The proposed Mexico tax reform for 2020 (‘Proposed Reform’) would bring significant changes that, if approved by October 31, would become effective January 1, 2020. This narrow window of time between legislation and effective date requires companies to understand the potential changes, monitor them, and be ready to comply beginning January 1. The Proposed Reform would impose a new limitation on interest expense deductibility, a provision that is similar to BEPS Action 4.
The computation of the interest expense limitation, if passed, must be done on an annual basis and included in the annual income tax return. Mexican companies should review their forecasted ATI, net interest expense, and comparison with thin capitalization rules to prepare for the potential impact of the proposed limitation on deductibility of interest expense.