Mexico | Modification of the Agreements to Avoid Double Taxation with Chile, Colombia and Peru within the framework of the Pacific Alliance

Mexico | Modification of the Agreements to Avoid Double Taxation with Chile, Colombia and Peru within the framework of the Pacific Alliance

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

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Mexico | Modification of the Agreements to Avoid Double Taxation with Chile, Colombia and Peru within the framework of the Pacific Alliance

Compliance Latam | The State of Tax Compliance in Latin America and the United States

In this article, we will examine the reality of tax compliance in countries such as Argentina, Chile, Uruguay, Paraguay, Bolivia, Peru, Colombia, Ecuador, Central America, Mexico, and the United States, and the measures that have been adopted to address the issue.

Tax compliance is a critical issue in every country in the world. Taxes are a vital source of revenue for governments, and failure to comply with tax obligations can have serious consequences for both individuals and businesses. In recent years, many Latin American countries have implemented measures to improve tax compliance and reduce tax evasion.

In addition to being a fundamental element for the administration of any country, it is a fundamental legal and ethical requirement for any company because they have the responsibility to comply with their tax obligations and pay the corresponding taxes in each jurisdiction. Failure to comply with tax can have serious consequences for a business, including fines, penalties, litigation, and damage to its reputation. Lack of tax compliance can affect the financial stability and sustainability of any company.

In Argentina , tax compliance has been a critical issue for companies for decades. Tax evasion and non-compliance with tax obligations are persistent problems that negatively affect the country’s economy. However, in recent years, many Argentine companies have taken steps to improve their tax compliance and reduce the risk of non-compliance. One of the main measures that organizations have taken is the implementation of tax compliance management systems that make it possible to monitor and manage their tax obligations more effectively, and reduce the risk of errors and omissions.

Chile , for its part, has a complex tax system that requires a high level of compliance by companies. In addition, the Chilean tax administration is very active in identifying and sanctioning companies that do not comply with their tax obligations. Another important aspect of tax compliance in Chile is cooperation with tax authorities. Many companies have established closer relationships with the tax administration and have implemented measures to ensure transparency and accuracy in their tax returns.

In Uruguay , Paraguay and Bolivia , tax compliance is also a critical issue for companies. Although the tax systems of these countries may be less complex than those of Argentina and Chile, compliance with tax obligations is still essential for the proper functioning of companies. In recent years, greater emphasis has been placed on auditing and identifying companies that do not comply with their tax obligations.

The tax systems of Peru , Colombia and Ecuador are complex and the tax administrations are very active in the examination and sanction of companies that do not comply with their tax obligations. It is common for the three jurisdictions that companies that operate there must invest in training programs for their employees and in tax compliance management systems to guarantee compliance with their obligations and reduce the risk of sanctions and fines.

The state of tax compliance in Central America varies from country to country, but in general, tax compliance is a critical issue for companies in the region. The tax systems in Central America are complex and the tax administrations are very active in examination and penalization.

In countries like Costa Rica and Panama , companies are required to file tax returns and pay taxes on income, value added, and social security contributions. In addition, companies must comply with certain information and documentation requirements, and tax administrations have implemented measures to improve inspection and penalize companies that do not comply with their tax obligations. It is important to note that international tax information exchange agreements and cooperation between tax administrations from different countries are becoming more frequent in the region, increasing the need for rigorous tax compliance.

In Mexico , the Mexican Tax Administration (SAT) is known for being rigorous in the examination of companies and individuals, and has implemented various measures in recent years to improve tax compliance, such as electronic invoicing and electronic accounting. The implementation of the Federal Tax Code in 2020 and the new Asset Forfeiture Law have further strengthened the legal framework and sanction mechanisms in tax matters. Mexican companies must pay attention to their tax obligations and take steps to ensure compliance, reduce the risk of penalties and fines, and improve their business reputation.

On the other hand, in the United Statess, the Internal Revenue Service (IRS), the US tax agency, is very active in monitoring and sanctioning companies that do not comply with their tax obligations, especially with regard to federal and state taxes. Businesses must file tax returns and pay income, employment, property, sales, and other taxes, as well as meet certain reporting and documentation requirements, such as filing W-2 and 1099 forms The Foreign Account Tax Compliance Act (FATCA) and the Foreign Account Tax Compliance Act (FBAR) are important regulations that companies doing business abroad must be aware of. Local companies must meet their tax obligations,

Although the region has different realities in terms of the maturity in the incorporation of compliance programs within companies and commercial organizations, it is important to highlight that in most of the countries of the continent there is a common denominator that is governed by the interest of governments to increase efforts to control the tax activities of all sectors of the economy.

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Mexico | Modification of the Agreements to Avoid Double Taxation with Chile, Colombia and Peru within the framework of the Pacific Alliance

Ecuador | Extension of deadlines for compliance with obligations with the SRI

Through Resolution No. NAC-DGERCGC23-00000008, the SRI extended the term for the presentation of annexes and tax declarations due in March 2023, without generating fines and interest, according to the following:

Natural persons, undivided estates and companies belonging to the General Regime, whose ninth digit of the RUC is 2 and 3, may submit and/or pay their Income Tax return corresponding to fiscal year 2022, as well as the annexes and returns for other obligations that mature in March 2023, according to the following schedule:

Likewise, the taxpayers belonging to the RIMPE popular businesses and entrepreneurs, whose ninth digit of the RUC is 1, 2, 5, 8 and 9, may present and/or pay their Income Tax return corresponding to the fiscal year 2022, as well as the annexes and declarations for other obligations whose maturity is in March 2023, according to the following calendar:

Finally, taxpayers obliged to present the declaration of the Contribution destined to the financing of comprehensive cancer care, whose due date is March 13 and 14, may present the declaration and payment until March 28, 2023.

*Reference: This Resolution has been in force since March 13, 2023, the date it was signed.

For more information contact:

Maria Rosa Fabara  | Partner Bustamante Fabara | mrfabara@bustamantefabara.com

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