Mexico City, September 28th, 2021.
Within the tax reform bill proposed by the President, it is worth noting the exclusion of the non-regulated SOFOMES from those entities to whom the limitation of deducting interest derived from debt exceeding a 3:1 ratio from their capital entered with related parties abroad will not result applicable.
For tax purposes, SOFOMES are considered as part of the financial systems provided that certain requirements are fulfilled. Since SOFOMES are part of the financial system, the actual article 28, Section XXVII of the Mexican Income Tax Law allows them to exclude from the calculation of the debt/capital ratio, those debts contracted for carrying out its corporate purpose.
Within the explanatory statements of the proposed reform bill for 2022, it is sustained that most non-regulated SOFOMES that are part of a corporate group are not fulfilling their purpose and instead have been created to implement strategies to benefit from its tax treatment.
In consideration of the above, it is being proposed to deny the exclusion of debt contracted for carrying out its corporate purpose from the calculation of the debt/capital ratio, whenever its activities are mainly carried out with related parties, domestically and abroad.
Additionally, as part of the financial system, interests paid by SOFOMES to its related parties abroad are subject to a reduced income tax withholding rate of 4.9% if certain requirements are met. However, the draft tax reform bill, intends to remove such reduced income tax withholding rate to the interests paid by a SOFOM to a related party abroad.
While the proposed reform apparently aims to eliminate the abuse of these entities for tax beneficial purposes, we consider that these changes could impact your business model and may cause inequity with respect to regulated SOFOMES that are used for the same purposes.
Our Tax team is at your service to answer any questions regarding this document.
S I N C E R E L Y,
Francisco J. Matus