The results of the November 2020 U.S. elections will be historic and have a global impact, including significant repercussions in Mexico. In Mexico, analysts are speculating as to which U.S. presidential candidate will be best for Mexico. President Trump’s supporters highlight factors which, according to their calculations, would tip the balance in favor of the Republican incumbent, most notably the amicable personal relationship he enjoys with his Mexican counterpart, President Andrés Manuel López Obrador. The joint participation of the United States and Mexican presidents in the USMCA is an important factor to consider, as some believe that Democrats do not support the business solutions that were agreed upon by and among the three countries. Although it may seem trivial to some, it is noteworthy that Mexicans have embraced Christopher Landau, the United States’ Ambassador to Mexico, who has done a remarkable job in strengthening the bilateral relationship between the two countries. On the contrary, supporters of the Democratic Biden-Harris ticket claim that Joe Biden is very familiar with Mexico and the relationship between the United States and Mexico, even more so because of his active participation in such relationship while he served as the U.S. vice president from 2009 to 2017. Further, Democrats believe their positions on border issues, including their commitment to resolving immigration issues for so-called Dreamers, work in their favor. November is just around the corner. As time goes by, these and other issues will dissipate. Mexican diplomacy during these critical times will surely be a complicated task.
Mexico’s federal system is largely modeled after the federal framework adopted by the United States of America. The central idea is that the federal government coexists with the state governments, which acting together comprise a balanced political structure. Each government has powers that are granted by a general constitution that establishes the rules for the distribution of power, jurisdiction and obligations. For a variety of reasons, discrepancies naturally arise between state and federal governments. When these disputes cannot be resolved through political dialogue, it is the task of the federal Supreme Court to resolve them.
Not all Mexican state governments are currently aligned with the same political party. In what could be considered an historic development, not even the political party leading the federal executive branch has a majority. Of the 32 Mexican states, which now include the newest state, Mexico City, the PRI controls 12 states, the PAN controls 10 states, MORENA controls seven states, and the PRD controls one state. Two states, Jalisco and Nuevo Leon, are independent and not controlled by any single political party. Recently, some Mexican state governors began a movement to confront the federal government and oppose certain policies adopted by President Lopez Obrador, particularly on measures which need to be taken to address the COVID-19 pandemic. This movement was led by Governor Enrique Alfaro of Jalisco, and it appeared such actions would lead to increased political tension.
For the sake of stability, in a recent meeting among the governors and the president, the governors made strong demands with respect to security and economic issues. In a show of good faith, the president stated that his government is not “sectarian”, which is to say partisan, and he conceded that several items have created tension throughout the federal-state relationship. He offered to restructure state debts, pay states their corresponding federal budget allocations without delay or negotiation, on a timely basis in accordance with the federal revenue sharing agreement, and even to amend the distribution formulas so the states and Mexico City receive more financial resources. Among the most relevant results of the meeting were those relating to the COVID-19 pandemic. For example, the president and governors reached a consensus regarding the details and operation of the pandemic signal light system, which has been a great concern for the states. The parties agreed that the devastation caused by the pandemic has put Mexico in an economic and health crisis. Fortunately for Mexico, it appears that Mexico’s federal and state leaders share a general desire to confront these issues in a coordinated manner in order to achieve the best results possible for the Mexican people.
As a result of the COVID-19 pandemic, Mexican companies that i) are deemed essential, ii) are deemed to be non-essential but are and currently undergoing a reopening process, and iii) those that due to the nature of their work have employees working remotely, must implement and maintain specific written protocols and policies in accordance with federal and local guidelines requiring numerous measures to be taken to ensure a safe return to work, and if applicable, to regulate temporary remote work.In addition to maintaining appropriate protocols and policies, companies must also maintain certain documentation such as logbooks, questionnaires, records of the delivery of personal protective equipment, signage, communications, and training records, among others. In the event of a workplace inspection, the company can use such documentation to prove its compliance with all guidelines applicable to companies that are reopening their operations.Furthermore, it is important for companies to maintain documentation and photographic evidence of their facilities. Such may be needed to prove to the Mexican Social Security Institute (“IMSS”) that they have complied with the self-evaluation process that companies must conduct on the electronic platform named the “new normal” (“nueva normalidad” in Spanish), in order to obtain approval to reopen their operations. In addition to the federal self-evaluation process, some Mexican states have their own local platforms, processes and guidelines with which companies must comply. Some states even go as far as to require random COVID-19 testing of employees, in proportion to the number of employees employed by the company.Importantly with respect to remote work, the IMSS has determined that it is possible to consider COVID-19 a work-related illness. In order to avoid the risk of COVID-19 or any other conditions or illnesses suffered by employees working remotely from home from being incorrectly classified as a work-related accident or illness, and to regulate work schedules, measure productivity, ensure the correct use of work devices, confidentiality, and appropriate use of the workspace (ergonomic), among others, companies must thoroughly regulate remote work through protocols and policies duly acknowledged and signed by employees. In such cases, an exhibit to the individual labor contracts of a company’s employees must be added to document that the employees will be temporarily working under the remote work format.Employers should consult with their advisors to obtain the advice necessary to fully implement all of the guidelines and measures described above. They should also correctly and completely prepare the documents, protocols, policies and exhibits they require to comply with all of their Mexican labor law obligations.
The COVID-19 pandemic is causing a steep drop in revenues for Mexican companies during fiscal year 2020, which will also result in decreased net income and, in many cases, negative cash balances. Mexican companies will need to keep a close eye on their cash flow and analyze strategies and options to improve their cash balances. One strategy that should be considered involves a reduction of estimated income tax payments, paid on a monthly basis to cover the total annual income tax incurred. The estimated income tax payments for 2020 are being calculated based on an amount of net income that is potentially too high, compared to the likely net income that will actually be received this fiscal year. Article 14 of the Mexican Income Tax Law provides that in order to exercise this option, companies must notify Mexico’s tax authority during the second half of the fiscal year (July to December). The estimated payment for July must be paid by August 17th. The deadline to give notice of the request for a reduction in payment is one month prior to the due date of the estimated tax payment. For example, notice must be filed by July 15, 2020 for it to apply with respect to the payment corresponding to the month of July 2020.Pursuant to Annex 1 of the 2020 Miscellaneous Tax Resolutions the tax authority must respond to the request within three months. Approvals to decrease estimated income tax payments are authorized through a resolution issued by the tax authority.With the current health emergency till in place, it has become easier to explain the reasons for requesting a decrease in estimated payments, considering that companies are experiencing lower income this year as compared to prior years. Companies pursuing this strategy should prepare support documents based on annual budgets, adjusted with the actual balances for the first half of 2020, along with the information estimated for the second half of 2020, to justify a decrease in the estimated income tax payments for the second half of the year.