MEXICO Law and Practice Contributed by: Edgar Klee and Joel Gonzalez Lopez, Haynes and Boone, S.C.
frequently used by industries with significant tech - nological components. • Investment Promotion Programmes: Mexico has various investment promotion programmes that provide general incentives for companies making investments in the country. While not technology- specific, these programmes may indirectly benefit technology-related investments. • Tax Credit Regularisation Incentive: Taxpayers with outstanding tax credits may benefit from a regu - larisation programme that allows for a reduction of up to 100% of surcharges, penalties, and enforce - ment costs, subject to certain conditions. Benefits include: (a) a reduction of up to 100% of surcharges ( recar- gos ) accumulated on unpaid taxes; (b) waiver of up to 100% of penalties ( multas ) imposed for non-compliance; and (c) elimination or reduction of enforcement costs ( gastos de ejecución ) incurred by Mexican tax authorities in collection efforts (certain taxpay - ers may be excluded, such as those under criminal tax investigation or those with debts arising from acts of tax fraud). • Capital Repatriation: A preferential income tax rate of 15% is available on the repatriation of capital held abroad, subject to specific rules regarding deposit, investment, and permanence of the repat - riated funds in Mexico. Repatriated funds must be deposited in a Mexican financial institution within a specified timeframe. Also, the funds must remain invested or deposited in Mexico for a minimum period (typically at least two years or as specified by the applicable decree). Funds may generally be used for: (i) investments in fixed assets, or debt repayment of the taxpayer; (ii) investments in secu - rities or financial instruments issued by Mexican residents; or (iii) capital contributions to Mexican companies. Taxpayers must carefully document the source and destination of repatriated funds to comply with anti-money laundering regulations. 2.4 Loss Relief When authorised deductions, in addition to the partici - pation of employees in profits (PTU) paid, exceed the accumulable income in a fiscal year, the difference is considered a fiscal loss for that year. This fiscal loss
can be offset against the fiscal income of the following ten fiscal years until it is exhausted. Additionally, if a company fails to offset the fiscal loss from previous years in a given fiscal period, when it had the opportunity to do so, it will forfeit the right to offset it in subsequent fiscal years, up to the amount that could have been utilised previously. The right to offset tax losses exists provided that there is taxable profit and none of the circumstances restricting their use apply. Such restrictions may arise, for example, where there is a change of sharehold - ers or partners holding more than 51% of the vot - ing rights of the entity, or where losses may only be offset against profits derived from the same line of business in cases of mergers where the loss-making company acts as the merging entity. In addition, tax losses may not be transferred in the case of a merger if the loss-making company acts as the merged enti - ty. In the context of a corporate split, however, the right to transfer losses may be granted exceptionally, depending on the specific form and proportion of the restructuring. The tax authority may presume an improper transfer of the right to amortise tax losses when a taxpayer is involved in corporate restructuring or changes of shareholders, resulting in a significant decrease in its material capacity to operate. This presumption is triggered if certain conditions are met, such as obtaining greater tax losses than the value of assets or a sudden increase in deductions from related-party transactions, among others. The taxpayer will be notified of this presumption and will have the opportunity to defend itself. If the taxpayer fails to rebut the allegations, a list of affected taxpay - ers will be published confirming the improper transfer of tax losses and the inadmissibility of their deduction. Taxpayers are granted a period in which to regularise their situation before the tax authority may exercise its verification powers and impose penalties. 2.5 Deduction of Interest Taxpayers under the general regime can benefit from deductions such as accrued interest during the tax year without adjustment. To qualify for the deduct -
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