The personal demeanor of President López Obrador will cause his administration to be politically active. President López Obrador is a politician who does not shy away from criticism and has a unique approach to facing everyday matters. In addition to this, he holds daily press conferences to inform the public on government projects and to answer questions. Politics will remain ever present during this administration. Further, MORENA has been extremely active in proposing new legislation at the federal and state levels. As a result, opposing political parties have formed alliances to debate and challenge the proposals. In fact, some of the legislative initiatives have been amended to include changes that have improved or postponed the initial proposals. In Mexico, major legislative amendments to the Federal Constitution and state constitutions require a two-thirds’ majority vote from the Federal Congress, as well as the approval of half of state legislatures. Given such, politics will set the course to accomplish changes proposed by the new government.
Following the tradition started by U.S. President Franklin D. Roosevelt to pause and assess the first 100 days of an administration, Mexican President Andrés Manuel López Obrador reported on his work after 100 days in office. His report highlights achievements as to some of the 100 commitments made during his inauguration, as well as the fact that Mexico is currently in a transitional stage. Changes in Mexico include political, economic and social aspects, of which two strategies are noticeably present: fighting corruption and making progress to achieve an egalitarian society. Naturally, these proposed changes have generated discussion and debate regarding strategies to accomplish the administration’s outlined goals.In the arena of foreign affairs, the new administration has decided to strictly abide by constitutional principles of respect for self-determination and no interference in internal matters of other countries. Such principles have a long-standing tradition in foreign affairs policy in Mexico.As to the very important bilateral relationship with the United States, the Mexican president has reiterated his respect for decisions made by the U.S. government, and he recently held a meeting that generated expectations and comments in the press, media and social media: a visit from Jared Kushner, Senior Advisor to President Donald Trump. Such meeting was organized to address issues relating to immigrants from Central America who intend to seek asylum in the United States. Mexico has the difficult task of containing the transit of thousands of people, in many cases entire families, and avoid, to the extent possible, security and immigration impacts on its neighbor.
The constitutional energy reforms enacted in Mexico in late 2013, mandated Congress to grant the Department of Energy (known by its Spanish acronym as “SENER”) the authority to establish rules strictly separating certain activities of the electricity sector in order to promote open access and efficient operation, and to monitor its compliance. Since then, the bases for the disaggregation of the sector’s value chain activities have been established, aimed to serve as a fundamental component of ensuring effective competition.The Electric Industry Law (known by its Spanish acronym as “LIE”) of 2014 provided that the activities of generation, transmission, distribution, commercialization and supply of primary products should be performed independently, under a strict regime of legal separation. Further, when such a structure is deemed to be insufficient to ensure compliance with the constitutional purposes, the SENER may order the corporate divestiture of assets and rights.In light of the outlined principles, the Fourth Transitory Article of the LIE states that the Federal Electricity Commission (known by its Spanish acronym as “CFE”) should reorganize its corporate structure into distinct state-owned companies, pursuant to the following rules:
After intense discussions within the federal government, in January 2016, the SENER finally published the Terms for the strict legal separation of the CFE (the “Terms”) in the Official Journal of the Federation (known by its Spanish acronym as “DOF”). In the implementation of the Terms, the prior administration created six subsidiary generation companies with power plants assigned without any specific geographic or technological criteria; a transmission subsidiary for assets with a voltage equal to or greater than 69 kV; a distribution subsidiary with sixteen regional subdivisions; a subsidiary for basic supply; an affiliate for qualified supply; an “intermediary generation” affiliate for the management of legacy contracts; and two affiliates for the purchase and sale of fuels (CFEnergia in Mexico and CFEi abroad).During 2016, the new entities supposedly began operating independently, with their own personnel. By January 2017, they were supposed to have independent systems and facilities, and the unbundling process was supposed to be completed by December of that same year. It was undoubtedly a very complicated and painful process for a state monopoly that had existed for eight decades.Without having in place any true "Chinese walls", those within the CFE who strongly opposed the legal separation of the CFE embraced the arrival of Andrés Manuel López Obrador as the President of the Republic of Mexico. His administration adheres to an ideology that favors state monopolies. Within three months of the start of his administration, the SENER has already decided to take a few steps back and modify the Terms of separation of the CFE. The preliminary draft of this plan was submitted for a brief period of public consultation on March 13 and was published in the DOF after only twelve days.Although the restrictions imposed by higher-ranking rules prevent a total reintegration, the following proposed changes are concerning:
The CFE has sixty calendar days to submit to SENER a proposal for the reallocation of assets and generation contracts. If the CFE proposes to reintegrate the generation companies into only one company, it would not appear to be the path to efficient operation of the sector, under competition and free market participation, as prescribed by the LIE. The new government might be willing to take part in the electricity market under the legal framework of the 2013-14 reform, but through a strongly reinforced CFE. We hope that the results of this will feature a true electricity market.
