MLI, the challenge facing taxpayers in 2024 – El Financiero

Karina Robledo, Tax Consultant at Santamarina y Steta

On January 1, 2024, the multilateral instrument, known as the MLI, will enter into force in Mexico, and is the result of an action plan known as BEPS promoted by the Organization for Economic Co-operation and Development (OECD).

What is a multilateral indicator?

The instrument contains 39 articles that would quickly and automatically (in some cases) amend the 61 double taxation treaties (agreements) that Mexico has concluded internationally. Some agreements with Mexico that may have an impact are Canada, Luxembourg, the Netherlands and Spain. In the case of the United States, it has not committed to the multilateral initiative and therefore the agreement will not see changes and will remain as it is.

This tool will have an impact on business structures, transactions and perhaps even business models themselves. The application of these instruments is at the heart of the existing trade structure and operations with other countries.

This instrument provides flexibility to countries, because apart from some minimum standards to which they necessarily adhere, there are a series of optional provisions to which signatory states may or may not adhere.

Companies with income from sources in the national territory or operations in Mexico should evaluate the potential impacts that their current operations and structures could have starting next year when the provisions of the Multilateral Initiative enter into force, taking into account the above in the elections held by each From Mexico and Italy. Other jurisdiction. For example, Mexico currently provides for a 10% profit withholding for the distribution of profits made by a Mexican company to a tax resident abroad that comes from the tax net profit calculation (known as CUFIN) established as of 1 January. 2014. However, some agreements specify a reduced withholding rate for the payment of dividends (as in Luxembourg) or a complete exemption from taxation (as in Spain or the Low Countries).

What is new in Article 8 of the MLI is the introduction of a minimum holding period of 365 days for an overseas resident to be eligible to apply the exemption or reduced rate on dividends provided for in the agreement in question.

To understand the challenge that taxpayers will face, the Multilateral Index is intended to complement existing tax treaties, adding new provisions and amending or replacing some of them. In the example we have described, it will first be necessary to analyze whether the jurisdiction has adhered to the MLI, whether it is already in effect, and whether or not it has accepted the inclusion of Article 8 of the MLI.

The recommendation is for companies to analyze their current structure, to understand what it means for their businesses and structures after the expiration of the MSI and, where appropriate, before the end of 2023, to make changes to their operations.