Issue #
March–April 2018

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Economic Indicators

On April 30, 2018, updated financial indicators reflected:

Peso/Dollar Exchange Rate: $18.6847 pesos per Dollar.

Mexican Stock Exchange: The Mexican Stock Exchange (BMV) closed at 48,320.82 points.

Interest Rates: The Average Interbank Rate (TIIE) for a 28-day period was at 7.8455%

Constitutionality of Lists Detailing Taxpayers Who Conduct False or Non-Existent Transactions

May 2, 2018

In proceedings on February 7, 2018, Mexico’s Supreme Court held that lists of taxpayers detailing those who carried out false or non-existent transactions, as published in conformity with Article 69-B of the Mexican Federal Tax Code, are constitutional. This ruling is important because it means that all taxpayers must pay special attention and confirm that their suppliers and service providers are not found to be on such lists.Article 69-B of the Federal Tax Code establishes that when a supplier or service provider issues formal tax invoices without actually possessing the assets, personnel, infrastructure or capacity to provide the services or produce the goods being sold, the authorities will presume that such transaction did not occur, and, therefore, is “non-existent.” Based on the foregoing, upon publication of the names of the suppliers and service providers on the tax authorities’ list, all formal tax invoices that have been issued by such suppliers and service providers shall be invalid for tax purposes.The Court’s decision significantly impacts companies that receive formal tax invoices, which in many cases are used to support income tax deductions or claim credits for Value Added Tax that has been previously paid for products or services, and corresponding applications for tax reimbursement or refunds. Furthermore, if these formal tax invoices are deemed invalid, companies receiving them should take action to correct their tax records and filings.As a result, it is recommended that companies continuously monitor all of their suppliers and service providers in order to verify that they are not found on the list detailing taxpayers that have carried out false or non-existent transactions.

Electric Supply Alternatives for Large Consumers

May 2, 2018

Based on the Electricity Industry Law ("LIE" for its acronym in Spanish) of 2014, many companies that currently consume large quantities of electricity can access the benefits of receiving their electricity supply from a company other than Mexico’s Federal Electricity Commission (CFE) as a Supplier of Basic Services, if they register as qualified end users with the Energy Regulatory Commission ("CRE" for its acronym in Spanish).In order to register with the CRE, the contracted load must be one (1) megawatt (MW) or more. This is not the actual volume of electricity consumption, measured in MWh, but instead a maximum consumption capacity. End users belonging to the same economic interest group may aggregate their loads to reach the minimum of 1 MW. To do this, the economic group must provide evidence of the affiliate relationship of the group’s various legal entities. In any case, registration as a qualified end user is optional for plants connected before August 12, 2014, but it is required for all those connected after such date, which is the day the LIE entered into force. The registration is a straightforward procedure, which was simplified further by the CRE through modifications to the applicable rules, published in the Official Journal of the Federation on December 6, 2017.The benefits of competition in the electricity are immediate, creating conditions which allow for lower prices and better contractual conditions. Since late 2016 and throughout 2017, several clients of Cacheaux, Cavazos & Newton began to receive proposals for alternative contracts for basic electricity supply, several of which have already been signed. Other clients have begun to approach the firm with questions about available opportunities under the new electricity distribution system. On the other hand, other clients who are qualified suppliers have requested the firm to assist in preparing model contracts to supply electricity in Mexico.Beginning in December 2017, applicable basic supply tariffs are determined based on the CRE regulation that provides for such to be based on real costs of service, instead of policies of Mexico’s Department of Finance and Public Credit (“Hacienda”). In the case of qualified end users, the new basic supply tariffs offer certainty regarding what is the “price to beat” by qualified suppliers who are now competing with the former State electricity monopoly. Despite the initial problems surrounding implementation of the new system and communications from the CRE, the new basic supply tariffs are a true milestone in Mexico´s energy history. They are also the price signal that the country’s wholesale electricity market greatly needed to develop its full potential.

Legal Considerations for Hiring Students in Mexico

May 2, 2018

Mexican companies commonly hire students to work in their businesses in order to enable such students to fulfill their community service or professional internship requirements, which can lead to complications given that this type of work is not regulated by Mexico’s Federal Labor Law (Ley Federal del Trabajo). Notwithstanding such gap in the law, the Mexican Federal Department of Labor (Secretaría del Trabajo y Prevision Social or STPS) has issued guidelines regulating how students may provide services to fulfill their community service or professional internship requirements and, at the same time, reduce the employer’s labor liability under Mexican Federal Labor Law. The STPS guidelines regulating students working in a community service or professional internship capacity include the following:

  1. Educational institutions must maintain a set of Community Service Regulations, approved by the Mexican Federal Department of Education;
  2. The employer must sign an agreement with participating educational institutions that is consistent with the provisions of the school’s community service regulations, and such agreement must include the requirements necessary to duly accredit the community service or professional internship work to be performed;
  3. The employer must prepare a detailed description of the needs, objectives and goals of such program, as well as the administrative procedures for selecting and assigning students, payment of any stipends, among others;
  4. The educational institution must obtain medical insurance covering any accident that students could suffer during their time providing community service or professional internship work;
  5. Employers may not pay salaries to the students; rather, the only payments permitted are for stipends or assistance with transportation expenses;
  6. Educational institutions must provide a letter authorizing the student to engage in professional internship or community service activities, recognizing that such activities will not create an employment relationship;
  7. Employers must enter into a “community service provider” agreement with the student, which may include provisions protecting the company from any labor liability;
  8. Upon concluding the community service or professional internship activity, the company is required to issue a completion certificate to be delivered to the respective educational institution, and the student must deliver to the company a letter certifying that no employment relationship exists between the employer and student, and a release of the employer from any type of labor law liability.

