2014 Economic project WMTA Breakfast meeting September 19, 2013

1. New rules for a challengingenvironment 2014 Economicproject WMTA Breakfastmeeting September19, 2013

2. Federal IncomeLaw Footer

3. 2014 macroeconomicframe • Assumptions: • Increase of publicrevenues - 240 billion Pesos = 1.4% del PIB Footer

4. Tax provisions • Withoutchanges: • 0.6% incometaxwithholdingtoindividualsoninterestsfromfinancial sector • Intereston late taxpayments; taxcreditontheacquisiton of diesel and highwaytolls, someexemptions and penaltiiesforgiveness. • Someprovisionsthat use to be includedwithinthe Federal IncomeLawwere moved tootherLaws Footer

5. Tax provisions(Cont). Footer

6. IETU TAX / CASH DEPOSIT TAX- Repealed Footer

7. Income Tax Law Footer

8. Corporations Footer

9. Deductions: Elimination of thepossibility of immediatedeductionfortheacquisition of M&E usedto: Generation of electicpowerfromrevewablesources, Conversionsto use natural gas, and Prevention and environmental control. Fundingto a pension plan, uponpayment of thepensions. Non-deduction of paymentsabroadtorelatedpartieswhentheforeignparty resides in a country with a corporateratelowerthan 70% of theMexicanincometaxrate (> 22.5%) Foodcouponsonlywhenusingelectronicwallet Deduction of tax free salarypaymets (welfarebenefits, savingfund, overtime, profitsharing) are nowlimitted up to 41%. General Provisions Footer

10. Deducctions Employee’s Social Security duespaidbyemployer are no longerdeductible. New limitsforthededuction of car rentalsoraquisition: From 175,000 downto 130,000 Pesos fordepreciation From 250 to 200 Pesos dailyforrentals. Restaurant bills non-deductible (12.5% up to 2013). Thealternativetodeduct 100% theexploration expenses fortheminingindustryiseliminated and theamortizationprocedureswillapply. General Provisions Footer

11. Thefollowing are repealed: ProductionCooperativeentities. SIBRAS – (private REIT) Transition up toDecember 31, 2016 toaccruethedeferredtax. Estimatedcosts – Works contracts, longtermfabrication of equipment and time sharing. Installment sales; Simplifyregime. 10% ondividendpaymets – new assessment Whenpaidtoindividualsorforeignresidents. Corporatetax. Final tax Payablebythe 17th of thefollowingmonth. Employee’sProfitSharing (EPS) Thespecialcomputation of thetax base is removed fromtheLaw. Same base as Corporatetax base exceptdeductionsforthepaid EPS and prior NOLs General Provisions Footer

12. Obligations Banks and FinantialInstitutions mus reportannually cash deposits, whendepostisexceed 15,000 Pesos a month. General Provisions Footer

13. Tax Consolidation andTax Integration new regime Footer

14. Tax resultingfromthe de-consolidation as of December 31, 2013. Notapplicableforthosewhowaivedtheregime in 2007 and had a fiveyearsperiod. Alternativesto compute thetax: General regime Optionalregime. Deferredtaxmust be paid in fiveyears. May 2014 and in Aprileveryyear up to 2018. Deferredtaxfrom 2007 willcontinueto be paid up totheend of thisyearaccordingtotransitoryartilcles. Tax consolidationisrepealed Footer

15. Tax Incentives Footer

16. Incentives repealed • Immediatededuction (accelerateddepreciation) • Purchase of landfor real estate developers • Fomenttocreation of new jobs Footer

17. Individuals LISR – Personas Morales No Lucrativas

18. Theexemptionforthe sale of houseisreducedto 250,000 UDIS. Anyexessistaxed. before 1,500,000 UDIS (approx. 7.4 Million Pesos) Nowthegainfrom sale of stock in theStock Exchange istaxed. Primaryactivities are now full taxed as anyothertaxpayer. Exemptincome Footer

19. Invididualincometaxrateisincreasedto 32% forrevenues in excess of 500,000 Pesos. Rentincome: Mustpayestimatedmonthlypayments in all cases (prior landlordswithlessthan ten minimumwages file no estimatedpayments. Incomederivedfrom sale of stock: Taxed at 10% whensold in the Stock Exchange Anylossisapplicableonlyagainstincomefromthesameactivity. Dividends: Thosereceivedfromabroadanadditional 10% willapply. Otheractivities Footer

20. International Footer

21. Treaties Footer

22. Measurestoavoid “abuse” the use of Treaties Doubletaxneedsto be proven The legal representativemusttestifyunderoath. RelevantprovisionsfromtheotherState. Informationmust be provided as necessary. Tratados para evitar doble tributación Footer

