The Double Taxation Relief (Taxes on Income) (Mexico) Order 1994

Made: 14th December 1994

At the Court at Buckingham Palace, the 14th day of December 1994 Present, The Queen’s Most Excellent Majesty in Council

Now, therefore, Her Majesty, in exercise of the powers conferred upon Her by section 788 of the said Act, and of all other powers enabling Her in that behalf, is pleased, by and with the advice of Her Privy Council, to order, and it is hereby ordered, as follows:—

1

This Order may be cited as the Double Taxation Relief (Taxes on Income) (Mexico) Order 1994.

2

It is hereby declared—

• (a) that the arrangements specified in the Convention set out in Part I of the Schedule to this Order and in the Exchange of Notes constituting an Agreement set out in Part II of that Schedule have been made with the Government of the United Mexican States with a view to affording relief from double taxation in relation to income tax, corporation tax or capital gains tax and taxes of a similar character imposed by the laws of Mexico;

• (b) that those arrangements include provisions with respect to the exchange of information necessary for carrying out the domestic laws of the United Kingdom and the laws of Mexico concerning taxes covered by the arrangements including, in particular, provisions about the prevention of fiscal evasion with respect to those taxes; and

• (c) that it is expedient that those arrangements should have effect.

SCHEDULE

PART I — CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND 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 CAPITAL GAINS

The Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the United Mexican States;

Desiring to conclude a new Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains;

Have agreed as follows:

ARTICLE 1 — Personal scope

This Convention shall apply to persons who are residents of one or both of the Contracting States.

ARTICLE 2 — Taxes covered

ARTICLE 3 — General definitions

ARTICLE 4 — Residence

ARTICLE 5 — Permanent establishment

ARTICLE 6 — Income from immovable property

ARTICLE 7 — Business profits

ARTICLE 8 — Shipping and air transport

• (1) Profits derived by a resident of a Contracting State from the operation of ships or aircraft in international traffic shall be taxable only in that State.

• (2) For the purposes of this Article, profits from the operation of ships and aircraft in international traffic include:

• (a) income from the rental on a bareboat basis of ships and aircraft; and

• (b) profits from the use, demurrage or rental of containers (including trailers and related equipment for the transport of containers) used for the transport of goods or merchandise;

where the rental, use, or demurrage referred to in subparagraphs (a) and (b) as the case may be is incidental to the operation of ships or aircraft in international traffic but do not include profits from:

• (i) any direct delivery of goods or merchandise to a consignee by inland surface transport;

• (ii) the inland surface transport of individuals; or

• (iii) the provision of accommodation.

• (3) Where the profits within paragraph (1) or (2) of this Article are derived by a resident of a Contracting State from participation ina pool, a joint business or an international operating agency, the profits attributable to that resident shall be taxable only in the Contracting State of which he is a resident.

ARTICLE 9 — Associated enterprises

• (1) Where:

• (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or

• (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to one of the enterprises may be included by a Contracting State in the profits of that enterprise and taxed accordingly.

• (2) Where a Contracting State includes in the profits of an enterprise of that State and taxes accordingly—profits on which an enterprise of the other Contracting State has been charged to tax in that other State and the profits so included are profits which would have accrued to the enterprise of the first-mentioned State if the conditions made between the two enterprises had been those which would have been made between independent enterprises, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such an adjustment, due regard shall be had to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other.

• (3) A Contracting State shall not adjust the income or profits of a person in the circumstances referred to in paragraph (1) after the expiry of the time limits provided in its national laws.

• (4) The provisions of paragraphs (2) and (3) shall not apply in the case of fraudulent or negligent conduct.

ARTICLE 10 — Dividends

ARTICLE 11 — Interest

ARTICLE 12 — Royalties

ARTICLE 13 — Capital gains

• (1) Gains derived by a resident of a Contracting State from the alienation of immovable property referred to in Article 6 of this Convention and situated in the other Contracting State may be taxed in that other State.

• (2) Gains derived by a resident of a Contracting State from the alienation of:

• (a) shares deriving their value or the greater part of their value directly or indirectly from immovable property situated in the other Contracting State, or

• (b) an interest in a partnership or under a trust the assets of which consist principally of immovable property situated in the other Contracting State, or of shares referred to in sub-paragraph (a) above,

may be taxed in that other State.

• (3) Gains from the alienation of movable property forming part of the business property of the permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such fixed base, may be taxed in that other State.

