On October 12, 2022, the Senate of the Republic approved the Multilateral Agreement to Implement Measures related to Tax Treaties tending to base erosion and profit shifting (known as the "multilateral instrument" or "MLI") signed in Mexico on June 7, 2017.
The MLI has as its predecessor the Base Erosion and Profit Shifting Action Plan (BEPS Action Plan), issued by the Organization for Economic Cooperation and Development (OECD) and the Group of 20 (G-20), whose purpose is to prevent the artificial shifting of tax benefits to low or no-tax jurisdictions.
In this sense, the MLI seeks to prevent the abusive use of tax treaties through the introduction of clauses that limit the application of benefits to taxpayers that do not comply with certain requirements. This is achieved by virtue of the fact that, as of the entry into force of this instrument, the bilateral treaties in force are automatically modified, without having to carry out specific negotiations with each of the states.
The MLI must be published in the Diario Oficial de la Federación (DOF) and deposited by Mexico with the OECD. Once deposited, the MLI will enter into force on the first day of the month following the conclusion of a period of 3 calendar months from its ratification and deposit. Some provisions of the MLI are expected to enter into force in 2023 and others in 2024.
It is important to mention that Mexico determined that the 61 bilateral tax treaties it has in force will be included within the MLI. However, this instrument is not yet in force in some of these countries, so it will not be applicable with respect to such tax treaties until their formalization is completed. As of the entry into force of the MLI with respect to Mexico and the countries that have already ratified the instrument, certain articles of their treaties will be modified, including provisions related to hybrid vehicles, anti-abuse of treaties rules, permanent establishment, etc.
The entry into force of the MIL will undoubtedly entail new tax implications that must be analyzed with respect to cross-border transactions involving Mexican taxpayers, multinational groups and/or income from sources of wealth in Mexico received by taxpayers residing abroad.
We recommend reviewing in advance those relevant cross-border transactions in light of this important change in the various treaties to avoid double taxation entered into by Mexico.
The lawyers of the tax area of the Firm are at your disposal to answer any questions or assist you in determining the effects and potential consequences that this instrument may have on the operations of your company.
A T T E N T A M E N T,
Gerardo Nieto
Gil Zenteno
Alejandro Barrera
Victor Barajas
Sergio Barajas
Francisco Matus
Roberto Serralde
