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.