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 Investment; Detroit Global Industries in Ramos Arizpe
Motivated by the automotive. industry development, Detroit Global Industries group opens today its first plant in Ramos Arizpe, Coahuila with an investment of 5 million dollars, generating employment for 300 people through three stages. They are focused on serve locally the Mexican market, combining technical abilities of Canada, United States, South Korea and Mexico through enterprises such as STP Metal, Steller Precision, DGI Mold, Pro Spindles and DGI Cutting Tools.
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Whitepath Electronics to Manufacture in Mexico
Whitepath Fabtech, a leading supplier to. the heating and cooling equipment industry, has announced that it will open a Mexican production facility in order to supply its major customer, the Carrier Corporation, with control panels for HVAC systems. Whitepath has contracted with The Offshore Group of Tucson, Arizona for the provision of shelter services in a 35,000 square foot building that will be constructed in Ramos Arizpe, Coahuila.
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Ambassador Ono announces that Japan will keep its investments in Mexico
The ambassador. from Japan in Mexico, Masaaki Ono, pointed out the excellence in the Mexican labor force as well as the good relationship between both countries that encourage the investments in this nation. At the Forum California - Asia 2007 in the state of Baja California, Japanese ambassador affirmed that during the last years Mexico-Japan relationship has been great, for this reason both nations are planning new projects together. The ambassador explained that after the United States, Japan has strong investments in Mexico with Japanese companies.
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US$1.209 billion to be invested near Saltillo
"Peñasquito" Project, a joint Mexico-Canada investment will inject US$1.209 billion in gold extraction, US$350 million are already being applied in Concepcion del Oro area in the State of Zacatecas, located only 68 miles from Saltillo. This is the largest and most important mining project in Mexico in the last few years, with unsurpassable perspectives for the future, because "Peñasquito" has proven and probable reserves of 10 million ounces of gold, informed to Vanguardia newspaper the Chairman of the Mexican Mining Chamber, Xavier Garcia de Quevedo.
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Roche opens a new plant in Toluca
With an investment of 60 million dollars, Roche Syntex de Mexico. Group opens its high power medicine manufacturing plant to treat diseases such as cancer, osteoporosis and transplants among others. In a press conference with Roche's president and world-wide CEO Franz B. Humer, they informed that the plant has an annual capacity of 250 tons of medicines. Humer and Ricardo Jimenez director of the Toluca plant said that 90 percent of the production will be exported, mainly to the United States (50 percent), but also to Europe, Far East and the rest of the world. Mexico and Latin America will keep the 7 percent.
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German automobile assemblers will invest US$500 million in Mexico
The Ministry of the Economy informed in a press release that representatives from several German companies presented plans to invest in Mexico to Minister Eduardo Sojo, who is visiting Germany. Sojo participated today in Frankfurt Auto Show now being held in said German city, and during which the "Germany-Mexico Cooperation Day" was celebrated. The Ministry of the Economy reminded in the press release that Mexico has become the tenth automobiles exporter in the world and the first in Latin America. It also pointed-out that the German industry is the most important in the automobiles sector in Mexico, after the United States.
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ARTICLE OF THE WEEK
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| Deductibility of Fringe Benefit Expenses under the Single Rate Tax Law |
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 Baker & McKenzie
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 Last June, President Felipe Calderon Hinojosa submitted to the House of Deputies a series of tax bills aiming to increase the revenues of the Federal Government to finance future projects that will foster the economic and social development of Mexico.
One of the bills submitted by the Executive that caused more debate is the one referred to a new tax named the Entrepreneurial Single Rate Tax (IETU for its acronym in Spanish). This tax supersedes the assets tax as it has been known since 1988, but instead of the assets tax, which taxes the totality of the assets used in the activities performed by the taxpayer, this tax aims to tax all the production or capital factors (including labor) involved in the activities of the taxpayer.
Is on this particular issue (labor force) that the discussion regarding the viability or non viability of the IETU gained strength. In the original bill submitted by the Executive, the totality of wages, salaries and fringe benefits related thereto were not deductible from the tax basis of the IETU to determine the tax payable. Instead, a tax credit mechanism was created, in order to neutralize the impact of the non deductibility of wages, salaries and other fringe benefits paid to the employees by  the employers, through the crediting of the income tax withheld for these concepts. That is, the employer could only credit against the payable IETU of the tax year, the amount withheld for income tax purposes, and not the totality of the wages, salaries and other fringe benefits granted to the employees. Unfortunately, such mechanism did not neutralize all the effect derived from the non deductibility of the wages, salaries and other fringe benefits related thereto. Furthermore, this mechanism demonstrated that to gain access to the tax credit, only those concepts that were paid to an employee that were taxable income for income tax purposes would be allowed to be credited for IETU purposes. Other exempted concepts, such as fringe benefits, would not be subject to any tax credit or deduction benefit under the IETU.
As a result of different lobbying efforts carried out by both, social and political actors, the original tax credit mechanism of the income tax withheld to the employees by the employers against the IETU was modified.
On September 13, 2007, the Senate approved, with certain amendments, the bill regarding the Law of the Single Rate Tax (LIETU for its acronym in Spanish).
 In the Senate's proposal it is expressly stated that wages and salaries and other benefits related thereto will not be deductible for purposes of computing the IETU tax basis. However, the tax credit mechanism, through which an employer may determine the amount of the tax credit to be offset against the IETU resulting from the income tax withheld for income tax purposes to the employee on salary, wages and other benefits, was modified. Under the new mechanism, the effect generated by the non deductibility of wages, salaries and other benefits related to such concepts is partially neutralized.
 Unfortunately, the amendments made to the tax credit mechanism now adopted in the LIETU do not take into consideration, again, the amounts of wages, salaries and other benfits granted to the employees that are exempted under the Income Tax Law. Benefits such as food bonuses, punctuality bonuses, scholarships, Christmas bonuses (on the amount exempted), saving funds, pension and retirement funds, etc. will neither be deductible for the calculation of the IETU basis nor will they be taken into consideration for purposes of the tax credit mechanism herein discussed, meaning that such concepts continue to be subject to IETU.
 In our opinion, not permitting to consider within the mechanism to calculate the tax credit to be applied against the IETU the fringe benefits expenses that are exempted under the Income Tax Law, creates sufficient grounds to file for constitutional relief (amparo). The purpose of the amparo action would be (i) to have a specific recognition that the mechanism through which the amount of income tax withheld to the employees for payments on wages, salaries and other benefits subject to income tax that may be credited against the IETU does not take into consideration the exempted portions, such as fringe benefit expenses and, therefore, (ii) to deduct said concepts for purposes of calculating the IETU. Please note that this option would only become available once the LIETU is in effect.
It is important that employers set up preventive actions to determine the impact that the non deductibility of fringe benefits will have on its business. We have started discussions with our clients and friends to analyze their particular situation and jointly develop action plans to limit possible future risks and contingencies. Let us know if we may assist you in this identification process and to adopt the proper course of action applicable to your needs.
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IMPORTANT DISCLAIMER: This document has been prepared by the Labor 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 errors 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 2007
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| All Rights Reserved © Baker & McKenzie Abogados, S.C. Mexico 2007 |
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MEXICO'S WEEKLY HEADLINES
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| » First biodiesel production plant of was inaugurated in Michoacan |
| » 3M operates Mexican talent |
| » ProMexico would organize the next WEF |
| » Smaller growth in U.S.A. will press to Mexico |
| » 300 maquilas have closed from April 2006 to date
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