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“HIGHLIGHTS BEFORE FILING THE MEXICAN ANNUAL TAX RETURN” Héctor Silva

“HIGHLIGHTS BEFORE FILING THE MEXICAN ANNUAL TAX RETURN” Héctor Silva. Meeting - Breakfast March 17, 2010. COMPUTATION OF S. H. AND TAX CREDIT. Computation of SH and tax credit requires the following information from the US . - Machinery of equipment.- Value and acquisition date.

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“HIGHLIGHTS BEFORE FILING THE MEXICAN ANNUAL TAX RETURN” Héctor Silva

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  1. “HIGHLIGHTS BEFORE FILING THE MEXICAN ANNUAL TAX RETURN”Héctor Silva Meeting - Breakfast March 17, 2010

  2. COMPUTATION OF S. H. AND TAX CREDIT Computation of SH and tax credit requires the following information from the US. - Machinery of equipment.- Value and acquisition date. • Inventory.- Monthly balances of inventories kept in México. 2

  3. S. H. NOTIFICATION • File a notice with the Mexico City tax authorities. • Pending to confirm if the electronic return is going to be mandatory; this will include companies electing the transfer pricing option. 3

  4. INFORMATION FOR IMPORT/EXPORT OPERATIONS • Since 2008 this information is requested in the annual tax return. Necessary to obtain official customs database ("glosa" from SAT) to compare with own records. • 2009 is not mandatory to report in the annual tax return. • 2009 is mandatory for those filing an tax audit report. 4

  5. OFFSETTING OF INCOME TAX VS. FLAT TAX • During the year estimated income tax payments can be credited against monthly Flat Tax. • At year end, estimated income tax payment is offset (compensation) vs. Flat Tax. • Compensation notice must be filed within 5-18 days (upon the letter of the tax ID number). 5

  6. INTERCOMPANY ACCOUNT BALANCE Intercompay balances in excess of a reasonable period 80-100 day may impact tax calculations. A/P.- More likely, will require a transfer pricing adjustment to report a reasonable mark up. Thin capitalization, when intercompany debt exceeds 3/1 equity, exchange losses, that are deemed as interest, may be limited for deduction. A/R.- May require a transfer pricing adjustment. May be considered as a deemed dividend for US tax purposes (956 IRS tax code). 5

  7. Héctor Silva hsilva@deloittemx.com +52 (664) 622 7840

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