Issue #
September 2007

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Limits on Deductibility of Rent for Temporary use of Automobiles

September 24, 2007

Various interpretations exist as to the maximum amount of deductibility of payments made for the temporary use of automobiles. In thisregard, Article 32 paragraph XIII of the Income Tax Law (Ley del Impuesto sobre la Renta or LISR) provides that “amounts paid for thetemporary use of automobiles are deductible only in amounts not exceeding $165.00 pesos per day per automobile, so long as the requirementsfor deductibility of automobile expenses established in paragraph II of Article 42 of this Law have been met, which shall be strictly applied tothe taxpayer’s activity”. In addition, the Fourth Article of the Decree for Exemption of Tax Payments, Forgiveness of Fiscal Credits andGranting of Fiscal and Administrative Facility Stimulants to Certain Taxpayers published in the Official Journal of the Federation on April 23,2003 increased the amount of the deduction to $250 pesos per day per vehicle. Finally, Article 42 paragraph II of the LISR provides that“investments in automobiles may be deductible only up to the amount of $175,000 pesos”.

Payment of Expenses in Mexican Legal Proceedings.

September 24, 2007

The concept of expenses in Mexican law is understood to be those costs regulated by the law that the losing party must pay to the prevailingparty in a civil or commercial lawsuit, which are indispensable for initiating, prosecuting and concluding any such lawsuit. These expensesmust be directly related to the legal proceeding in such a way that the legal proceeding could not be concluded without them. Based on theforegoing, the concept of costs does not include unnecessary expenses or expenses prohibited by law. In this way, costs in Mexico have nottranslated to a requirement that the losing party reimburse the prevailing party for its legal fees and expenses, since the determination of such costs is regulated by published schedules, which vary depending on the Mexican state in which the lawsuit is prosecuted, as well as if theamount claimed was a fixed amount, in which case the fee tabulator relates to a percentage of the amount claimed, or if an indeterminateamount is claimed, certain portions of the schedule exist to signal the amount for total payment of expenses that must be paid in favor of theprevailing party. It is important to stress that the obligation to pay expenses only exists when the judgment expressly orders the losing party topay such. If the judicial decision omits references to this concept, the prevailing party is required to appeal the decision to a higher court andrequest that legal fees and expenses be charged to the losing party, which sums are normally lower than the expenses actually generated in thelegal proceeding.

Mexico Enacts Cape Town Treaty and Protocol Relating to International Guaranties for Air Transport Equipment.

September 24, 2007

On September 5 and 6, 2007 decrees promulgating the Treaty relating to International Guaranties on Air Transport Equipment adopted in CapeTown on November 16, 2001 were published in the Official Journal of the Federation, which will take effect on November 1, 2007. Thepurpose of such treaty is to provide security and certainty in international aircraft finance transactions involving the purchase of aeronauticalequipment (airplanes, engines and helicopters), railroad rolling stock and other specialized equipment. The treaty provides for recognition andassurance at the national level of its member countries regarding guaranties granted to finance the acquisition of said movable equipment. Theresult of this development is to confer recognition of a creditor’s rights, and potential control and enforcement of guaranties, with respect toloans made for the acquisition of these types of movable assets.