1. © 2015 McGladrey LLP. All Rights Reserved. Mexican Tax Overview U.S. Mexico Chamber of Commerce Mexico as a Global Partner

2. © 2015 McGladrey LLP. All Rights Reserved. Edgar Lopezlena Mexican Tax Practice Leader  Based in our Chicago / Schaumburg offices, serving clients nation-wide  Native of Mexico City. Mexican CPA (Universidad Iberoamericana) and Mexican Institute of CPAs  Specializes in U.S.-Mexican cross border taxation  20 years of experience providing advise on complex Mexican tax issues to U.S. companies with a footprint or interest in Mexico  Areas of expertise include: Maquiladora taxation, Value-Added Tax, treaty application, transfer pricing, tax aspects of international transactions, international assignments, among other Mexico as a Global Partner – Mexican Tax Overview 1

3. © 2015 McGladrey LLP. All Rights Reserved. Today’s agenda  Mexican tax environment vs. other OECD Countries  Maquiladora taxation – A brave new world  BEPS  Additional reporting requirements  Dividend taxation  Questions / comments? Mexico as a Global Partner – Mexican Tax Overview 2

4. © 2015 McGladrey LLP. All Rights Reserved. Mexican tax environment vs. other OECD Countries  Mexico is an OECD member since 1994  Mexican income tax rate – Flat 30% for enterprise taxpayers  Competitive when compared to other OECD members  BUT: Government still struggles to obtain tax dollars Mexico as a Global Partner – Mexican Tax Overview 3

5. © 2015 McGladrey LLP. All Rights Reserved. Mexico as a Global Partner – Mexican Tax Overview 4

6. © 2015 McGladrey LLP. All Rights Reserved. Maquiladora taxation – A brave new world  Significant changes in the Maquiladora tax framework came into force in 2014 -Income tax -Tests to prevent permanent establishment -Transfer pricing -Value-Added Tax Mexico as a Global Partner – Mexican Tax Overview 5

7. © 2015 McGladrey LLP. All Rights Reserved. Maquiladora taxation – A brave new world  Income tax -Repeal of a long-standing tax stimulus that reduced the Maquiladora’s effective tax rate to approximately 17% (even less in some cases) -All Maquiladoras are now subject to the statutory 30% tax rate -Some Maquiladoras have limitations on the amounts of salaries paid that are not includable in the employee’s taxable income -Possibility of appealing this limitation through legal proceedings  Tests to prevent permanent establishment -More clarity (GOOD) -More stringent rules (BAD) Mexico as a Global Partner – Mexican Tax Overview 6

8. © 2015 McGladrey LLP. All Rights Reserved. Maquiladora taxation – A brave new world  Tests to prevent permanent establishment (Continued) -Maquiladoras can no longer sell finished product in Mexico -More restrictive measures to source inputs from local vendors -Production assets owned by the foreign related party should represent at least 30% of the aggregate production assets used in the Maquila activity  Failure to comply: Foreign related party will be subject to Mexican taxes on at least a portion of the products manufactured or transformed by the Maquiladora, even if the products are sold outside Mexico  Action item: Re-examine Maquiladora’s structure Mexico as a Global Partner – Mexican Tax Overview 7

9. © 2015 McGladrey LLP. All Rights Reserved. Maquiladora taxation – A brave new world  Transfer pricing -“Safe Harbor” alternative approach still applicable (determine a minimum amount of profit based on a mechanism established by the law) – Highest between 6.5% cost plus or 6.9% ROI on production assets and other assets -Certain subtle changes in the rules can trigger a large net minimum taxable income under the “Safe Harbor” option -Alternative: Negotiate a transfer pricing policy with the Mexican tax authorities through an “Advanced Pricing Agreement” procedure -Lack of clarity on acceptable methodologies to opt for the APA -A significant portion of Maquiladoras are opting for the APA instead of the “Safe Harbor” Mexico as a Global Partner – Mexican Tax Overview 8

10. © 2015 McGladrey LLP. All Rights Reserved. Maquiladora taxation – A brave new world  Value-Added Tax -Maquiladoras now have to pay Value-Added Tax upon introducing into Mexico inputs and production assets used in the Maquila activity, unless they obtain a special certification -Additional reporting requirements to maintain the special certification and thus wave paying the Value-Added Tax Changes in maquiladora taxation have caused that some Companies are opting-out or considering opting-out of Maquiladora status for their Mexican manufacturing / transformation activities Mexico as a Global Partner – Mexican Tax Overview 9

11. © 2015 McGladrey LLP. All Rights Reserved. BEPS  BEPS = Base Erosion and Profit Sharing  OECD Action Plan on BEPS requires OECD member countries (including Mexico) to adopt complex practices and detailed reporting requirements  Transfer pricing compliance becomes more complex and granular  Additional reporting requirements for taxpayers Mexico as a Global Partner – Mexican Tax Overview 10

12. © 2015 McGladrey LLP. All Rights Reserved. Additional reporting requirements  As a consequence of BEPS, Mexico now has two additional reporting requirements  Monthly electronic filing of accounting books and records to a secure website administered by the Mexican federal tax authorities  Reporting of “Relevant Transactions” as they occur  36 types of Relevant Transactions, including, among other: -Adjustments in transfer pricing -Opting-out of Maquiladora structure -Payments to foreign related parties for certain intangibles -16 complex financial transactions -Reorganizations -Changes in ownership Mexico as a Global Partner – Mexican Tax Overview 11

13. © 2015 McGladrey LLP. All Rights Reserved. Dividend taxation  Until 2013 dividends paid by a Mexican entity were not subject to any level of Mexican taxation if the amount distributed was up to the CUFIN (Mexican version of “Accumulated Earnings and Profits”)  Excess dividends triggered a tax of 43% on the distributing entity  In 2014, dividends paid from post-2013 retained earnings paid to individuals or foreign resident are subject to a 10% withholding tax in addition to the corporate 43% tax on excess dividends  Under Treaty provisions, the 10% withholding may be reduced to 5% if the beneficial owner is a U.S. Company, and to 0% if the beneficial owner is a more than 80% owner of the Mexican entity  No relief for U.S. individuals that are the beneficial owners of dividends Mexico as a Global Partner – Mexican Tax Overview 12

14. © 2015 McGladrey LLP. All Rights Reserved. Questions? / Comments? Thank You Mexico as a Global Partner – Mexican Tax Overview 13

15. © 2015 McGladrey LLP. All Rights Reserved. This document contains general information, may be based on authorities that are subject to change, and is not a substitute for professional advice or services. This document does not constitute assurance, tax, consulting, business, financial, investment, legal or other professional advice, and you should consult a qualified professional advisor before taking any action based on the information herein. McGladrey LLP, its affiliates and related entities are not responsible for any loss resulting from or relating to reliance on this document by any person. McGladrey LLP is an Iowa limited liability partnership and the U.S. member firm of RSM International, a global network of independent accounting, tax and consulting firms. The member firms of RSM International collaborate to provide services to global clients, but are separate and distinct legal entities that cannot obligate each other. Each member firm is responsible only for its own acts and omissions, and not those of any other party. McGladrey®, the McGladrey logo, the McGladrey Classic logo, The power of being understood®, Power comes from being understood®, and Experience the power of being understood® are registered trademarks of McGladrey LLP. © 2015 McGladrey LLP. All Rights Reserved. McGladrey LLP 20 N Martingale Rd Ste 500 Schaumburg, IL 847.413.6900 800.274.3978 www.mcgladrey.com