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Amending protocol to treaty between Mexico and Netherlands – details — Orbitax Tax News & Alerts

Details of the amending protocol to the treaty between Mexico and the Netherlands of 27 September 1993, signed on 11 December 2008, have become available. The protocol was concluded in the Netherlands and Spanish languages, each text having equal authenticity. The main amendments to the treaty are summarized below.

The amended maximum rates of withholding tax are:

-   10% on interest, in general, reduced to 5% for interest from (i) loans of any kind granted by a bank or any other financial institution and (ii) bonds and debentures which are traded regularly and substantially in a recognized securities market (Art. 11, Para.2);
-   10% on royalties (Art. 12, Para.2);
-   10% on gains from the alienation of shares of a company resident in a state, i.e. the maximum tax rate that may be levied by that state (Art. 13, Para. 4). However, an exclusive right to tax is granted to the other state under specific situations (Protocol new XIV).

Other amendments are:

-   General provision: the benefits of the treaty are not applicable to companies or other persons that are totally or partially tax exempt by a special regime. A special regime may be considered as such only under a mutual agreement (Protocol I);

-   Art. 2 (Taxes covered): the flat-rate business tax (IETU) levied by Mexico is included as part of the taxes to which the treaty applies;
-   Art. 3 (General definitions): the general rule of interpretation for terms not defined in the treaty (Para. 2) is replaced. The new provision follows, in general, the current OECD Model Convention;

-   Art. 4 (Resident): where a company is a resident of both states, the competent authorities shall by mutual agreement endeavour to settle its status, taking into consideration the place of effective management, the place of incorporation and all other important factors. In the absence of agreement, the company may not claim the benefits of the treaty, except those provided by the non-discrimination and mutual agreement procedure articles. The term "place of effective management" is further explained in the Protocol (IV);
-   Art. 5 (Permanent establishment): it is understood that a person exercises an authority to conclude contracts in the name of an enterprise if the person substantially negotiates the essential elements of a contract in the name of the enterprise (Protocol VI);
-   Art. 7 (Business profits): it is understood that in case of profits from survey, supply, installation or construction activities, only the part of the profits derived from functions performed, assets used and risk assumed by, or through, the permanent establishment may be attributed to that permanent establishment (Protocol, current IV, new Para. 2).
-   Art. 25 (Exchange of information): the entire article is replaced. The new article follows the current OECD Model Convention;
-   Art. 26 (Collection of taxes): an article on assistance in the collection of taxes is introduced. The article generally follows the OECD Model Convention.

The protocol will enter into force 30 days after the date of the last notice of ratification and will be applicable as of 1 January next following its entry into force.