MEXICO Law and Practice Contributed by: Ángel Escalante, Gabriel Rojas, Daniel Colunga and Brenda Favela, Escalante & Asociados
3.5 Employment Income Employment income is taxed in Mexico under the progressive rate schedule established in Article 152 of the MITL. The tax is withheld and remitted by the employer, who acts as the withholding agent. Pursuant to Article 154 of the MITL, for non-resident employees, income is considered to have a Mexican source when the services are performed within Mexi - can territory. However, when: (i) the salary is paid by a foreign employer without a PE in Mexico; and (ii) the employee remains in Mexico for less than 183 days within a 12-month period, the income may be exempt from Mexican taxation, provided that the statutory conditions are satisfied. Currently, Mexican tax legislation does not contain specific rules addressing cross-border remote work, and therefore the tax treatment generally depends on the physical location where the services are effectively performed. 3.6 Other Income There are other categories of income subject to spe - cific rules under Mexican law, such as: (i) independ - ent personal services; and (ii) technical assistance. In certain cases, the tax treatment may differ from that contemplated in the OECD Model Tax Convention, particularly with respect to the definition and taxa - tion of royalties and technical assistance, in relation to which, Mexico has applied reservations in its treaty practice. 4. OECD/G20 Global Tax Reform 4.1 Pillar One – Amount B Amount B of Pillar One was developed by the OECD as a mechanism designed to simplify the application of the arm’s length principle in certain baseline mar - keting and distribution activities. Specifically, Amount B proposes a standardised return for routine marketing and distribution functions con - sidered low risk, with the objective of reducing transfer pricing disputes and enhancing tax certainty.
To date, Mexico has not formally adopted a specific domestic regime implementing Amount B within its tax legislation. Consequently, distribution activities carried out by multinational enterprises continue to be analysed under the general transfer pricing rules under the MITL, as well as under the OECD Transfer Pricing Guidelines. 4.2 Pillar One – Amount A Amount A of Pillar One represents a structural shift from the traditional international tax framework based on the PE concept. Under this approach, a portion of the residual profits of certain multinational enterprise groups would be reallocated to market jurisdictions where consumers or users are located, even in the absence of physical presence. The purpose of this mechanism is to adapt the inter - national tax system to highly digitalised business models capable of generating significant revenues in a jurisdiction without substantial physical presence. Mexico has participated actively in the development of Pillar One as a member of the OECD/G20 Inclusive Framework and has generally supported the objective of partially reallocating taxing rights to market jurisdic - tions. Nevertheless, the effective implementation of Amount A depends on the entry into force of a multilateral con - vention, which would subsequently need to be incor - porated into domestic law following the constitutional procedure applicable to international treaties. 4.3 Pillar Two Pillar Two introduces a global minimum tax system designed to ensure that multinational enterprises pay a minimum level of taxation regardless of where they operate. The system is based on the Global Anti-Base Erosion Rules (GloBE), which establish a minimum effective tax rate of 15% for multinational enterprise groups with consolidated revenues exceeding approximately EUR750 million.
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