Mexico City, June 26, 2023.
On June 19, 2023, the Decree Promulgating the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, done in Paris, France, on November 24, 2016 (known as "MLI" for its acronym in English), was published in the Official Gazette of the Federation.
Pursuant to the Sole Transitory Article, this Decree shall enter into force on July 1, 2023.
The Parties to the Convention, among other reasons for its conclusion, considered: (i) the need to ensure that existing agreements for the avoidance of double taxation of income taxation be interpreted in the sense to eliminate double taxation in relation to taxes covered by such agreements, without creating opportunities for non-taxation or reduced taxation through tax avoidance and evasion, and (ii) the need for an effective instrument to implement the agreed changes synchronized and efficiently throughout the network of existing double taxation avoidance agreements on income taxes without the need to renegotiate each of them bilaterally.
The parts and subjects that comprise this Agreement are the following:
Part I: Scope and interpretation of its terms.
Part II: Hybrid Mechanisms:
- Transparent Entities
- Entities with dual residency
- Application of Methods to Eliminate Double Taxation
Part III: Abusive Use of Treaties:
- Subject Matter of the Tax Arrangements Covered
- Preventing the Abusive Use of Treaties
- Simplified Benefit Limitation Provision
- Dividend Transfer Transactions
- Capital Gains on Disposal of Shares or Interests in Entities whose value derives principally from real estate
- Anti-Abuse Standard for Permanent Establishments Located in Third Jurisdictions
- Application of Tax Treaties to Restrict the Right of a Party to Tax its Residents
Part IV: Circumvention of Permanent Establishment Status
- Artificial Circumvention of Permanent Establishment Status through Commission Agreements and Similar Schemes
- Artificial Circumvention of Permanent Establishment Status through Activity-Specific Exemptions
- Contracts Division
- Definition of Person Closely Associated with a Company
Part V: Improvement of Dispute Resolution Mechanisms:
- Mutual Agreement Procedure
- Correlative Adjustments
Part VI: Arbitration.
Part VII: Final Provisions
The entry into force in our country of this international instrument that modifies various tax treaties in force makes it necessary to review pre-existing international corporate structures involving Mexican entities, as well as cross-border commercial operations that could be affected by these modifications.
We suggest you contact our specialists in international tax matters to advise you on the impact of this Multilateral Convention on your companies.
Sincerely yours,
Gerardo Nieto
Gil Zenteno
Alejandro Barrera
Sergio Barajas
Victor Barajas
Francisco J. Matus
Roberto Serralde