• (4) Gains from the alienation of ships or aircraft operated in international traffic by an enterprise of a Contracting State or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in the Contracting State in which the enterprise operating the ships or aircraft is resident.

• (5) Gains from the alienation of the property or rights referred to in Article 12 of this Convention shall be taxable only in accordance with the provisions of that Article.

• (6) In addition to gains taxable in accordance with the provisions of the preceding paragraphs of this Article, gains derived by a resident of a Contracting State from the alienation of stock, participation, or other rights in the capital of a company which is a resident of the other Contracting State may be taxed in that other State if the recipient of the gain, during the twelve month period preceding such alienation, had a participation, directly or indirectly, of at least 25 per cent in the capital of that company.

• (7) Gains from the alienation of any property other than that referred to in the preceding paragraphs of this Article shall be taxable only in the Contracting State of which the alienator is a resident.

• (8) The provisions of paragraph (7) of this Article shall not affect the right of a Contracting State to levy according to its law a tax on capital gains from the alienation of any property derived by an individual who is resident of the other Contracting State and has been a resident of the first-mentioned Contracting State at any time during the five years immediately preceding the alienation of the property.

ARTICLE 14 — Independent personal services

ARTICLE 15 — Dependent personal services

ARTICLE 16 — Directors' fees

Directors' fees and other similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors or supervisory board or, in the case of Mexico, in his capacity as administrator (administrador) or statutory supervisor (comisario) of a company which is a resident of that other Contracting State may be taxed in that other State.

ARTICLE 17 — Artistes and sportsmen

ARTICLE 18 — Pensions

ARTICLE 19 — Government service

ARTICLE 20 — Students

Payments which a student or business apprentice who is or was immediately before visiting a Contracting State a resident of the other Contracting State and who is present in the first-mentioned State solely for the purpose of his education or training receives for the purpose of his maintenance, education or training shall not be taxed in that first-mentioned State, provided that such payments arise from sources outside that State.

ARTICLE 21 — Other income

ARTICLE 22 — Elimination of double taxation

ARTICLE 23 — Partnerships

Where under any provision of this Convention a partnership is entitled, as a resident of a Contracting State, to exemption from tax or is not subject to tax in the other Contracting State on any income or capital gains, that provision shall not be construed as restricting the right of that other Contracting State to tax any member of the partnership who is a resident of that other Contracting State on his share of such income or capital gains; but any such income or gains shall be treated for the purposes of Article 22 of this Convention as income or gains from sources in the first mentioned Contracting State.

ARTICLE 24 — Limitation of relief

ARTICLE 25 — Non-discrimination

ARTICLE 26 — Mutual agreement procedure

ARTICLE 27 — Exchange of information

ARTICLE 28 — Members of diplomatic or permanent missions and consular posts

Nothing in this Convention shall affect any fiscal privileges accorded to members of diplomatic or permanent missions or consular posts under the general rules of international law or under the provisions of special agreements.

ARTICLE 29 — Entry into force

Each of the Contracting States shall notify to the other through the diplomatic channel the completion of the procedures required by its law for the bringing into force of this Convention. This Convention shall enter into force on the date of the later of these notifications and shall thereupon have effect:

• (a) in Mexico:

in respect of income tax, on or after 6th April 1994;

• (b) in the United Kingdom:

• (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April 1994;

• (ii) in respect of corporation tax, for any financial year beginning on or after 1st April 1994.

ARTICLE 30 — Termination

This Convention shall remain in force until terminated by one of the Contracting States. Either Contracting State may terminate the Convention, through the diplomatic channel, by giving notice of termination at least six months before the end of any calendar year beginning after the expiry of five years from the date of entry into force of the Convention. In such event, this Convention shall cease to have effect:

• (a) in Mexico:

in respect of income tax, on or after 1st April in the calendar year next following that in which the notice is given;

• (b) in the United Kingdom:

• (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which the notice is given;

• (ii) in respect of corporation tax, for any financial year beginning on or after 1st April in the calendar year next following that in which the notice is given.

PART II — EXCHANGE OF NOTES

Excellency

Mexico City

2nd June 1994

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland 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 Capital Gains which is being signed today and to make on behalf of the Government of the United Mexican States the following proposal:

• Article 26(5)

After a period of three years following the entry into force of the Convention, the competent authorities shall consult in order to determine whether it is appropriate to make the exchange of diplomatic notes referred to in paragraph (5) of Article 26 of the Convention.

