10 September 2013
Global Tax Alert
News from Americas Tax Center
Mexico’s tax reform bill
includes introduction of
mining royalty
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As part of the tax reform bill presented by Mexico’s President Peña Nieto to Congress
on 8 September 2013, a proposal is included to introduce a mining royalty regime
along with other changes that will have an effect on mining operations in Mexico.1
The proposed royalty regime is in line with a draft that was approved by a special
commission of Congress earlier this year; however, the applicable royalty rates are
significantly increased in the proposed bill.
The bill proposes to introduce a “special mining right” to holders of mining
concessions, at a rate of 7.5%. The rate will be applied to the difference between
the income from the sale of extracted minerals and certain deductions allowed by
the new regime.
For this purpose, the income will include taxable income of the concession holder
under Mexican income tax law, excluding interest income, inflationary gains and
certain amounts received in cash.
The taxpayer will be allowed to take deductions permitted by the income tax law,
with the exception of depreciation, interest and inflationary losses.
The mining royalty would be applied independently from other rights payable by
mining companies (for instance the general mining right payable by concession
holders based on the size of the property in terms of the concession).
The bill also provides for an additional annual mining royalty of 0.5% applicable to
income from the sale of gold, silver and platinum. The rate is applicable to the sales
income from these metals, without any deductions.
Taxpayers need to have bookkeeping in place that allows for the identification of the
sale of these metals.
The proposed bill also includes increased penalty
payments for the general rights that are currently
assessed on concession holders based on the size of
the property. These penalties are imposed when a
concession is not being developed.
If the concession holder has not carried out exploratory
or exploitation activities in a mine during a two-year
period, within the last 11 years, the concession holder
would have to pay an additional 50% of the (current)
right payable per hectare in terms of the concession.
Further, if this situation remains unchanged after year
12, the amount payable by the concession holder per
hectare would double.
The bill provides for mechanisms related to the sharing
of the revenue collected from these new mining
royalties between the federal government, states
and municipalities, including the allocation to specific
social, environmental and urban development of
mining states and municipalities.
Mining companies will be significantly affected by the
proposed bill, not only as a result of the proposed
mining royalty regime, but also as a result of the
increased income tax and VAT burden.
The proposed income tax reform, for example,
introduces an additional 10% income tax on the
distribution of profits to foreign shareholders or
individuals. In addition, the income tax bill proposes
to broaden the tax base by, among others: (1)
eliminating elections for the immediate deduction
for certain fixed assets and the immediate deduction
- in the year incurred - of pre-operating expenses
for mining companies (now to be amortized in 10
years); (2) the introducing additional requirements
for the deductibility of payments made abroad; and
(3) eliminating the tax consolidation regime. These
income tax changes may also affect the calculation
of the mining royalty, as the mining royalty basis
depends on income tax deductions.
The VAT rate of 11% for the border zone would be
eliminated (so the general 16% rate would apply in
the whole country), and most temporary importations
would be subject to VAT upon import into Mexico.
Mining companies should, therefore, carefully monitor
the proposed tax reforms and their tax position in
Mexico.
Endnote
1. For details regarding the complete tax reform proposal, see EY Global Tax Alert, Mexico’s President presents
tax reform proposal to Congress, dated 9 September 2013.
2
Global Tax Alert
For additional information with respect to this Alert, please contact the following:
Mancera, S.C., International Tax Services, Mexico City
• Santiago Chacón +52 55 52 83 1449
• Koen van´t Hek +52 55 11 01 6439
[email protected]
[email protected]
Ernst & Young LLP, Latin American Business Center, New York
• Alfredo Alvarez +1 212 773 5936 [email protected]
Ernst & Young LLP, Latin American Business Center, Miami
• Terri Grosselin +1 305 415 1344 [email protected]
Co-Directors of America’s Tax Center
•
•
Global Tax, Eric Solomon, Washington, DC
Global Tax, Michael Mundaca, Washington, DC
•
America’s Tax Center Chief Operating Officer
Declan Gavin, Washington, DC
•
ATC - Tax Effective Supply Chain Management (TESCM)
Lisa Lim, New York
•
ATC - Customs
William Methenitis, Dallas
•
ATC - Tax Performance Advisory (TPA)
Gary Paice, Chicago
•
ATC - Global Compliance and Reporting (GCR)
Ken Brown, Dallas
•
ATC - Tax Policy
Michael Mundaca (interim), Santiago, Chile
•
ATC - Global Tax Desks
Gerrit Groen, New York
•
ATC - Value Added Tax (VAT)
Jean-Hugues Chabot, Montreal, Canada
•
ATC - Tax Controversy
Rob Hanson (interim), Washington, DC
•
ATC - Insurance
Terry Jacobs, Washington, DC
Global Tax Alert
3
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