Energy, Mining and Infrastructure Mexico
August, 2014 Visit our site: www.bakermckenzie.com/mexico Visit our blog www.mexicoenergybrief.com Guadalajara Blvd. Puerta de Hierro 5090 Fracc. Puerta de Hierro 45110 Zapopan, Jalisco, Mexico Tel. +52 33 3848 5300 Fax +52 33 3848 5399 Juarez P.T. de la Republica 3304, Piso 1 32330 Juarez, Chihuahua, Mexico P.O. Box 9338 El Paso, TX 79995 Tel. +52 656 629 1300 Fax +52 656 629 1399 Mexico City Edificio Scotiabank Inverlat, Piso 12 Blvd. M. Avila Camacho 1 11009 Mexico, D.F., Mexico Tel. +52 55 5279 2900 Fax +52 55 5279 2999 Monterrey Oficinas en el Parque, Torre Baker & McKenzie - Piso 10 Blvd. Antonio L. Rodriguez 1884 Pte. 64650 Monterrey, Nuevo Leon, Mexico Tel. +52 81 8399 1300 Fax +52 81 8399 1399 Tijuana Blvd. Agua Caliente 10611, Piso 1 22420 Tijuana, B.C., Mexico P.O. Box 1205 Chula Vista, CA 91912 Tel +52 664 633 4300 Fax +52 664 633 4399
Mexico’s Energy Reform Amendments to the Federal Budget and Tax Responsibility Law Background On August 11, 2014 a Decree whereby several provisions of the Federal Budget and Tax Responsibility Law (the "Law") were amended, added and repealed, was published in the Federal Official Gazette. The Law has the purpose of regulating the programming, budgeting, approval, exercise, control and evaluation of federal revenues and expenditures, and the modifications made are part of the package of secondary legislation derived from the recent energy constitutional reform. The main purpose of the energy constitutional reform is the procurement of higher revenues for the Mexican Government, that contributes to the long term development, providing that such income shall be managed through the Mexican Oil Fund for Stabilization and Development (the "Mexican Oil Fund"). What the Law states The most important provisions contained in the Law are: Ordinary Transfers from the Mexican Oil Fund Ordinary transfers from the Mexican Oil Fund consist of the amounts to be sent to various destinations mentioned below. The amounts will be determined under an annual basis by multiplying the oil revenues approved in the Federal Income Tax Law, by the following factors:
Destination Factor Fund for the Stabilization of Budgetary Revenues (former Fund for the Stabilization of Oil Revenues ) 0.022 Fund for the Stabilization of Revenues from States 0.0064 i) Sectorial Fund CONACYT-Ministry of Energy- Hydrocarbons ii) Funds for scientific research and technological development of institutes performing research in connection with hydrocarbons; and iii) Sectorial Fund CONACYT-Ministry of Energy-Energy Sustainability1. 0.0065 Federal Treasury (to cover oil tax expenses from the Federal Superior Auditor) 0.000054 Fund for the Exploitation of Hydrocarbons 0.0087 Municipalities neighboring with the borders or the coast where the material exportation of hydrocarbons is made 0.00051 Extraordinary transfers from the Mexican Oil Fund Additionally, the Law includes the guidelines for the use of the remaining resources from Mexican Oil Fund, in accordance with the following: a. As long as at the start of the calendar year, the Mexican Oil Fund is higher than 3% of the Gross Domestic Product of the preceding year, the Law provides the following concepts and percentages allowed to allocate exceeding revenues of such reserve: i. 10% to the fund for the universal retirement system; ii. 10% for the financing of science investment projects, innovation and technologies and renewable energies;
1 The amounts transferred to the three destinations shall be jointly calculated. 65% of the total calculated amount shall be destined to the Sectorial Fund CONACYT-Ministry of Energy- Hydrocarbons, 15% shall be destined to the funds for scientific research and technological development in oil matters, and the remaining 20% shall be destined to the Sectorial Fund CONACYT-Ministry of Energy-Energy Sustainability.
