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The Mexican Senate ratified the OECD Multilateral Instrument (MLI)

On October 12nd, 2022, the Senators chamber approved the Multilateral Instrument to Implement the Measures related to the Treaties to avoid Double Taxation and Prevent Fiscal Evasion in the Matter of Income Taxes (Treaties) to prevent the Erosion of the Base and the Transfer of Profits (Multilateral Instrument), developed by the Organization for Economic Cooperation and Development (OECD).


The Multilateral Instrument is part of the BEPS Project (action 15) promoted by the OECD and the G-20, against base erosion and profit shifting. This multilateral international treaty will be complied with in order to include the BEPS measures contained in the following:


• Action 2 - Hybrid instruments

• Action 6 - Anti-abuse rules in the application of treaties.

• Action 7 - Combat practices that artificially avoid permanent establishment.

• Action 14 - To improve the dispute resolution mechanism


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Objective:

Develop an Action Plan to combat base erosion and tax benefit shifting (BEPS), which consist of tax planning strategies aimed at exploiting gaps and discrepancies in tax rules in order to artificially shifting profits to low- or no-tax locations where there is little or no economic activity, resulting in little or no total corporate tax paid.



Instrument description:

The development of a multilateral instrument with an innovative approach was arranged to allow countries to quickly modify their bilateral tax agreements and implement the measures developed on BEPS, in order to have tools to ensure that profits are taxed where the activities are carried out. that generate them and produce value, while giving companies greater certainty by reducing disputes over the application of international tax rules and standardizing compliance requirements.

Recognizing the need to accommodate the variety of tax policies when implementing BEPS measures related to tax treaties, the Convention was developed as a flexible instrument that will allow countries to choose which existing treaties they would like to modify, as well as choose between alternative or optional provisions. in certain articles and, in some cases, even reserving the right not to apply provisions with respect to all or a group of its bilateral instruments.


Rectification of the Instrument in Mexico:

The MLI will only modify the Treaties to avoid Double Taxation and Prevent Fiscal Evasion in Matters of Income Taxes, listed as “Comprehended Tax Agreements” or “AFC”.

Mexico designated the entire network of 61 bilateral tax treaties as Covered Tax Agreements under the MLI; however, some jurisdictions have not yet signed the MLI, including Brazil, Ecuador, Guatemala, the Philippines and the United States, in the case of Germany, Mexico signed a protocol with said country that modifies the treaty between Mexico and Germany to avoid double taxation, in order to implement the measures of the Multilateral Instrument in accordance with their respective positions, said protocol is in the approval process.


Entry into Force:

After the approval of the Multilateral Instrument by the Senate, it must be published in the Official Gazette of the Federation and the instrument of ratification must be deposited with the OECD. Once the deposit is made, this international treaty will enter into force in 2023 and, with respect to taxes withheld in the source country, will be applicable from January 1st, 2024.


It is important to emphasize that the Multilateral Instrument will only take effect in the treaties in which Mexico and its counterparts have considered each other as covered jurisdictions and only the provisions of the Instrument in which there is coincidence of the fiscal policies of Mexico and its counterparts will be applicable.


List of countries that have ratified before the OECD:


See the official document:


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We inform you that this information provides general information based on the current laws and regulations, and in case of an individual report, be sure to receive advice from an expert before handling it.

Reproduction, partial or full distribution without the approval of Doowoo Accounting S de RL de CV is prohibited.

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