Fiscal Matters
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| >Austrolberto Medellín Peña>President of Administration Committee |
2008 Fiscal Reform
Sweeping changes were introduced to the Mexican tax system in January 2008, which may affect the mutual fund industry. Industry representatives addressed these issues in several meetings with SHCP representatives, and on November 9 their comments were sent to the Central Administration for Legal Tax Procedures (a department of the Tax Administration Authority). These remarks focused on introduction of the Law on Cash Deposit Tax (known as the IDE).
Meetings were held with legislators of both houses of Congress and authorities from the Insurance, Securities and Pensions, and Revenue Policy areas of the SHCP, presenting them with documents containing securities industry perspectives on the approved Fiscal Reform. These were analyzed and, when applicable, confirmed by the authorities. The most important of these issues were:
- Corporate Flat Tax (IETU). The authorities confirmed that mutual funds are not subject to the IETU because they are not financial intermediaries and therefore need not calculate a financial margin. Mutual fund managers, however, are subject to the IETU. To clarify the legal issues, the SHCP offered to issue a Miscellaneous Rule on the subject.
- Law on Cash Deposit Tax (IDE). The SHCP explained that IDE must be withheld by brokerage firms and mutual fund share distributors. Operating Specifications and Rules on that tax will be issued to explain the procedure.
- Income Tax Law. The authorities stressed that brokerage firms are jointly responsible for this tax, and must therefore withhold income tax when there is evidence that the investor gained more than the 10% mentioned in the provisions, when an investor sells 10% or more of the shares of an issuer in more than one transaction. In this case, the tax would be withheld for the transaction that brings the investor to this limit or beyond, but only up to the net settlement amount.
- Responding to questions about the tax-exempt status of mutual fund share transfers, representatives from the Revenue Policy Area of the SHCP confirmed that the Reform does not affect the tax status of such transactions.
- In cases when a mutual fund owns 10% or more of the shares of a company, the authorities said transparency rules would apply, so the position in that issue would be distributed among all the investors in the fund, and at that time it would be decided whether the positions were subject to income tax.
- Revenues Law. The withholding rate for interest income was raised from 0.50% to 0.85%. Savings, pensions and checking accounts with a balance of less than 5 times the annual minimum wage (92,000 pesos) are exempt from withholding. AMIB pointed out that this was disproportionate to other products, for example it affects mutual funds but rewards savings accounts; to which the SHCP said it would welcome a proposal on a definitive withholding regime. The immediate collection of a flat tax of 28% would mean the investor would no longer be obliged to report the accrued interest in its annual income tax return. A work group was appointed to develop that proposal, and in 2008, it is expected to conclude that task.
Federal Law on Government Fees. Industry representatives expressed their concern over the sharp increase in inspection and oversight fees for mutual funds, their managers and distributors, and agreed to conduct a study comparing the situation in international markets.
Modifications to the Miscellaneous Tax Rules for 2007 included some important points with regard to the rollout of the 2008 Fiscal Reform. Among these were:
- Resolution Two establishes the procedure for setting a 24-month period for share sales on stock exchanges, and income tax withholding obligations for intermediaries that participate in those transactions.
- Resolution Three refers to the procedure for withholding and turning over IETU to the tax authorities.
- Representatives of the Federal Tax Administration Service provided us with a draft of rules and specifications that would allow industry participants to begin withholding and delivery of the cash deposit tax (IDE) for analysis and comments. The final version is expected to be released in the first quarter of 2008.
On October 31, the General Administrator of Taxpayer Assistance and the Central Administrator of Rules and Tax Enforcement (both of the SAT) met with AMIB to present the proposed rules on mutual fund share distributors, which will be included in the Miscellaneous Tax Rules. The proposal was turned over to the industry for analysis and comment. >>
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