border area, from $88.76 pesos to $176.72, representing a 100% increase. However, in its official decree, the government declared that the increase in the minimum wage was actually only 5%, designating the remaining amount as an “independent recuperation amount,”4 designed to restore and strengthen employees’ purchasing power.

Further, SJOIIM demands the 20% increase, plus the one-time bonus, based on a clause of the current collective bargaining agreement (CBA) that establishes that employee salaries shall be increased based on the amount resulting from the application of the minimum wage percentage increase and on common practice between the companies and SJOIIM. SJOIIM argues that to comply with such clause, the increase amount must be multiplied by 365 (instead of applying the increase directly to the daily salary), resulting in the MXN $32,000 bonus they demand.

To date, most of the companies have agreed to the workers’ demands. Other companies in Matamoros that are not subject to a CBA or similar contractual obligations with SJOIIM are dealing with illegal work stoppages and have been threatened with a strike if they fail to agree to the 20% salary increase and the bonus payment. Without a resolution, this situation may reach the entire Mexico-US border area and beyond, impacting employers’ bargaining power throughout the entire country, especially if employees begin demanding a wage increase higher than the typical four or six percent.

 

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