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Mexican tax certainty agreement widens planning horizon for businesses

Mexican tax certainty agreement widens planning horizon for businesses

A clear planning horizon through 2018 is the result of a year old Mexican tax certainty agreement.

When President Enrique Peña Nieto took office in 2012, it was with the promise to reform Mexico, not only in terms of the tax regime, but also as regards the nation’s collective business and industrial infrastructure. Subsequent years, 2013 and 2014, saw sweeping reforms in many areas of life and business for Mexicans – from the partial privatization of PEMEX to the relaxing of hiring laws to the clarification and improvement of tax policy for both private citizens and businesses, as well as changes in the important areas of telecommunications and education. Since a battery of diverse reforms have been enacted, the Mexican economy has shown clear signs of growth and development. Creating an environment conducive to economic development and job growth was, and continues to be, a paramount Peña Nieto priority. A clear and concise set of rules, especially in the form of a Mexican tax certainty agreement, would do much to these conjoined ends.

Amid the whirlwind of much publicized and discussed aforementioned fiscal and other change, a range of individual and groups of taxpayers have expressed varying concerns as they related to some of the tax measures recently enacted. Taking advantage of a Constitutional provision whereby taxpayers may challenge tax law amendments, a group of citizens filed for injunctive relief from certain aspects of the new tax provisions. After negotiations with the executive branch and other business interests, Mexican tax certainty agreement has been reached.

Mexican Tax Certainty Agreement

Demonstrating a clear commitment to strengthen “economic certainty” and encourage further economic growth, Mexico’s federal executive branch and state governments have added stability to the tax rules by way of a tax certainty agreement that was implemented in March of 2014. The accord essentially declared a moratorium on any changes to the tax code in the near term. This means there will be no new taxes, no increases in rates, and no reductions or eliminations of existing tax benefits or exemptions through 2018, which is at the end of the current president’s term of office.

According to the Mexican tax certainty agreement wording, change can and will occur only in response to “substantial macroeconomic events which make it imperative to make changes” will any tax-related changes be made.

Provisions of the Accord

Under the provisions of the new Mexican tax certainty agreement, the country’s federal government will:

  • Exercise the efficient and transparent spending of public resources;
  • Not propose any new taxes;
  • Not further amend the energy law;
  • Not propose increases to the tax rates or modifications to benefits & exemptions granted to taxpayers;
  • Address tax evasion and continue to promote the economy.

It is believed these provisions will protect Mexican families, the overall economy, as well as will provide a guarantee of tax rule clarity for both foreign and domestic investors.

When announced, the agreement was praised by state governors, private sector representatives and legislators from the various political parties in Mexico’s national and regional governments.

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