Dear Clients and Friends:
On October 12, 2022, the Mexican Congress approved the Status of List of Reservations and Notifications under the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS), known as MLI (Multilateral Instrument). [1]
Summary
The MLI is a multilateral agreement signed by more than 90 member countries of the Organization for Economic Cooperation and Development (OECD). It enables a quick and efficient implementation of tax treaty recommendations made by the OECD between the signatory countries that seek to prevent tax treaty abuse.
The MLI derives from Action 15 of the OECD BEPS action plan. In general, this Action advocates using the MLI to implement the recommendations contained in the BEPS Project. These recommendations seek to prevent tax treaty abuse through the implementation of general and particular anti-abuse rules.
Mexico´s Current Situation
Mexico signed the MLI on June 7th, 2017. Our country has entered into 61 tax treaties with different countries, 47 of which have already ratified their position under the MLI and have submitted a final position of such instrument to the OECD.
Therefore, once the MLI enters into force in Mexico, its guidelines will be applicable for the 47 countries that have already ratified their position before the OECD. It is necessary to carry out a case by case analysis for each tax treaty, since countries may have adopted reservations on some articles of the MLI.
Key Dates for Mexico
Assuming that Mexico submits its final position under the MLI to the OECD by the end of October 2022, the MLI would enter into force in Mexico on February 1st, 2023.[2]
Nevertheless, with respect to taxes withheld at source on amounts paid or credited to non-residents, for Mexican purposes, the provisions set forth in the MLI should enter into effect on January 1st, 2024.[3]
In this regard, we suggest reviewing the structures involving non-resident individuals, entities or vehicles that carry out transactions with Mexico, as the case may be. The aforesaid in order to analyze the potential effects that may be triggered by the entry into force of the MLI.
Additional Considerations
We highlight that Germany has already ratified its position under the MLI. However, the tax treaty with Mexico has not been covered by such instrument, since the latter treaty already contains most of the recommendations made by the OECD, through the BEPS Project. In the case of the United States of America, it decided not to become a signatory member of the MLI.
For any comment related to this tax newsletter, please contact:
[1] In the following link you will find the official publication of the Mexican Congress Gazette which contains the project "Status of the Updated List of Reservations and Notifications under the Multilateral Convention to Implement of Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ".
[2] Based on the provisions of Article 34 "Entry into Force" of the MLI, such instrument shall enter into force for each signatory country that has ratified its position, as the case may be, on the first day of the month following the three calendar months after its final position has been submitted with the OECD headquarters.
[3] Regarding the withholding tax obligation in the country of source for payments made to residents of another jurisdiction, Article 35 "Effective Date" of the MLI, establishes that the provisions of said instrument shall apply for tax treaties signed between two jurisdictions, on the day following the calendar year after the date of entry into force of this Convention in the last jurisdiction that ratified its position.
