By PriceWaterHouseCoopers.
ASSET TAX LAW (AT)

Several changes apply to this tax, with the most notable changes as follows:

1. The AT rate is reduced from 1.8% to 1.25%

2. The AT is now determined by multiplying the above rate to the asset base without reductions of liabilities. This new requirement can severely impact the tax liabilities of highly leveraged companies

3. This procedure must also be applied by those taxpayers opting to use the AT base corresponding to the adjusted value of the assets held as of the fourth preceding year

4. Estimated tax calculations for 2007, including January and February, are required to be calculated without reducing the asset tax base by any liabilities

5. The parent company is required to maintain information and documentation for submission to the Tax Authorities upon request, providing the asset values included in the consolidated asset base in the cases of groups filing consolidated returns.

EXCISE TAX LAW

Tax on the alienation and importation of tobacco products
A gradual increase in the excise tax rate is introduced on the sale and importation of cigarettes from 110% in 2006, to 140% in 2007, 150% in 2008 and 160% in 2009.

Cigars and other tobacco products
Similarly, the excise tax rate is gradually increased for the sale and importation of cigars and other tobacco products from 20.9% in 2006, to 26.6% in 2007, 28.5% in 2008 and 30.4% in 2009.

Tax on refreshments
The reform repeals the 20% excise tax on soft drinks and other refreshments using sweeteners other than sugar from sugar cane.

FEDERAL TAX ON PURCHASE OF NEW AUTOMOBILES
For 2007, the Tax on New Automobile Compensation Fund for federal government entities shall be for $1,589,492,298 pesos.

FEDERAL FISCAL CODE (FFC)

Advanced electronic signature
All taxpayers are now required to obtain the certificate for advanced electronic signature at the time they obtain their taxpayer registration number with the Registro Federal de Contribuyentes ("RFC"). Prior to this rule, only taxpayers required to file certain information electronically were required to obtain the certificate.
Persons required to file periodic declarations, or required to issue formal invoices for their activities, as well as partners and shareholders of corporations must also be registered with the RFC and must obtain the above-mentioned advanced electronic signature certificate, even if they are not required to file information electronically.

Reviews by Tax Authorities of utilized NOLs
Upon audit of taxpayers in years in which NOLs have been utilized, the taxpayers upon request must submit documentation substantiating the origin and amount even though the NOLs were generated in an earlier year. This act would not constitute a review of another period, and thus can only be considered for purposes of determining the net taxable income of the current year.

However, the above requirement does not apply and the taxpayer is not required to provide documentation to prove the validity of Nols applied if the Tax Authorities already reviewed the year in which the NOL was generated.

Requirements to benefit from tax incentives
In order to be eligible for the tax incentives and/or related subsidies, such as research and development credit, the taxpayer may not have unpaid taxes which are not guaranteed. Moreover, the taxpayer should have a formal taxpayer ID when required and must be current on advance estimated tax requirements. If the taxpayer has not complied with the requirements, a grace period of 15 days is provided to rectify the situation, after the taxpayer is notified of the non-compliance or outstanding taxes due.

Ruling requests issued by he Tax Authorities
The Tax Authority shall apply its criteria for issuing a ruling for each taxpayer based on real and concrete situations, as long as it has all of the information, background and circumstances for the authority to issue the ruling. Moreover, these facts and circumstances cannot be different after presenting the ruling request to the authority. Additionally, the ruling must be requested before the Authority has notified the taxpayer of an audit.

The taxpayer is not required to abide by the holding of a negative ruling. Nevertheless, a negative ruling once issued by the Tax Authorities cannot alone be used as a reason to initiate tax litigation. However, the taxpayer can litigate if the taxpayer adopts a position contrary to the ruling, it is later identified by the Authorities upon audit, and a tax assessment is made.

We should clarify that other acts by the Authorities can be used by taxpayers to initiate a lawsuit.

We consider that this provision does not impede the taxpayers from initiating a lawsuit against the ruling in the case of lawsuits constituting an "Amparo" (on the basis of constitutionality - i.e., if the ruling goes against the Mexican constitution as the supreme law).

A transitory provision allows the Tax Authority to revoke with the consent of the taxpayer, prior favorable rulings previously issued and notified. This rule appears irregular, since it does not establish a procedure for the Authority to revoke and the taxpayer to renounce to the benefits of a ruling, which was favorable to the taxpayer, nor does it provide the causes which would permit the revocation.

Tax Authority's visit to the tax domiciles of the taxpayer
When the Tax Authorities fail to properly follow procedures that can affect the legality of the determination of a tax liability of the taxpayer, the Authority has one chance to issue an official declaration correcting the deficiency. In this case, the period for concluding the audit is suspended as long the period of suspension does not exceed two months.

When a domiciliary visit refers to a tax obligation for a period in which the Tax Authority already concluded a review in a prior visit, a tax liability can still be determined if it is proven that new facts were reviewed based on additional information provided after that date, with amended declarations.

Penalties for omission of payment of tax obligations
The fines assessed by the Tax Authorities in the course of the exercise of their audits, previously ranging from 75% to 100% on omitted taxes are reduced to a range of from 55% to 75%, except in the case of customs duties.

FEDERAL CONTENTIOUS ADMINISTRATIVE PROCEDURES LAW

The law is modified to add a requirement for the granting of the Tax Authority the right to appeal sentences dictated by the Federal Tax Court against their interests. The new requirements are that the sentence can only be appealed:

1. when the amount involved in the court case exceeds 3 thousand times the minimum daily salary in the Federal District in effect at the moment the sentence is issued by that court, or

2. when the Tax Authority is ordered to pay the court costs, as well as the damages  caused to the taxpayer.

These added rights seem to contradict Supreme and Regional Court decisions that deny the Tax Authorities the right to appeal lost decisions to further defend their criteria.