Global Tax Alert | 26 June 2013

Mexico requests to join the Pilot Multilateral Automatic Information Exchange Facility of five EU member states

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On 11 June 2013, Mexico requested to participate in the Pilot Multilateral Automatic Information Exchange Facility (Pilot Facility) of five European Union (EU) member states. Mexico would be the first non-European country to take part in this initiative that was established on 9 April 2013 by the five largest economies in the EU: France, Germany, Italy, Spain and the United Kingdom (the five EU countries).

The official statement of the Ministry of Finance of Mexico establishes that its intention in joining the Pilot Facility is to fight tax fraud and evasion, and to strengthen its treaty network, which is the largest of any Latin American country.

The Pilot Facility developed by France, Germany, Italy, Spain and the United Kingdom was created using the model agreed to with the United States (US) as the basis for its multilateral exchange program. As stated by the five EU countries, the Pilot Facility will not only achieve its goal of catching and deterring tax evaders, but it will also provide a template as to the wider multilateral agreement they seek to achieve. Specifically, the Pilot Facility would first seek to include all EU member states and then promote a global system of automatic information exchange. The Pilot Facility seeks to develop a single global standard for automatic exchange of information covering a wide scope of income and entities

The letter addressed by the five EU countries to the EU Commissioner for Taxation, Customs, Statistics, Audit and Anti-Fraud, Algirdas Semeta, on 9 April 2013, stated that the Pilot Facility´s origin came from the interaction of the European countries with the US due to the passage of the US Foreign Account Tax Compliance Act (FATCA) that produced the signature of intergovernmental agreements that provide for automatic information exchange. The aforementioned discussions resulted in a model agreement, which minimizes burdens on business while ensuring effective and efficient reciprocal exchange of information.

The five EU countries that promote the Pilot Facility believe that this instrument is an evolution in the exchange of information forum that is found nowadays in the world. The progress from intergovernmental agreements into a single multilateral agreement will supposedly lead to a more transparent environment where international evasion and fraud are fought effectively. In addition, the stated intention of the EU countries that are part of the Pilot Facility is to promote a new international standard for transparency and exchange of information for tax matters, with the ultimate goal of attaining a multilateral framework.

Mexico´s tax treaty network is the broadest in the region and is composed of double tax treaties with exchange of information provisions, tax information exchange agreements and the Convention on Mutual Administrative Assistance in Tax Matters, which recently came into force for its jurisdiction on 1 September 2012.

The Ministry of Finance of Mexico asserts that its treaty network permits it to exchange information with foreign authorities in conformity with the highest international standards. This is why the Government of Mexico is shifting its exchange of information mechanisms to automatic exchange of information mechanisms to adopt the most advanced ways of exchanging information to attain its goal of tackling tax fraud and evasion.

Through the Pilot Facility, a common standard will be set to evolve into a more advanced future in exchange of information by going from bilateral tax information exchange agreements to multilateral and automatic exchange of information. By joining the Pilot Facility, Mexico will be participating in a global approach in fighting tax evasion and tax avoidance, which are common problems of governments around the world.

The Ministry believes that its petition will be welcome by the five countries who have implemented the Pilot Facility and it is convinced that it will be participating in a short period of time. Mexico’s government believes that in joining such an initiative it will be reaffirming its commitment to combat tax evasion and avoidance, which will permit it to verify the appropriate compliance of the tax obligations of its taxpayers and with this it will be strengthening the nation’s tax revenue.

By joining the Pilot Facility, Mexico would be entering an agreement where it would receive and provide information similar to what it receives and provides under the FATCA Intergovernmental Agreement signed with the US on 19 November 2012.

With Mexico joining the Pilot Facility, Mexico would receive automatic information exchange on income and capital with regard to its taxpayers, which is already available to EU Member Countries through the Directive on Administrative Cooperation, which is information on: income from employment, director´s fees, life insurance products, pensions, and ownership of and income from immovable property. In addition, Mexico would obtain information that is included in the EU Commission´s proposal of 12 June 2013, which is already exchanged automatically by the five EU members that form part of the Pilot Facility, which is information on income and capital from: dividends, capital gains, any other income generated with respect to the assets held in a financial account, account balances and any amount with respect to which a financial institution is the obligor or debtor, including redemption payments.

It remains to be seen if the Pilot Facility will minimize burdens on business in comparison to FATCA while ensuring effective and efficient reciprocal exchange of information.

For additional information with respect to this Alert, please contact the following:

Mancera, S.C., Mexico City
  • Koen van´t Hek
    +52 55 11 01 6439
    koen.van-t-hek@mx.ey.com
  • David Moussali
    +52 55 52 83 1300
    david.moussali@mx.ey.com

EYG no. CM3561