On June 22, 2018, the Decree was published in the Official Gazette of the Federation, by which the “Convention to Homologate the Tax Treatment provided for in the Agreements to Avoid Double Taxation signed between the States Parties to the Framework Agreement of the Pacific Alliance” (hereinafter “the Convention”). The Pacific Alliance was established as a mechanism for political, economic and commercial articulation between Chile, Colombia, Peru and Mexico.

In this sense, the purpose of the Convention is to modify and standardize the bilateral agreements to avoid double taxation signed between Chile, Colombia, Peru and Mexico, in order to grant a specific tax treatment to the income obtained by the pension funds recognized by these Contracting States. The provisions of the Convention will begin their application as of January 1, 2024.

Specifically, the Convention standardizes and modifies the tax treatment applicable to pension funds resident in the Contracting States, with respect to the income they receive from interest and capital gains , in accordance with the following provisions:

1. Application of a maximum rate of 10% of income tax to the gross amount of interest from a source of wealth of any of the Contracting States.
2. In the event that the applicable tax under domestic legislation is lower or exempt, the application of Article 11 of the Tax Agreements is recognized.
3. Regarding the income obtained from capital gains derived from the sale of shares , carried out through a stock exchange that is part of the Latin American Integrated Market (MILA), exclusive taxation is granted to the State of residence of the pension fund.
4. The pension funds recognized by the Contracting States will be considered beneficial owners of the income they receive.

For more information contact to:

Juan José López de Silanes | Partner Basham, Ringe y Correa | lopez_de_silanes@basham.com.mx