Mexico Tax Reform - 2016

Last November 18^th, 2015, it was published in the Official Gazette the tax reform package for 2016. The 2016 tax reform includes changes to the Federal Tax Code (Código Fiscal de la Federación)  and Income Tax Law (Ley del Impuesto sobre la Renta) in connection with tax measures included in the Budget proposal for 2016 (Ley de Ingresos 2016).

Below is a brief summary of the most relevant approved changes:

	transfer pricing (TP) information returns. These new information returns for TP purposes follow the requirements developed and agreed by the OECD members under the Action Plan on Base Erosion and Profit Shifting (BEPS). Against this background, Mexican entities will be required to prepare: – a Master File; – a Local File; and – a Country-by-Country Report (applicable to entities earning at least EUR 750 million annually). These TP information returns will be mandatory starting from fiscal year 2016 and must be filed before 31 December 2017. Non-compliance will be subject to penalties ranging from MXN 140,540 to MXN 200,090;
	immediate deduction available for fiscal years 2016 and 2017 of investments made in new fixed assets in the energy, infrastructure and transportation sectors. This  deduction will be available for entities with income up to MXN 100 million;
	riddance of the application of thin capitalization rules to debts incurred in relation to investments for the generation of electricity;
	riddance of some restrictions regarding deduction of fringe benefits granted by an employer to its non-union workers;
	4.9% withholding tax on interest paid to non-resident banks, provided that the bank in question is the beneficial owner of the interest and is resident in a country with which Mexico has a tax treaty in force;
	tax amnesty through an incentive consisting of waiving of penalties and surcharges and granting of tax credits in view of payment of taxes abroad, for entities and individuals repatriating capital (including capital located in low-tax jurisdictions), provided that certain conditions are met; and
	an incentive granted to Mexican individual shareholders consisting of a tax credit for reinvested profits derived between 2014 and 2016. The tax credit will be applicable against the additional withholding tax of 10% on dividends and will be calculated as follows: – 1% on distributed dividends in 2017; – 2% on distributed dividends in 2018; and – 5% on distributed dividends as of 2019. The tax credit will not be considered taxable income for income tax purposes.

The tax reform will be applicable as from January 1^st, 2016.