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On 6 October 2022, the Mexican Senate’s joint committee of the Ministries of Foreign Affairs and Treasury approved the Multilateral Instrument to implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (the MLI), which Mexico signed on 7 June 2017. This approval leads the way for the vote by the full Senate needed for formal ratification and subsequent deposit with the Organisation for Economic Co-operation and Development (OECD). The MLI will enter into force on the first day of the month following the expiration of a period of three calendar months beginning on the date of its deposit. However, the MLI shall enter into effect in Mexico with respect to taxes withheld at source at the beginning of the calendar year after the date of entering into force. In this case, the earliest date would be 1 January 2024.
The Senate committee discussed and approved the MLI, including the list of the reservations and notifications previously made by Mexico.
The MLI will allow the tax treaties entered into force by Mexico to be effectively amended without the need of bilateral negotiations to implement the Base Erosion and Profit Shifting (BEPS) measures developed by the OECD and the Group of Twenty (G20) to address, among others, prevention of treaty abuse including a Principal Purpose Test provision, hybrid mismatch arrangements, address artificial avoidance of Permanent Establishment status, and improve dispute resolutions. As of 1 October 2022, 910 treaties concluded among the 78 jurisdictions which have ratified, accepted or approved the MLI will have already been modified by the BEPS measures.
The MLI will only impact bilateral tax treaties listed as CTAs by both Contracting Jurisdictions. Mexico designated its entire tax treaty network, i.e., 61 bilateral tax treaties, as CTAs under the MLI. Of these treaties; however, certain countries have not yet signed the MLI, including Brazil, Ecuador, Guatemala, Philippines, and the United States, while others did not list Mexico as a CTA, such as Germany (since a Protocol was signed in October 2021 aiming to implement the MLI measures).
The deposit of the instrument of ratification of the MLI for its entry into force for Mexico may trigger several implications for multinational companies where the corresponding structures and arrangements shall be reviewed and analyzed on a case-by-case basis for a potential impact in light of the application of the MLI depending on the counterparty jurisdiction and matching/elected provisions.
For additional information with respect to this Alert, please contact the following:
Mancera, S.C., Mexico City
- Koen Van’t Hek Koot
Ernst & Young, LLP, Latin America Business Center, New York
- Ana Mingramm
- Lucas Moreno
- Enrique Pérez Grovas
- Jose Manuel Ramírez
- Pablo Wejcman
- Ricardo Vargas
Ernst & Young LLP, Latin America Business Center, Chicago
- Alejandra Sánchez
Ernst & Young LLP, Latin America Business Center, Miami
- Terri Grosselin
Ernst & Young, LLP, Latin America Business Center, San Diego
- Ernesto Ocampo
Ernst & Young LLP (United Kingdom), Latin American Business Center, London
- Lourdes Libreros
- Silvestre Del Río
Ernst & Young Tax Co., Latin America Tax Desk, Japan & Asia Pacific
- Raul Moreno, Tokyo
- Luis Coronado, Singapore
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
