By Baker & McKenzie Mexico - Foreign Trade Practice Group

Approval Process

• SECON will continue issuing the Program authorization within 15 business days following the respective request. The term for issuing an extension or amendment authorization is reduced from 15 to 10 business days.

• The 3-day term for SECON to inform Hacienda of a new authorization is now eliminated, which allows SECON to notify Hacienda in the term so decided by SECON.

Electronic Filings

• All filings related with the Program must be made by electronic means in accordance with the applicable legal provisions. In many cases, the actual requirements have not been published yet.

• SECON and Hacienda will electronically share the information related with the Program. The IMMEX Decree is silent as to how this sharing will take place and for what purpose.

• To evaluate operations carried out under the Decree, SECON now may request the support of the Federal, State and Municipal authorities.

The IMMEX Program Authorization

• In addition to the now lengthy list of obligations provided in the Decree, the authorization itself may include an additional list of obligations. It is questionable whether the inclusion of these additional obligations is legal, and if it is consistent with the purposes of the Decree.

Performance Requirements

• The Decree now eliminates the obligation to invoice abroad at least 30% of the total invoicing of the company.

• The performance requirement of annual foreign sales (ventas al exterior) of US$500,000 dollars or its equivalent in pesos Mexican currency, or invoicing abroad at least 10% of the total export sales, remains applicable. The wording of this requirement is still not accurate, as many Maquiladoras do not perform foreign sales nor export sales. This performance requirement is still in violation of NAFTA.

Reporting Requirements

• It would appear that IMMEX companies must now file an annual report only including the total amount of sales and exports (this benefit was originally granted only to Certified Companies). Upon issuance of the new version of the Annual report, it will become clear what information will be actually required.

• In addition to the statistical information that was required, the Decree now sets forth the obligation to provide the information required by any other federal governmental authority or even the Central Bank.

• The Decree now sets forth the obligation to provide SECON and Hacienda with information relating to the authorized Program, while before the information required was limited for purposes of verifying compliance with the Program. Now, this provision allows these authorities to request any information on a discretional basis.

• Also, IMMEX companies must now have available for their customs brokers all the information necessary to evidence compliance with their customs and foreign trade obligations. This means that the customs broker has now access (by law) to any information that he/she may consider necessary to carry out the customs clearance of the goods.

Inventory Control Systems

• Even when the Customs Law does not establish the information that must be contained in the automated inventory control systems, the Decree now establishes the obligation of keeping this system in accordance with its Annex IV, or alternatively, with Annex 24 of the Rules (Annex IV of the Decree is a simplified version of modules III and IV of Annex 24, so compliance with Annex IV may be a better alternative).

• This new obligation is a step back for the industry while it translates into unnecessary and expensive administrative burdens. Also, lack of compliance with this new requirement may mean the cancellation of the Program, while before it only entailed an administrative fine.

Certified Companies

• The Decree now includes all the benefits granted to Certified Companies in a single provision.

• The Decree appears to include one new benefit as exporter for expedited value added tax (“VAT”) refunds (5 business days). Unfortunately, this benefit will only apply provided certain legal requirements to be set forth by Hacienda through the Rules are met.

Sensitive Goods

• The Decree now provides for the prescribed term for which goods may be temporarily imported into Mexico under the Program. Some of these prescribed terms are different from those set forth in the Customs Law, which is questionable as it may be a violation of the Customs Law.

• The Decree eliminates certain goods that were previously considered as sensitive goods.

Events for Suspension and Cancellation:

• The applicable section of the Decree is confusing and contradictory, since it only covers the events for cancellation, while the events for suspension are established throughout the Decree, noting that the violation of any provision of the Decree is an event of cancellation.

Events for suspension:

• Lack of filing of the annual report on the last day of May;

• Violation of registration requirements with the Taxpayers’ Registry, such as:

a) Lack of Advanced Electronic Signature;

b) The taxpayers’ registration is not active; and

c) The tax domicile and industrial facilities are not active or registered.

This suspension event does not indicate a specific timeframe for SECON to verify compliance.

The suspension of an authorization will become effective as of June 1st of the corresponding year. If the suspension event is not cured before August 31st the Program will be definitively cancelled as of September 1st of such year.

Events for cancellation:

The cancellation procedure triggers the immediate suspension of the right to import goods temporarily under the Program. This suspension is a violation of the principles of due process (garantía de audiencia), legality (garantía de legalidad) and legal certainty (garantía de seguridad jurídica). This suspension is a sanction itself without providing the IMMEX company with the possibility of defending itself from the effects of the suspension, which may mean, in practice, an impossibility to continue operating.

The events for cancellation deemed as severe by SECON are the following:

• The breach of any of the obligations set forth in the Decree and in the corresponding authorization. The actual number of events for cancellation because of this provision translates into more than 20 events for cancellation;

• That the legal temporary importation of goods is not evidenced and, as a result, Hacienda imposes a tax assessment in an amount greater than $400,000 pesos Mexican currency or when the value of the goods in question exceeds 5% of the total value of the goods temporarily imported during the last semester;

• When the company is subject to an Administrative Foreclosure Procedure (Procedimiento Administrativo de Ejecución) as a result of not complying with its customs and foreign trade obligations; and • When Hacienda determines that the name or tax domicile of the foreign supplier or producer, consignee or customer indicated in the invoices or pedimentos is false, non-existent or not found.

The events for cancellation above can be cured by paying the tax assessment issued by Hacienda, regardless of its amount or legality and despite the decision of the company to challenge them.

There are other specific events for cancellation listed in the Decree, including non-compliance with the obligations of the Decree, non-compliance with the obligations set forth in the respective authorization, not performing foreign trade operations within the preceding 12 moths, not carrying accounting books and records, etc.

The term for reactivating the suspension from importing temporarily in those events other than those related with tax assessments, is absurd and excessive (up to 4 months), if the company has successfully proven the basis of its compliance.

• If SECON or Hacienda determines that a company has provided false or altered information, the sanction is the nullification of the authorization as if it never existed, carrying any legal consequences thereof.

IMPORTANT DISCLAIMER: This document has been prepared by the Foreign Trade Practice Group of the Mexico offices of Baker & McKenzie for our clients and professional associates. This document only refers to Mexican law. While every effort has been made to ensure accuracy, no responsibility can be accepted for erro rs or omissions, however caused. The information contained in this document should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases. No responsibility for any loss occasioned to any person acting or refraining from action as a result of material in this document is accepted by the authors or Baker & McKenzie. If advice concerning individual problems or other expert assistance is required, we would be pleased to oblige. Baker & McKenzie authorizes you to forward, reproduce, copy, archive and distribute this document without any changes and as long as you include the copyright notice below. The distortion, mutilation, modification or edition of this document is prohibited without the author's prior consent. All Rights Reserved © Baker & McKenzie Abogados, S.C. Mexico 2006 CCC/EEF/13-nov-06
All Rights Reserved © Baker & McKenzie Abogados, S.C. Mexico 2006