On October 12, 2022, the Chamber of Senators approved the Multilateral Instrument to Implement Measures related to the Treaties to Avoid Double Taxation and Prevent Tax Evasion in Matters of Income Tax (Treaties), to Prevent Base Erosion and Profit Transfer (Multilateral Instrument), developed either by the Organization for Cooperation and the Economic 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 was developed to include the BEPS measures contained in Action 2 - Hybrid Instruments, Action 6 - Anti-Abuse Rules in the Application of Treaties, Action 7 – Preventing the Artificial Avoidance of Permanent Establishment Status, and Action 14 - Improving the Dispute Resolution Mechanism.
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 1, 2024.
The Multilateral Instrument shall only take effect in treaties to which Mexico and its counterparts have considered each other to be covered jurisdictions. In this scenario, it should be recalled that, at the beginning of the negotiation of the Instrument, Switzerland did not consider our country as an included jurisdiction, but, as a result of subsequent negotiations, they agreed that the Instrument would modify the existing treaty between the two countries. It is also important to remember that only those provisions of the Instrument in which the tax policies of Mexico and its counterparts coincide will be applicable.
Of the 60 treaties in force concluded by Mexico, the Multilateral Instrument will not modify those it has with Argentina, Colombia, Italy, Jamaica, Kuwait, Peru, South Africa, and Turkey, because these countries have not ratified yet the Multilateral Instrument in their respective congresses and/or parliaments. On the other hand, Brazil, Ecuador, the Philippines, and the United States of America did not sign the Multilateral Instrument. In the case of Guatemala, Mexico has concluded a treaty with that country to avoid double taxation, which has not yet entered into force, as it is pending approval in the Guatemalan Congress, in addition to the fact that that jurisdiction has not signed the Multilateral Instrument.
In the case of Germany, Mexico signed a protocol with that country that modifies the treaty between Mexico and Germany to avoid double taxation, to implement the measures of the Multilateral Instrument in accordance with their respective positions. This protocol is in the process of approval.
For more information, the dates and treaties covered by the signatory jurisdictions can be found in more detail on the OECD website https://www.oecd.org/tax/treaties/beps-mli-signatories-and-parties.pdf
As always, the staff of KPMG in Mexico Tax and Legal Practice is at your service to analyze in detail the effects that the application of the above criteria may have on your company.