Income Tax Return Calculation

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					                                      New Information
                                  Requirements on Mexican
                                         Tax Return
                                                            February 18, 2009




Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in
professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference
to an “office” means an office of any such law firm.
New Information Requirements on Mexican
Tax Return
• Detailed information on domestic and foreign
  related party transactions.
  – Balance Sheet
     • Intercompany accounts receivables and payables
  – P&L
     • Sales, purchases, expenses, interest income and expenses,
       currency gains and losses
  – Transfer pricing methodology applied on certain transactions
  – Customs valuation

                                                                   2
New Information Requirements on Mexican
Tax Return

• IETU calculation - Detailed information on
  – Taxable revenues,
  – Authorized Deductions
  – IETU credits




                                               3
New Information Requirements on Mexican
Tax Return
• Detailed information for Maquiladoras
  – Calculation of IETU credit for Maquiladoras:
     • IETU benefit not applicable to non-maquila operations
     • New form requires detailed breakdown between taxable
       revenues and deductions related to maquiladora and non-
       maquiladora activities
         – Definition of maquila and non-maquila activities not clear.
     • Transfer pricing methodology applied
     • Value of the M&E owned by the foreign related party

                                                                         4
New Information Requirements on Mexican
Tax Return
• Detailed information of import/export operations
   – Tangible and intangible property
      • What type of intangibles should be reported?
   – All customs regimes should be reported: Temporary, definitive,
     bonded warehouse, fiscal deposit, etc.
   – Customs values declared on related party transactions
      • Transfer pricing methodology applied
   – Customs values declared on non-related party transactions
   – VAT and customs duty payments

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 Issues and concerns
• Administrative burden
   – Filing date: March 31, 2009.
   – Some of this information is already filed in other forms.
   – Mexican customs already has information about import/export
     transaction
   – Tax audit report (Dictamen Fiscal) will also include significant
     changes

• What are they looking for?
   – Customs valuation and transfer pricing regulations are different
     by definition.
   – Potential audit and information request
                                                                        6
Income Tax – Incentives - Mexico
• “Internal” criteria issued by SAT: Tax incentives are taxable for
  income tax purposes.
    – Legal arguments to support that certain tax incentives are not taxable.
• Legal uncertainty - Will SAT engage in a general audit program?
    – Potential exposure?
       • In principle 28% of the amount of the tax incentive plus surcharges
         and penalties.
       • 10% profit sharing, if applicable.
    – What to do?
       • Evaluate potential risks, analyze arguments to defend current
         position, internal communications, risk minimization alternatives,
         legal defense, Lobbying


                                                                                7
Income Tax – Incentives - Mexico

• Changes on R&D credit program:
  – Current program – income tax credit of 30% of R&D
    investment in qualifying projects.
  – New program: Funds provided directly to the
    company based on qualifying projects.
     • 3 new funds created by the government:
        – INNOVAPYME (up to 35% of R&D investment or 18 mill
          pesos per company),
        – INNOVATEC (up to 21 million pesos per company)
        – PROINNOVA (up to 22% of R&D investment or 36 mill
          pesos per company).

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                                                                     For questions:

                                                          Mr. Ernesto Ocampo
                                                         (tijeol@bakernet.com)

                                                         Mr. Leobardo Tenorio
                                                         (tijltm@bakernet.com)



Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in
professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference
to an “office” means an office of any such law firm.

				
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