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09.10.2018

Bill of amendments to the Mexican federal income tax law inheritance, bequest and gift tax

The inheritance and gift tax exemption would amount to $10 million pesos

Key Facts
  • The aim is to create an inheritance tax applicable to Mexican resident individuals who receive an inheritance or bequest in excess of 10 million Mexican pesos.
  • The exemption on gifts between spouses, lineal ascendants or descendants, also in amounts exceeding 10 million pesos would be repealed.
  • The individual taxpayers would be required to make advance tax payments within the 15 days following receipt of this kind of income.
  • Persons with disabilities under the General Act for the Inclusion of Persons with Disabilities would be tax exempt.
  • The purpose of the proposed tax amendment is “to build a highly mobile society” aiming to “social justice, efficiency and cohesion, that is, social economic progress“.
  • A similar bill of amendments had already been submitted before the Chamber of Representatives and rejected in July 2017.
Author
Mr. Mauricio Bravo
Partner
Mexico
> View Profile

Particularities of the Bill

A bill to amend some of the provisions of the Mexican Federal Income Tax Law was submitted on August 8th, before the Permanent Commission of the Federal Congress, intending to modify some income tax provisions, to create an inheritance tax applicable to Mexican resident individuals who receive an inheritance or bequest in excess of 10 million Mexican pesos, which are currently exempt of income tax. Additionally, the bill aims to repeal the exemption on gifts between spouses, lineal ascendants or descendants, also in amounts exceeding 10 million pesos.

The individual taxpayers would be required to make advance tax payments within the 15 days following receipt of this kind of income, which should be calculated on any amount exceeding 10 million pesos; in other words, the inheritance and gift tax exemption would amount to $10 million pesos (as long as complying with applicable requirements such as reporting such income in the corresponding annual income tax return).

The advance payment would be calculated (i) at a 10% rate applicable on any amount exceeding $10,000,001.00 and up to $ 50,000,000.99, (ii) at an additional 20% rate in case of any amount that exceeds $50,000.001.00 and up to $ 100,000,000.99, or (iii) also in addition to the payment calculated by applying the aforementioned rates, at a 30% rate on amounts that exceed $100,000.001.00.

In addition, such income should be included in the corresponding annual income tax return of each heir, legatee or donee, and would be taxed at the annual tax rate applicable to each one of them (currently ranging from 1.92% to 35%).

According to this bill, persons with disabilities under the General Act for the Inclusion of Persons with Disabilities would be tax exempt.

The preamble to the bill points out serious problems of inequality and lack social mobility in our country, also stating that the purpose of the proposed tax amendment is “to build a highly mobile society” aiming to “social justice, efficiency and cohesion, that is, social economic progress “.

It is important to note that a similar bill of amendments had already been submitted before the Chamber of Representatives in September 2016 and rejected in July 2017.

Comments

This document does not intend a detailed analysis of these kinds of taxes; however, we can affirm that the rationalizations adduced to justify the enactment of these new taxes are incorrect.

The preamble of the bill implicitly attempts to equate the concepts of “inequality” and “lack of well- being”, the latter being the relevant one for measuring progress (and not the former). Under the Gini coefficient measuring wealth’s distribution and inequality, referred to in the bill’s preamble, Mexico and the United States of America are in neighboring positions, which demonstrates that such criterion does not justify the enactment of these taxes.

Another inappropriate consideration intending to justify these new intended taxation rules, is that they would generate economic progress; we do not see how this conclusion can be achieved in a reasonable way.

Finally, we believe that the intention to apply these taxes exclusively to the members of the economic elite (as expressed in the bill’s preamble) would not be achieved given that a relevant segment of individuals not pertaining to such elite would be taxed.

From a fiscal policy standpoint, we consider that in the event that the Federal Congress ponders the enactment of these taxes, it should consider the inclusion of clear rules on the determination of the tax basis, the possibility of deducting certain debts, cases in which installments would be authorized, an in-depth analysis of the amount of authorized exemptions, as well as applicable rates, among other cardinal points that are not covered by the above referred Bill.

Published in Newsletter Private Clients & Family Office Services #2/2018
Update and overview on current developments in relevant tax and legal developments in 7 selected countries
View publication
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