It is essential to comply with the guidelines set forth above in case a company desires to employ students to provide community service or professional internship assistance. Following such guidelines will enable employers to avoid labor risks that could arise from students’ community service or professional internship work in Mexico.

Amendments to Mexico’s General Law of Business Associations Applicable to Corporate Dissolutions and Liquidations

May 2, 2018

A decree published in Mexico’s Official Journal of the Federation on January 24, 2018 amended and supplemented numerous provisions of the Mexican General Law of Business Associations. Such changes are designed to simplify the process of dissolving and liquidating Mexican business entities and will enter into force on July 25, 2018.Consistent with the Mexican government’s efforts in recent years to facilitate legal procedures, reduce costs and eliminate complications in the formation of new companies in Mexico, the new amendments add a simplified process through which eligible entities may close down their operations in an easy, fast and cost-free manner, and thus provide legal certainty and closure for their shareholders or partners and third parties alike. Note, however, that the current procedure required to dissolve and liquidate a Mexican entity will continue to apply, in general, to companies that are not eligible for the new procedure.The new simplified procedure will be available only to those companies that can demonstrate compliance with the following requirements: i) all of the company’s shareholders or partners are individuals; ii) the entity does not have an illicit corporate purpose and does not carry out illicit acts; iii) has published its shareholder or ownership structure in the electronic system referred to as the Publication of Business Entities (“PSM” by its initials in Spanish) before dissolving; iv) the entity has not been commercially active or issued electronic invoices within the last two years; v) is current in its tax, labor and social security obligations; vi) does not have any pending financial obligations to third parties; vii) its legal representatives are not subject to criminal tax or asset-related crimes; viii) the entity is not subject to bankruptcy or insolvency; and ix) the entity is not a participant in the financial sector.The new simplified dissolution procedure shall be carried out according to the following steps: i) adopt resolutions at a shareholders’ meeting to dissolve the entity and name the shareholder or partner who will serve as liquidator, and publish such meeting resolutions in the PSM, without the need of formalizing such resolutions before a notary public; ii) subject to prior authorization, the Mexican Department of Economy will order the dissolution resolutions to be registered in the Public Registry of Commerce; iii) assets, record books and documents of the company shall be delivered to the liquidator; iv) upon receipt, the liquidator shall distribute to the shareholders or partners the remaining assets of the company in accordance with their capital contributions; v) all shareholders shall deliver their share certificates to the liquidator; vi) the liquidator shall publish a final balance sheet of the company in the PSM; and vii) the Department of Economy shall register the cancellation of the company’s corporate registry in the Public Registry of Commerce and shall notify the Mexican tax authorities of the dissolution. Note that the above steps must be carried out within the time limits established in the law. If the shareholders or partners make any false statements or filings in regard to the simplified dissolution procedure, such individual shall be individually liable to third parties on an unlimited basis and may also face criminal penalties.The legal reform described above presents a new opportunity to resolve problems many face when attempting to dissolve and liquidate business entities in Mexico. However, the new reform does not contain any incentives for parties seeking to liquidate companies that are currently abandoned, nor does it provide a complete solution that integrates completely with other laws that may be involved in the dissolution and liquidation procedure, most notable among which are the applicable Mexican tax laws.

New Guidelines for Determining Actual and Exemplary Damages in Mexican Civil Lawsuits for Personal Injury and Wrongful Death

February 12, 2018

As of April 2017, the manner of quantifying damages in Mexican civil liability lawsuits changed. Prior to such date, Mexico followed rules that provided a fixed cap on the amount of damages that could be claimed in wrongful death cases. Such determination varied, depending on the applicable laws of each Mexican state.In the past, it was common practice to use rules applicable to Mexico City, even if the incident or origin of the claim occurred in another state. This was because the applicable law in Mexico City established a broader range for these types of damages.Now, by virtue of the new binding legal precedent issued by Mexico’s Supreme Court, Mexico has a consistent set of rules that applies throughout the entire Mexican Republic. It is also important to note that despite the fact that the underlying statutory law has not been changed, such new Supreme Court criteria must be applied and analyzed in light of applicable principles of human rights law.In the case at hand, the Mexican Supreme Court determined that measures as to indemnification should be determined by taking into consideration the following principles:

  • Full reparation of damages;
  • The individual facts of the case and decision;
  • The nature and extent of the damages suffered by the victims, without regard to the characteristics of the defendants;
  • The damages caused are what determines the nature and amount of the indemnification; and
  • Analysis of data such as the age, monthly income and living conditions of the victims.

The Supreme Court’s decision also mentions no unjust enrichment or impoverishment of the victim and/or their successors should result from the damages award. Given the law’s requirement that the victim’s compensation should not be excessive, such should be viewed in light of the factors listed above.Finally, note that in all cases it will be necessary to determine, from the point of view of all the parties involved, the manner in which said damages will be determined and paid to victims in a given case.