MEXICO Law and Practice Contributed by: Julián J. Garza Castañeda and Paulina Bracamontes Belmonte, Nader Hayaux & Goebel
market studies to justify the application of a particular rate or other pricing considerations. 3.11 Disclosure Requirements Under Mexican banking law, there is a general rule preventing banking institutions from disclosing any information concerning the transactions or services that they provide to their clients. This confidentiality extends to anyone other than the respective client or their legal representative, unless there is a prior writ- ten order from a Mexican authority with the requisite power and jurisdiction. This rule is replicated in sev- eral Mexican financial laws regulating different types of Mexican financial entities in order to protect the confidentiality of users of financial services. In the case of interest payments to non-residents, withholding tax rates tend to range from 4.9% to 40%, depending on the tax residency of the beneficial owner of the interest and the existence of a double tax treaty with the lender’s country of residence. Mexico has enacted more than 50 double tax treaties and is in the process of negotiating more. Such tax treaties may reduce the withholding tax applicable in accordance with the Mexican domestic tax legislation. Under a number of these treaties, a preferential 4.9% withholding tax rate applies to interest paid to finan- cial institutions resident for tax purposes in a treaty country. 4. Tax 4.1 Withholding Tax Interest payments made to export-import banks granting or guaranteeing loans may not be subject to any withholding tax, provided that the conditions set forth by the relevant tax treaty are complied with. Also, favourable tax treatment can be granted in a variety of cases, including the following: • interest derived from securities issued by the federal government or the central bank, provided that the beneficial owner of the interest is a non- resident for tax purposes;
• interest derived from loans granted to the federal government, the central bank or derived from bonds issued by them; and • interest derived from loans granted under prefer- ential conditions, payable to foreign development financial institutions. There are generally no different taxes applicable to loans payable to lenders in Mexico and loans pay- able to lenders in a foreign jurisdiction. In both cases, income tax is the only tax levied on interest payments. As noted above, interest payments may be subject to different withholding tax rates depending on the tax residency of the beneficial owner. 4.2 Other Taxes, Duties, Charges or Tax Considerations VAT may apply to interest payments, subject to cer- tain exceptions. Exceptions include interest payments made to Mexican financial institutions that may be exempt from such tax in certain instances. 4.3 Foreign Lenders or Non-Money Centre Bank Lenders It is not unusual for cross-border financing transac- tions to be governed by foreign laws; in the case of US lenders, it is common to choose the laws of New York. However, when a Mexican borrower is involved, foreign lenders are typically concerned with the tax rate applicable to interest accrued on the respective loan, as this shall be subject to Mexican law. A careful analysis is required to determine the applica- ble tax interest rate and to customise adequate gross- up provisions for each specific lender. However, as a general rule, Mexican law provides for a 4.9% with- holding tax rate on interest payments of debt securities issued by a Mexican issuer and placed with a foreign holder, subject to the following general conditions: (i) the securities should be placed through a bank or a broker-dealer in a country with which Mexico has a double taxation treaty; and (ii) filings with the CNBV and Mexican tax authorities shall be made.
398 CHAMBERS.COM
Powered by FlippingBook