You better watch out, you better not cry, better not pout, I'm telling you why:
After two years of negotiations between the governments of Mexico and the United States, an agreement between the Department of the Treasury and Mexico’s Ministry of Finance and Public Credit to improve international tax compliance including with respect to FATCA has been reached. In doing so, Mexico became the third country to sign such an agreement with the United States.
This means that, whether you are in the US or in Mexico, FATCA is coming to town.
The exchange of information for tax purposes was already in place pursuant to (a) the Convention on Mutual Administrative Assistance in Tax Matters, (b) Article 27 of the Convention between the Government of the United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, and (c) Article 4 of the Tax Information Exchange Agreement between the United States of America and the United Mexican States. However, the Foreign Account Tax Compliance Act (“FATCA”) introduced a new reporting regime for financial institutions with respect to certain financial accounts and products.
With this new intergovernmental agreement, the United States and Mexico are joining efforts to support the underlying policy goal of domestic legislation to improve tax compliance, coordinate the reporting obligations under their respective domestic laws, and avoid duplicative reporting, subject to certain confidentiality protections.
The information to be obtained and exchanged includes, in the case of Mexico, for each , of each Specified U.S. Person: the name, address, tax id number; account numbers; the average monthly account balance or value; the total gross amount of interest, dividends, and other income generated with respect to the assets held in the account; and the total gross proceeds from the sale or redemption of property paid or credited to the account during the calendar year or other appropriate reporting period with respect to which the Reporting Mexican Financial Institution acted as a custodian, broker, nominee, or otherwise as an agent for the Account Holder. It is important to note that a landholding trust (i.e., a fideicomisothe assets of which consist solely of real property), will be treated as deemed-compliant FFIs for purposes of section 1471 of the U.S. Internal Revenue Code.
In the case of the United States, with respect to each Mexican Reportable Account, the information to be obtained includes: the name, address, and Mexican TIN of any person that is a resident of Mexico and is an Account Holder of the account; the account number; and the gross amount of interest, dividends, and other U.S. source income paid or credited to the account, to the extent subject to reporting under Chapter 3 or 61 of Subtitle A of the U.S. Internal Revenue Code.
The full text of the Agreement is available here.
The immediate effect that this intergovernmental agreement will have is yet to be determined. However, people with foreign bank accounts should consult with their advisors as soon as possible to prevent unwanted consequences. What’s certain is that they will be making a list, and will be checking it twice; they are gonna find out who's naughty and nice ...
Mauricio Leon de la Barra is an international law attorney licensed to practice law in Mexico and California, and has more than 15 years of experience representing clients in cross-border business and real estate transactions and litigation involving international, U.S. and Mexican laws.