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BEPS

Mexico Considers Tax on Digital Services

Jessica Silbering-Meyer  

Jessica Silbering-Meyer  

On September 6, 2018, Deputy Javier Salinas Narváez, a member of Mexico’s Parliamentary Group of the Party of the Democratic Revolution, submitted to the Chamber of Deputies a draft decree to tax digital services. See BEPS Action 1.

Under the draft decree, a 3% digital services tax (DST) would apply to both natural and legal persons resident in Mexico, as well as to foreign residents that have a permanent establishment (PE) in Mexico, on gross income obtained from the following activities:

  • Advertising in a digital interface directed to users.
  • Providing users with a multifaceted digital interface that allows them to locate and interact with other users, and that can facilitate the delivery of goods or services directly between users.
  • Transmission of collected data about users that is generated in digital interfaces.

The DST will not apply to the first 100 million pesos of income obtained by natural and legal persons resident in Mexico, as well as by foreign residents with a Mexican PE. It will also not apply to income from the provision of a digital interface, when the sole or main purpose of the entity is to provide digital content to users or to provide communication services or payment services; to the provision of financial services; or to the transmission of data by a financial services provider.

The draft decree, if approved, will enter into force one day after its publication in the Official Journal of the Federation.

EU Proposals

On March 21, 2018, the EU released two legislative proposals on taxing the digital economy. See the Commission’s press release. The first proposal aims to reform corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users through digital channels. A digital platform will be deemed to have a taxable ‘digital presence’ or a virtual PE in a member state if it fulfils one of the following criteria:

  • It exceeds a threshold of €7 million in annual revenues in a member state.
  • It has more than 100,000 users in a member state in a taxable year.
  • Over 3,000 business contracts for digital services are created between the company and business users in a taxable year.

The second proposal represents an interim tax on revenues from digital activities where users play a major role in value creation, such as (1) selling online advertising space; (2) digital intermediary activities, which allow users to interact with other users and which can facilitate the sale of goods and services between them; and (3) the sale of data generated from user-provided information.

Tax revenues would be collected by the member states where the users are located, and will only apply to companies with total annual worldwide revenues of €750 million and EU revenues of €50 million. An estimated €5 billion in revenues a year could be generated for member states if a 3% tax is applied.

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