On 31 October 2013, the Mexican Congress approved the fiscal reform proposed by the executive branch, which includes, the Federal Rights Law (Ley Federal de Derechos) (the “Federal Rights Law” or the “Law”). The tax reform came into force 1 January 2014, and the Federal Rights Law includes three new fees that affect companies with mining activities in Mexico:
Special mining fee: 7.5% rate calculated on the difference resulting from subtracting any authorized deductions from the taxable income resulting from the transfer or sale of the mining activity.
Additional mining fee: Non-exploitation of a mining concession for two consecutive years, within the first 11 years in which the concession was granted or after the twelfth year concession, will result in an additional fee. The fee is calculated based on the number of hectares granted under concession.
Extraordinary mining fee: 0.5% rate calculated on the income derived from the sale of gold, silver and platinum.
What you need to make sure you know
Over the past few months, many of us have received bulletins and newsletters from accountants and law firms advising as to the potential adverse effects of the Law on mining companies operating in Mexico, how the Law may breach several constitutional rights and how the Law may be challenged through a legal recourse called “Amparo” that provides a remedy for the protection of constitutional rights.
We understand that there may be operational and re-organizational measures which may be able to reduce the adverse impact of the Law but suspect that many risk adverse companies affected by this legislation may wish to better understand how an Amparo works.
An Amparo challenge involves its own difficulties and procedural considerations. In conversation on the topic with a number of regarded Mexican counsel, we have ascertained several crucial points that may not be known by a North American reader and that are worth knowing.
Effects of an Amparo: In general the ruling stemming from an Amparo has erga omnes effect and would apply to all affected parties if a law is deemed unconstitutional. However, tax matters are an exception and, in order to benefit from the effects of the ruling, each company or individual need to submit their own Amparo.
Joint Amparo: It is possible for more than one party to join the same action. Related parties (parent corporations, holdings), as opposed to unrelated parties, are more inclined to present a collective challenge by way of an Amparo. However, it is unusual that unrelated parties present a collective Amparo as this presents confidentiality concerns regarding the information used during the proceedings.
Withdrawal: An Amparo can always be withdrawn.
Appeal: An unfavourable decision taken by the District Judge in respect of an Amparo may be appealed within the ten days after a decision has been notified by submitting a Revision Recourse (Recurso de Revisión) that will be finally decided by the higher courts.
Timing: Mexican counsel we have spoken to expect Amparos to be filed by both foreign and national investors in mining and other industries affected by the Law. However, the procedural deadlines for filing an Amparo need to be closely analyzed given that there are two different deadlines and both carry certain uncertainties that will be finally settled by the courts when the Amparos are ruled upon.
As a general rule, if a law will cause a detriment with its entry into force and no further action or condition is required, then it is autoaplicativa and an Amparo must be presented within 30 business days after the law enters into force. In this case, the deadline is February 13, 2014.
However, if a law causes a detriment only when one of its measures become applicable to the company or individual, then it is heteroaplicativa and the deadline for filing of an Amparo in such case will depend on the particulars of the measure that is being challenged.
Mexican lawyers have divided opinions with respect to the nature (autoaplicativa or heteroaplicativa) of the Law with respect to the various fees, which in turn varies the advice given with respect to the applicable procedural deadline to present an Amparo.
Advice that will take the above considerations into account will vary depending on the type of mining company, the minerals it exploits and the business of its structure. All cases need to be analyzed on a case to case basis taking into account the risks and benefits of presenting an Amparo against the new fees created in the Law.