Manuel Tamez
Tax Partner
Mijares, Angoitia, Cortes y Fuentes

Strategies to Ease PEMEX’s Fiscal Burden

Wed, 01/22/2014 - 15:22

Prior to the Energy Reform, fiscal revenues from PEMEX alone amounted to almost 35% of the federal budget. The Energy Reform was partly meant to relieve the company from this major fiscal burden. To cover the gap that the opening of the market will leave in the government’s tax revenue from PEMEX, Manuel Tamez Zendejas, Tax Partner of Mijares, Angoitia, Cortes y Fuentes, suggests that the government should increase its revenues through diversification of the tax base. “Instead of having the government taxing itself and sending money from one pocket to another, the private operators that will enter the market should share some of the fiscal burden and be taxed. They will share risks, make a profit, and pay royalties and taxes afterwards.” Planning a sound fiscal strategy, however, will be needed to alleviate PEMEX from the tax burden without losing the income the government was receiving before the Energy Reform. Tamez Zendejas, further expands on this idea by suggesting an indirect tax, such as VAT, on the sale of petroleum, which could provide a considerable source of additional revenue. “Two-thirds of the government’s revenue comes from PEMEX and income tax, while the rest relies on other taxes. There has to be a balance with other sources of revenue,” comments Tamez Zendejas.

“There is an evident disconnection between how the government wants PEMEX to work, contracting services from third parties, and the tax regime intended for foreign investors,” says Tamez Zendejas. “Usually, international companies that are working with PEMEX set up branches in Mexico although they do not have a physical corporate presence. By operating through branches, foreign companies might simplify their operations in Mexico, but make it rather difficult to establish a correct tax regime for them. I see a significant discrepancy between the way PEMEX wants to work with foreign service providers and the domestic tax regulation. At the firm, we have seen fiscal authorities actively going after these branches on a daily basis for issues such as non-deductibility and depreciation of oil rigs, or double charging them for import and customs duties.” It is imperative to create a simplified and secure climate for foreign companies in order to ease their way into the Mexican oil and gas market. Tamez Zendejas believes this easing of conditions will hopefully stem from the implementation of the 2013 Energy Reform and the new contracting regimes attached to it. Afterwards, the government could take full advantage of taxing opportunities in an industry that is attractive to foreign capital.