isda international swaps and derivatives association, inc. derivatives and risk management in mexico...
TRANSCRIPT
![Page 1: ISDA International Swaps and Derivatives Association, Inc. Derivatives and Risk Management in Mexico Tax Treatment of Derivatives José Carlos Silva](https://reader036.vdocuments.net/reader036/viewer/2022082518/5697bfd41a28abf838cacf3d/html5/thumbnails/1.jpg)
ISDAInternational Swaps and Derivatives Association, Inc.
Derivatives and Risk Management in Mexico
Tax Treatment of Derivatives
José Carlos Silva
![Page 2: ISDA International Swaps and Derivatives Association, Inc. Derivatives and Risk Management in Mexico Tax Treatment of Derivatives José Carlos Silva](https://reader036.vdocuments.net/reader036/viewer/2022082518/5697bfd41a28abf838cacf3d/html5/thumbnails/2.jpg)
Background
• Statutory definition of “derivatives”– Right or obligation to
• Buy or sell
• Pay or collect differences
– Sale of contractual rights
– Includes futures, options, “coberturas”, swaps
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Tax vs. Non-Tax Derivatives
• Tax – Underlying asset is publicly traded
– Referred to publicly known indicators
• Non-Tax – all other
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Debt vs. Equity
• Debt– Interest rates
– Notes
– CPI
• Equity– Other securities
– Commodities
– Currency
– Other indicators
Hybrid = debt
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Debt vs. Equity
• Debt – CPI Warrants under CNBV 10-157 rules
– Interest rate futures – 2019/95 BdeM
– CPI futures 10-231 & 2019/95 BdeM
• Equity– Coberturas, currency futures 2019/95
– Warrants
– Forwards
– MexDer transactions
• OTC – underlying asset rules
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Residents
• Cash settled– Gains are ordinary income
– Losses may be deducted
• Physically settled– Capital gains rules
• All amounts updated for inflation
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Residents
Tax effects• Equity
– At maturity or when cash differences are paid
– Exception: Currency derivatives – option to accrue December 31
• Debt– Accrual basis
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Non Residents
• Equity • Taxed in Mexico if underlying assets are shares
issued by a Mexican corporation AND counterparty is a resident
• 20% on gross income, or
• 40% on net profit (within 3 months)
• If physically settled, capital gain rules apply• Even if sold to non resident
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Non Residents
• Equity– Exempt if warrants on publicly traded Mexican shares
– Tax havens taxed at 40% on gross
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Non Residents
• Debt• Taxed if counterparty is a resident
• Rate depends on beneficial owner
– OR
• Physical delivery of notes issued by resident• 10%
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Non Residents
• Rate applied on cash leaving Mexico– Offset cash differences if possible
• Beneficial owner rates– Banks resident in treaty jurisdictions – 4.9%
• Mandatory registration
– Other registered banks – 10%
– Paid by Mexican banks – 21%
– Other cases – 40%
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Tax Treaties
• Broad treaty network• Article 11 may
– refer to interest “as defined in domestic legislation”
• Debt derivatives included
• E.g. USA
– Contain limited definition of interest
• Debt derivatives not included
• E.g. Netherlands, Switzerland
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ISDAInternational Swaps and Derivatives Association, Inc.
Derivatives and Risk Management in Mexico
Tax Treatment of Derivatives
José Carlos Silva