Mexico’s federal Congress recently enacted the 2019 Federal Revenue Law (the “Revenue Law”). An important change in Article 25, paragraph VI of the Revenue Law sets forth numerous limitations on tax credits, including an elimination of taxpayers’ ability to credit or offset all types of federal taxes against each other on a universal basis. The purpose of such new limitations is supposedly to combat tax evasion in Mexico.The Revenue Law now provides that taxpayers may “net out” positive balances against amounts owed only if both balances or amounts are for the same type of tax (e.g. Mexican income tax).The Revenue Law further provides that taxpayers with positive Value Added Tax balances may only credit or offset such tax against payable Value Added Tax during succeeding months, until the full balance has been completely credited or offset, or alternatively request a Value Added Tax refund.It is said that these measures were incorporated into the Revenue Law based on the proposition that many taxpayers in Mexico generate favorable tax balances by utilizing invoices from non-existent transactions.Finally, Rule 2.3.19 of the Sixth Resolution of Amendments to Mexico’s Miscellaneous Tax Rules for 2018-2019 provides the possibility for taxpayers to credit or offset balances of federal taxes generated as of December 31, 2018 against those they have to pay other than Mexican import duties and taxes for specific purposes, which may not be credited or offset.
Under current Mexican labor and employment law, it is essential for companies to properly document all employee separations or terminations so that, in the event of labor litigation, the employer is well positioned to defend itself and reduce exposure to liability. The following are instances in which labor terminations must be properly documented: (i) when an employee resigns, (ii) when the employer terminates the employee without cause and pays severance as set forth in Mexico’s Federal Labor Law (the “Law”), and (iii) when the employer terminates the employee for cause within the statute of limitations set forth in the Law, without paying severance.It is important for all employers to maintain legally required documents so that such documents may be produced as evidence in case labor litigation arises. Specifically, regarding items (i) and (ii) above, employers must have their departing employees sign a resignation letter and a detailed release. Further, it is advisable that employees execute separation agreements, whether at their workplace or at the local Labor Arbitration Board with jurisdiction over the case, although the latter affords much more protection to employers. Separation agreements executed and ratified at the Labor Arbitration Board are tantamount to final, unappealable judgments. On the other hand, severance documents executed at the workplace (letters of resignation, releases or separation agreements), and not approved by and filed with the Labor Arbitration Board, may be contested in a labor litigation case. If such informal severance documents are objected to in a labor lawsuit, the party offering them for proof must submit testimony of an expert witness to prove their authenticity.As to item (iii) above, note that each case is unique and requires individual analysis and attention. Therefore, employers should investigate and analyze the available facts, as well as confirm that strong evidence exists to sustain a for cause termination. Employers have a very high burden of proof in Mexican labor litigation cases.
In November 2018 the Third Collegiate Court on Civil Matters of the First Circuit published judicial decision number I.3o.C.340 C (10a.) entitled: “Corporate Veil. Justification for piercing the corporate veil.” In this decision, the Court ruled that piercing the corporate veil is justified when parties use the corporate form in an otherwise legal and valid manner for improper ends or to avoid legal obligations or liability. Accordingly, the Court stated that the purpose of piercing the corporate veil is to avoid harm to third parties resulting from abusive or improper use of the corporate form. This can occur when parties misuse or abuse the presumption of good faith given to corporations, their shareholders and representatives, to exercise the corporation’s rights consistent with corporate social and ethical standards. It is important to emphasize that this ruling is an independent, isolated judicial decision that may not be relied on for precedential value. Nevertheless, the key elements of the decision are a culmination of numerous prior case decisions previously issued on this topic, which generally tended to protect third parties from these types of improper corporate acts.