iii. 30% to fund an investment vehicle specialized in oil projects. iv. 10% for scholarships for the formation of human capital in universities and post-graduate studies. The Law provides the mechanism and process to be followed to include in the Federal Expenditure Budget the remaining resources described above. The remaining 40% shall be kept as part of the Mexican Oil Fund Reserve patrimony. b. The Law also provides that when the financial returns generated by the long-term savings of the Mexican Oil Fund are equal to or higher than 10% of Gross Domestic Product for a specific prior year, actual annual financial returns will be transferred to the Federal Treasury. c. In the event there is a significant decrease in the public revenues by a fall of the Gross Domestic Product, for the reduction of hydrocarbon prices, or by a fall in oil production, Congress may approve the transfers of reserve resources from the Mexican Oil Fund to the Federal Treasury to cover the different concepts of the Federal Expenditure Budget, provided that the corresponding requirements are complied with. In addition to the above, other amendments to the Law were established. Among the most important amendments are the following: a. A special rule for budgetary autonomy to PEMEX (or any productive state company incorporated in the future) is included. b. It is foreseen that the normal and investments expenses of PEMEX or any productive state owned company will not be included within the expense limits and parameters provided in the Federal Expenditure Budget. c. In the event of remaining revenues according to the Federal Expenditure Budget, in addition to the previously existing rules, the amendment to the Law provides the following: i. It is foreseen that the percentage of the remaining revenues allocated to the Fund for the Stabilization of Budgetary Revenues shall be of 65% from the total remaining revenues (instead of the 40% previously existing), establishing a maximum limit for the accumulation of resources.
ii.In connection with the Fund for the Stabilizationof Revenues of the States, it is only amendedthe maximum limit for accumulation ofresources, which will be the amount resultingfrom multiplying by a factor of 0.04 the sum ofthe total taxes and transfers from the MexicanOil Fund.iii.Contributions from the remaining revenuesallocated to the Stabilization Fund for PEMEXInfrastructure Investment and the Support Fundfor Restructuring of Pensions are eliminated.d.Rules applicable to the operation of the Fund for theStabilization of Revenues of the States and the Fund for the Stabilization of Budgetary Revenues are included.e.It is provided that the Income Law initiative will providethe state dividends that the productive state companiesand their productive subsidiaries shall pay to theFederal Government as well as an estimation of therevenue generated by Energy Regulatory Commission,the Hydrocarbons National Commission and theNational Agency for the Industrial Safety andEnvironmental Protection of the Hydrocarbons Sectorderived from the contributions and benefits charged forthe rendering of their services.The transitory provisions of the Law include, among other aspects, that the provisions related with the operation of the Mexican Oil Fund will be effective as of January 1, 2015, and it also establishes that the amendments related with PEMEX’s regime will be effective when the new budgetary regime of for such entity is effective, in accordance with its corresponding new law. We will be happy to answer any questions with regard to the Law.ContactsBenjamin Torres Barron email@example.com Jorge Guadarrama Yañez firstname.lastname@example.org Luis Carbajo Martinezluis.email@example.com Carlos Alberto Linares-Garcia firstname.lastname@example.org
Hector Reyes Freaner email@example.com Jose M. Larroque firstname.lastname@example.org Federico Ruanova Guinea email@example.com Juan Carlos Valles Zavala firstname.lastname@example.org Eduardo Romero Ramos email@example.com Alejandro Sepulveda firstname.lastname@example.org Gaspar Gutierrez Centeno email@example.com Juan Bernardo Garcia Garza firstname.lastname@example.org Jorge L. Ruiz email@example.com Fabian Monsalve Agraz firstname.lastname@example.org Reynaldo Vizcarra Mendez email@example.com Edmundo Elias Fernandez firstname.lastname@example.org Manuel Padron Castillo email@example.com Adriana Ibarra Fernandez firstname.lastname@example.org Baker & McKenzie International is a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. Before you send e-mail to Baker & McKenzie, please be aware that your communications with us through this message will not create a lawyer-client relationship with us. Do not send us any information that you or anyone else considers to be confidential or secret unless we have first agreed to be your lawyers in that matter. Any information you send us before we agree to be your lawyers cannot be protected from disclosure.