23. Mexicansourceincome Footer

24. Option of paying 30% onthegain (instead of the 25% ongrossincome): Instead of thespecialreportfrom a registered CPA a set of new rules will be provided. Pensionfunds Nowrentincomefor 4 yearsisrequired. Exemptionisnotapplicableto sale of real estate. “Grossed up” of thetax base. Enphasisismadetotheneed of grossed up thetaxwhenthetaxisnotwithheld. Rent of trucks and semirequiresnow a 5% incometaxwithholding. RevenuesfromMexicansource of income

25. Maquiladoras Footer

26. Incometax Definition of maquila operationwithinthe MITL Itis a requirementtoexport 90% of theannualbilling. “Shelters”programs are limitedforthreeyears Compliancetoavoid a PermanentEstablishment, theoptions are limittedtosafeharboror APA Valueaddedtax: Temporaryimports are no longer VAT free. Maquiladoras

27. ValueAdded Tax Reformasfiscales

28. Affectingforeigntradetransactions • Borderzone • VAT rateapplicabletotheborderzonewill be thesame as therest of the Country (16% instead of 11%) • IMMEX, automotivebounddeposit, fiscalizeddeposit and estrategicfiscalizeddepositimportingon a temporarybasis are now VAT taxed. • VAT isnowapplicableto: • Temporaryimportsforelaboration, transformation o repairmadeby IMMEX companies. • Importsintobondedwarehousesfortheautomotiveindustry. • Fiscalizedbondedwarehouseforelaboration, transformationorassembly. • StrategicFiscalizedbondedwarehouse • Possibleplanstofininacethe VAT to IMMEX companies. Reformas fiscales

29. Affectingforeigntradetransactions • Sales toforeignerswithdeliverytothe maquila industryremains at 0% VAT rated. • VAT must be paid at importwhenissuingthe pedimento. In theevent of consolidated pedimentos VAT ispaidforeachbordercrossing. • VAT may be creditedupontheexport of temporaryimportedgoods. Ifnotcreditedbefore. • Sales of temporaryimportedinventoryamongforeignersorfrom a foreignertoan IMMEX company are nowtaxedwiththe VAT. • Also sales of goodswhilethey are in theStratigicFiscalizedBondedWarehouse are VAT taxednow. • No VAT withholdingwhenpurchasingfromdomesticsuppliers. Reformas fiscales

30. Affectingforeigntradetransactions • Whenswitchingfromtemporarytodefinitiveimport VAT isnotleviedunless no VAT waspaid at theimport. • Sametax base as theoneusedfordefinitiveimports. Reformas fiscales

31. Transitoryprovisions • A temporaryregimeisincludedforgoodsorservicesrendered in 2013 and paymentismadewithin ten days of 2014 to use thesamerates as 2013. Alsoapplicabletorents. • Theabovementioneddoesnotapplywhentransactions are madeamongrelatedparties. Reformas fiscales

32. CustomsLaw Reformasfiscales

33. General definitions • Secondcustomsinspectionis removed fromtheautomated selection mechanism definition and a new definition of recognition is now included. For now it is understood as all the provisions that tax and regulate goods entering or leaving the country • Definitions for electronic data transmission and Foreign Trade Single Window, such as electronic documents, digital document, pedimento and consolidated pedimento are added. Reformas fiscales

34. Substitutecustomsbrokers and in-housecustomsbrokers • Itisproposed: • It is compulsory now to carry out by individuals directly the clearance of goods without the intervention of a customs broker. The legal customs representative figure is included for cases in which the entities imported or exported without broker intervention. • The in-housecustomsbrokeris removed fromtheLawsinceimporters and exportersmay do directlywiththeelectronicsignature. • Incorporate a call to be eligible to obtain a patent broker, and would eliminate the broker figure substitute for it to be transferable • Set directly responsible for the payment of taxes and countervailing duties to customs agents in the case of internal transit of goods when they point out key name, address or tax ID number of whom has not requested the operation or when the data is false or nonexistent Reformas fiscales

35. “Paperless” customs • Itisproposed: • Standardize the management of electronic information as established in the Federal Tax Code and provide legal certainty and recognize the use of electronic means for the transmission, presentation and electronic storage of customs information by importers, exporters and custom agents. Reformas fiscales

36. Universal Pension Act and Unemployment Insurance Footer

37. Social security as a human right and not a Labor LawIt is proposed to rise to constitutional status to the right of the elderly to have a universal pension and the right of workers to have an unemployment insuranceby amending Article 123, Section A, Section XXIX and add articles 4. and 73 of the Mexican Constitution. This initiative is presented along with the respective regulatory laws: Universal Pension Law. Unemployment Insurance Law Additionally, amending, supplementing and repealing provisions of the following Laws: Social Security Law Retirement Savings Law Security and Social Services for State Workers Institute Law. Housing Fund for Workers Law and, Federal Labor Law Universal Pension Act and Unemployment Insurance Footer

