An overview by Mijares, Angoitia, Cortés y Fuentes, Taxand Mexico
Our Mexican firm, Mijares, Angoitia, Cortés y Fuentes, has issued a tax update in response to the Mexican government implementing a set of amendments to an agreement between Mexico and Germany to avoid double taxation and fiscal evasion on income and wealth taxes.
The amendments introduced by the protocol will apply to withholding taxes starting on 1 January 2024 and modify various aspects of the existing treaty. These include:
The preamble is altered to include the objective of preventing not only double taxation but also opportunities for double non-taxation or reduced taxation through tax evasion or avoidance.
Changes are made to Article 5 requiring the preparatory or auxiliary nature of activities for a permanent establishment not to be considered to exist.
A requirement for a 5% withholding on dividends is introduced, as well as a minimum participation of 10% in the capital stock of the paying company, held for a year including the dividend payment day.
Article 13 is modified to make gains from the sale of shares taxable in the source jurisdiction if over 50% of the value of the shares is derived from real estate.
Article 25 of the treaty is revised to ensure that agreements reached will be applicable regardless of the domestic legislation of the Contracting States.
Article 28 is changed to limit treaty benefits in cases of permanent establishments in Third States.
Article 28 is further amended to specify that treaty benefits will not be granted if obtaining a benefit was a primary purpose of any arrangement or transaction that directly or indirectly resulted in that benefit, unless it aligns with the treaty’s object and purpose.
