DEDUCTIONS
Depreciation, amortization, and depletion/ Straight-line depreciation at the rates specified by the law and the deduction may be increased by the application of the percentage increases in the NCPI as from the month of acquisition of the asset. When an asset is disposed of or becomes useless, the remaining undepreciated historical cost may also be deducted, after application of the appropriate inflation adjustment factor.
Mining exploration and development expenses incurred prior to the commencement of operations and the cost of mining claims may be amortized at 10% per year, after applying the inflation adjustment factors, unless the taxpayer elects to deduct these costs as incurred.
Intangible assets allowing for the exploitation of goods that are of the public domain or for the rendering of a public service under concession are considered as deferred assets (i.e., not deducted as incurred).
Therefore, these assets are subject to amortization for income tax purposes and included in the asset tax base.
Specific annual depreciation rates are established for goods used in the railroad, telephone, satellite, and electric industries.
Net operating losses/ Subject to certain limitations, losses incurred as from 1991 by business enterprises may be carried forward and deducted from income of the 10 subsequent years.
Losses carried forward may be increased by the percentage increase in the NCPI between the 7th and 12th months of the fiscal year in which they ere incurred, thereafter up to December 31 of the year prior to that in which they are applied, and thereafter up to the sixth month of the fiscal year in which they are applied.
Tax loss carryforwards are an individual right of the taxpayer and cannot be transferred to another entity, even in the case of merger. In the case of a spin-off tax loss carryforwards can be divided between the surviving entity and the spun-off entity (ies) in the proportion in which the capital is divided in the spin-off.
Payments to foreign affiliates/ Payments of a pro rata portion of expenses of nonresidents (i.e., allocations) are not deductible by Mexican corporations. Additionally, taxable income and authorized deductions must be determined on the basis of the prices that would be agreed with independent parties in comparable transactions (arm’s -length values).
For this purpose, taxpayers must secure and maintain documentation supporting transactions with related parties residing abroad, provided that income and deductions are based on market values. As from year 2001, it is specified that this documentation must be prepared per type of operation
and must include all operations carried out with related parties resident abroad.
Payments made to residents of tax havens are considered nondeductible, unless it can be demonstrated that the price of the transaction is the same as would be set between or among unrelated parties in comparable transactions.
Unless the contrary is demonstrated, it is assumed that operations with companies, entities, or trusts resident in tax havens are carried out between or among related parties and that prices are not set as they would be in comparable operations between or among independent parties.
Payments of technical assistance fees and for transfers of technology or royalties must be made directly to companies having the required technical capabilities, for services actually received, in order to be deductible by the payer.
Taxes/ In general, all federal, state, and local taxes levied on a company (not including those required to be withheld from others) represent income tax-deductible expenses with the following exceptions.
1.Federal income tax;
2.Federal minimum tax on assets;
3.Federal value added tax and federal production and services excise tax when the company has the right to credit the tax against the same tax on its own income.
4.Taxes on acquisitions of fixed assets and real estate construction, which must be capitalized and deducted as part of the total cost of such assets.
GROUP TAXATION
The income Tax Law contains a chapter that allows certain holding companies to file a consolidated income tax return with their majority-owned subsidiaries, in addition to the normal income tax returns that each subsidiary company must file separately. Tax consolidation is applicable for income tax and asset tax purposes, but not for other taxes (e.g., VAT)
or compulsory profit sharing.
In general terms, the consolidation regime allows certain benefits, such as offsetting losses incurred by one company against the profits of another controlled company. However, as from 1999, the procedure for tax consolidation has undergone substantial changes, basically for the purpose of reducing consolidation tax benefits, and only 60% of the controlling
company’s interest in the controlled compa
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