38. A universal pension of $1.092 Pesos per month is established, and a procedure to update it annually for inflation, for those reaching the age of 65 with no pension and residing in Mexico, foreigners who have resided for at least 25 years in the same, are enrolled in the National Population Register and have a monthly income equal to or less than 15 minimum wages Establish a mandatory contribution paid by employers for unemployment insurance consisting of the equivalent of 3% of salaries paid aimed to unemployed workers who have had a formal employment relationship under the Labor Law and comply with the various requirements This new system does not represent an increase in labor costs and social dues to employers nor workers, since the universal pension will be 100% funded by the Federal Government from the following insurance reductions:Contributions to Infonavit from 5% to 2%Contributions to Fovissste from 5% to 2% Principal proposals Footer

39. Federal Tax Code ReformasFiscales 2014

40. Objective of the reform- Clarify the meaning of the tax provisions to facilitate understanding. Anti-elusive Clause - The tax authorities shall have the authority to determine a tax credit when they detect operations that do not have a business reason, and has evaded paying taxes. - Business Ratio = Profit or economic benefit other than avoidance, deferral or refund the payment made.Tax address - In some cases, tax address of the individual could be the one expressed to the financial institutions.Obligation to register for the RFC when a bank account is opened. General provisions Reformas Fiscales 2014

41. Measures against fraudsters taxpayers Effects are left for stamp certificates or digital signatures issued by fraudsters taxpayers. Tax Mailbox Creating an electronic communication system between authorities and taxpayers (only way to submit returns, revocation apeals, etc.). Electronically fiscalized Exercise of powers by tax mailbox. Electronic media Footer

42. Misuse of tax receiptsPublication of a list of taxpayers who abuse tax receipts. Operations shall be presumed never existed and their tax receipts will have no value. Surveillance over activities for those granting donationsSanctions are stated to those who seek to make deductions on donations improperly. Guarantors in the commission of crimesPower to the General Attorney judges and magistrates, to determine who is responsible for tax crimes default. Infractions and taxcrimes Footer

43. Tax advisers and brokers’ crimesAccounting and legal professionals and brokers (including auxiliaries) shall be criminally responsible for crimes committed by their advice if it involves a breach of tax obligations. Sanctions for corporations for criminal offensesThose found criminally responsible for an offense shall be punished in addition to fines, forfeiture, suspension and / prohibition of certain transactions depending on the severity of the crime. Crime by simulated actsIt is proposed to criminally punish those issuing, acquiring or disposing of tax receipts simulated legal acts. Crime equated smugglingFor appointing a person who has not requested the foreign trade operation or when they are false. Infractions and taxcrimes Reforma Fiscal 2014

44. New rules for a challengingenvironment 2014 Economicproyect September, 2013

45. Contactinformation: Héctor Silva hsilva@deloittemx.com 011 52 (664) 622 7840 Deloitte se refiere a Deloitte Touche Tohmatsu Limited, sociedad privada de responsabilidad limitada en el Reino Unido, y a su red de firmas miembro, cada una de ellas como una entidad legal única e independiente. Conozca en www.deloitte.com/mx/conozcanos la descripción detallada de la estructura legal de Deloitte Touche Tohmatsu Limited y sus firmas miembro. Deloitte presta servicios profesionales de auditoría, impuestos, consultoría y asesoría financiera, a clientes públicos y privados de diversas industrias. Con una red global de firmas miembro en más de 150 países, Deloitte brinda capacidades de clase mundial y servicio de alta calidad a sus clientes, aportando la experiencia necesaria para hacer frente a los retos más complejos de los negocios. Cuenta con alrededor de 200,000 profesionales, todos comprometidos a ser el modelo de excelencia. Tal y como se usa en este documento, “Deloitte” significa Galaz, Yamazaki, Ruiz Urquiza, S.C., la cual tiene el derecho legal exclusivo de involucrarse en, y limita sus negocios a, la prestación de servicios de auditoría, consultoría fiscal, asesoría financiera y otros servicios profesionales en México, bajo el nombre de “Deloitte”. Esta publicación sólo contiene información general y ni Deloitte Touche Tohmatsu Limited, ni sus firmas miembro, ni ninguna de sus respectivas afiliadas (en conjunto la “Red Deloitte”), presta asesoría o servicios por medio de esta publicación. Antes de tomar cualquier decisión o medida que pueda afectar sus finanzas o negocio, debe consultar a un asesor profesional calificado. Ninguna entidad de la Red Deloitte, será responsable de pérdidas que pudiera sufrir cualquier persona o entidad que consulte esta publicación.