Extension of the Repatriation Decree's Effectiveness Period and Additional Clarifications
The Federal Government officially confirmed the extension of the effectiveness period of the Capital Repatriation Decree, and consequently, the new deadline for taxpayers to apply it is 19 October 2017, date on which they must finish with the repatriation of investments maintained abroad in order to be entitled to the benefits granted.
The foregoing is established in the “Decree that modifies the Decree which grants administrative benefits on income tax regarding deposits and investments received in Mexico" (Amending Decree) published in the Federal Official Gazette on 17 July 2017.
According to the Amending Decree some of the reasons to extend the deadline are: (i) the increased interest shown by taxpayers to benefit from the Decree; and (ii) the fact that, in some cases, because of the nature and investment period of the investments maintained abroad, taxpayers require more time to complete the corresponding transactions that must be carried out in countries where the investments are held in order to return the assets to Mexico –such as, transfer of shares and securities.
On the other hand, the Amending Decree confirmed the following topics:
- Possibility to regularize a tax situation during and after an audit.
Pursuant to the Amending Decree, Article First, Second Paragraph of the Repatriation Decree was revised in order to establish that taxpayers subject to tax audits may apply the benefits granted by the Decree, provided they regularize their tax situation through the payment of the 8% income tax in terms of the Decree.
The 8% income tax may be paid during any stage of the tax audit and even after a resolution has been issued imposing a tax assessment or a final resolution (in case of electronic audits) has been notified to the taxpayer, provided that the statutory terms for challenging said resolutions have not yet elapsed.
This is consistent with and ratifies the provisions set forth under one of the rules (i.e. Rule 11.8.15) contained in the First Modifications to the Administrative Tax Rules for 2017, published in the Federal Official Gazette on 15 May 2017, commonly known as the clarifying rules to allow for the Decree's application.
- Statute of limitations period to be considered in order to evidence payment of taxes.
The Amending Decree also establishes that taxpayers shall consider the time limit, as the case may be, of 5 or 10 FYs over which the tax authorities may exercise their audit powers (i.e. statute of limitations period) in order to evidence the payment of income tax corresponding to the investments maintained abroad, in other words, taxpayers will be obliged to evidence the payment of the corresponding tax only with respect to investments maintained abroad during the last 5 or 10 years prior to 2017.
This is stated in regards to Article Four, Second Paragraph of the Repatriation Decree which requires taxpayers to evidence the income tax previously paid in connection with investments maintained abroad and grants legal certainty for taxpayers to determine when not to pay (again) the income tax in terms of the Decree and when to exclude the amount of investments maintained abroad for more than 5 or 10 FYs from the 8% tax computation, in respect of which the statute of limitations period has elapsed -this is consistent with question number eight of the Frequently Asked Questions regarding the Repatriation Decree published by the Tax Administration Service in its webpage to enhance the interpretation and application of the Decree.
Additionally, the Amending Decree clarifies that taxpayers must have documentary evidence in order to support the payment of the tax corresponding to the last 5 or 10 FYs, as the case may be.
We will be glad to assist you with the analysis and implementation of the Repatriation Decree.
This Alert is a supplement to Client Alert:
- Number 4: Decree Granting Certain Income Tax Administrative Benefits to Deposits and Investments Returned to Mexico (Repatriation Decree)
- Number 11: Rules for the Application of the Repatriation Decree.
- Number 32: Frequently Asked Questions (FAQ) were published by the Mexican Tax Authorities (SAT) regarding the Repatriation Decree
- Number 33: UPDATE - Possible Term Extension for Applying the Repatriation Decree (FAQ)