Highlights on Mexican Tax Amnesty 2017

Mexican Capital Repatriation Decree

Mexico, like many other countries, has followed the trend of tax amnesties. We could almost lose track of the number of countries applying such measure in recent years.

What is new in the case of Mexico is that the amnesty approved in 2017 determines an 8% rate without sanctions, whereas the amnesty approved a year ago established a 35% rate (applicable rate for the taxation of natural persons in Mexico) and the only thing that you avoided were sanctions.

However, in order not to be sanctioned, Mexican tax authorities had to include you in a list. Appearing in that list, which was public, became a real risk because of criminal organizations operating in the country.

Due to that insecurity, the current amnesty mechanism does not require such publishing. Furthermore, taxpayers are required to repatriate the money they have abroad and invest it in productive assets in the country.

In any case, criminal organizations are so infiltrated in the country that they are able to obtain information from bank employees and tax officials.

It should not be forgotten that tax returns filed anonymously have been permitted since recent days (now prohibited by the Government of Peña Nieto). This form of submission was created to solve other local problems but taxpayers used it to preserve their confidentiality and to fulfil the IRS.

Be that as it may, we must admit that this is an opportunity offered by Mexican Treasury to those taxpayers who may consider that they have not duly fulfilled their tax obligations. This measure may be of special interest as we are on the threshold of global banking transparency thanks to the agreements of the North American FATCA and CRS driven by the OECD.

To enjoy this measure the following actions have to be done:

a) Repatriate the funds the taxpayer holds abroad;

b) Invest them in Mexican productive assets;

c) Keep them in Mexico for at least 2 years;

However, before accepting this opportunity, another alternative should be considered: analysing those financial products which have been invested in during the last 5 years and how they should have been taxed. The reason is that Mexican tax regulations offer several mechanisms of tax deferral for the taxation of savings that could imply that unpaid taxes are more acceptable than repatriating the funds.

A Mexican taxpayer may be interested in keeping funds abroad for various reasons linked to country risk:

a) Mexico is traditionally dependant on oil revenue (it represented 33% of its income historically but nowadays it is less than 16%) and the fall of crude oil prices led Mexican peso value to be exchanged from 16 to 22 to 1 US dollar in a short period, which is a lot.

This fall in revenue has tightened its treasury and forced the Government of Peña Nieto to stop a large number of planned actions.

If the price of crude fails to consolidate the recovery, the peso could suffer again in the international markets and, therefore, tax savings offered by this amnesty would become a real cost for loss of value of the peso against other currencies.

b) Data protection risk, a real risk difficult to combat.

Let me point out that when a person believes to be at risk of being kidnaped, the first thing that comes to his mind is flee the country. You never know the scope of the criminal organization that attempts extortion. Having savings abroad allows you to face the flight. 

Proof of this insecure data protection is that not even a year ago the list of Mexican voters was available on e-bay...