If the following proposal is acceptable to the Government of the United Kingdom of Great Britain and Northern Ireland I have the honour to suggest that the present Note and Your Excellency’s reply to that effect shall be regarded as constituting an agreement between the two Governments in this matter which will enter into force at the same time as the entry into force of the Convention.

Excellency

Mexico City

2nd June 1994

I am in receipt of your note dated 2nd June 1994 which states as follows:

I have the honour to refer to the Convention between the Government of the United Kingdom of Great Britain and Northern Ireland 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 Capital Gains which is being signed today and to make on behalf of the Government of the United Mexican States the following proposal: - Article 26(5) After a period of three years following the entry into force of the Convention, the competent authorities shall consult in order to determine whether it is appropriate to make the exchange of diplomatic notes referred to in paragraph (5) of Article 26 of the Convention. If the following proposal is acceptable to the Government of the United Kingdom of Great Britain and Northern Ireland I have the honour to suggest that the present Note and Your Excellency’s reply to that effect shall be regarded as constituting an agreement between the two Governments in this matter which will enter into force at the same time as the entry into force of the Convention.

The foregoing proposal being acceptable to the Government of the United Kingdom of Great Britain and Northern Ireland, I have the honour to confirm that Your Excellency’s Note and this reply shall be regarded as constituting an agreement between the two Governments in this matter which shall enter into force at the same time as the entry into force of the Convention.

Signed

R. P. Bulling — Deputy Clerk of the Privy Council

Explanatory note

(This note is not part of the Order)

The Convention with Mexico is set out in the Schedule to this Order.

The Convention provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property, including income from agriculture or forestry, may be taxed in the country in which the property is situated (Article 6).

Shipping and air transport profits are generally to be taxed only in the residence state of the operator (Article 8).

The Convention includes rules for determining taxable profits when a company in one country is related to a company in the other (Article 9).

Dividends paid by a resident of one state to a resident of the other are generally taxable only in the recipient’s country (Article 10).

Depending on the nature of the interest flow concerned, after a transitional period of three years, the rate of tax imposed in the country of source on interest derived by a resident of the other country is not to exceed 5 per cent, 10 per cent or 15 per cent respectively of the gross amount flowing to the other country. Certain categories of interest (e. g. interest paid to the Government of the other country) will be exempt from tax in the source state (Article 11).

The rate of tax imposed in the source country on royalties is limited to 10 per cent where the beneficial owner is a resident of the other country (Article 12).

Each country may generally tax capital gains in accordance with its domestic law, although gains from the alienation of ships or aircraft operated in international traffic shall be taxable only in the country of residence of the operator (Article 13).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, to be taxed only in the country of the taxpayer’s residence (Articles 14 and 15). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in that other country (Article 16). Income derived from the activities of artistes and sportsmen may be taxed in the country in which those activities are performed (Article 17).

Occupational pensions, other than those paid in respect of Government Service, and annuities are to be taxed only in the recipient’s country of residence (Article 18) while Government Service remuneration and pensions are normally to be taxed only by the paying Government (Article 19).

Certain payments made to visiting students and business apprentices are generally exempt from tax in the country visited (Article 20). Other income (excluding income from trusts or estates) will generally be taxed only by the country of which the beneficial owner is a resident (Article 21).

Where income continues to be taxable in both countries, credit will be given in the taxpayer’s country of residence for tax imposed by the other country. The credit to be given in the United Kingdom for tax imposed in Mexico includes credit for tax spared under certain provisions of Mexican law. In the case of dividends, the United Kingdom will give credit for the underlying tax paid in Mexico where the shareholder is a United Kingdom company which controls at least 10 per cent of the voting power in the company paying the dividends (Article 22).

There are provisions whereby the United Kingdom ensures that it retains its right to tax a United Kingdom resident member of a Mexican resident partnership (Article 23) and which limit the relief available in certain circumstances (Article 24).

There are also measures safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 25), for consultation to resolve difficulties in the application or interpretation of the Convention (Article 26), for exchanges of information between the taxation authorities of the two countries (Article 27) and for the treatment of diplomatic or consular officials (Article 28).

The Convention will enter into force on the date of the later of the notifications by each country of the completion of its legislative procedures. It will take effect in the United Kingdom from 1st April 1994 in respect of corporation tax and from 6th April 1994 for income tax and capital gains tax. The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.

Footnotes

[^f00001]: 1988 c. 1; section 788 is extended by section 277 of the Taxation of Chargeable Gains Act 1992 (c. 12).