Individuals and legal entities resident in México for tax purposes are subject to pay Mexican income tax (“IT”) on their worldwide income at a rate between 30% to 35%, regardless of their nationality, when such income is actually earned by the former, or otherwise it is generated through a preferential tax regime or tax haven.
Since 1985, the Mexican Government has adopted an unwritten administrative practice of establishing temporary voluntary disclosure programmes for non-compliant taxpayers with undisclosed offshore income and assets. The latest programme was the Capital Repatriation Decree (Decree) published on 18 January 2017, which provided for a tax amnesty programme for individuals and legal entities resident in Mexico as well as non-residents with a permanent establishment thereat who, directly or indirectly, obtained income from investments held abroad until 31 December 2016.
Taxpayers subject to tax audits were also eligible to benefit from the aforesaid programme, provided that they self-corrected their tax situation by paying the corresponding IT at any stage of the tax audit or withdrew from the legal or judicial remedies filed against it.
Said amnesty program included, among others, the following tax benefits: (1) a preferential 8% IT rate on offshore funds repatriated to Mexico (without any deduction), (2) compliance with substantive and formal tax obligations related to offshore funds or investments repatriated to Mexico, (3) IT paid covered both the fiscal year (FY) of its payment and previous FYs, (4) benefits set therein were not deemed taxable income for IT purposes, (5) foreign tax paid abroad could be credited against the 8% IT paid on the repatriation of funds, and (6) IT paid could be offset against IT credit balances.
Benefits granted by the Decree were solely applicable to funds or investments repatriated to Mexico from 19 January to 19 October 2017, provided that the following requirements were met: (1) repatriation was made through credit institutions or brokerage houses, (2) repatriated funds remain invested in any of the authorized activities established therein (AA), for at least 2 years, (3) repatriated funds remain increasing taxpayers’ total amount of investments in Mexico, and (4) an informative notice was filed to the tax authorities, reporting the total amount of repatriated funds and its allocation to any of the AA.
Mexico’s Tax Administration Service (“SAT”) announced that approximately MXN 380,000 million pesos were repatriated to Mexico within the aforesaid 9-month period, from which MXN 20,000 million pesos correspond to the 8% IT paid on the repatriation of offshore funds or investments. However, a considerable amount of money is still undisclosed, considering that in 2014 alone, USD 837,104 million dollars were illegally held abroad in preferential tax regimes or tax havens.
Since the OECD has widely recommended to avoid granting amnesty programs on a regular basis, we consider that the aforesaid programme may have been non-compliant taxpayers’ last opportunity to correct their tax affairs, especially when the SAT has repeatedly announced an entire new audit program resulting from the financial account information exchange made on September and October 2017, under the OECD’s Multilateral Competent Authority Agreement for the Common Reporting Standard (CRS MCAA).