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Doing Business in Mexico 2015

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132 Tax and Legal Services - PwC Mexico Imported merchandise The cost of imported goods may be deducted (and included in the cost of goods sold) only if it can be shown that the goods were legally imported into the country Capital gains Securities Capital gains on the sale of shares and other securities are includable in regular taxable income. There are two different procedures for computing the tax basis of a Mexican company's shares, depending on the period the shares were held (i.e., less or more than twelve months). The cost basis purchase price of shares of Mexican corporations sold may be increased by the inflation adjustment factor for the holding period. In the case of shares with a holding period of more than twelve months, there are certain items to be considered when computing the tax basis of each share, including: In the case of shares with a holding period of more than twelve months, there are certain items to be considered when computing the tax basis of each share,including: • The change in the Mexican tax basis earnings and profits account known as the CUFIN account of the issuing corporation (including the possible negative CUFIN effects), adjusted for inflation during the period the shares were held (considering for this purpose the CUFIN balance); - The unutilized prior years' tax losses at the date of the sale, as well as tax losses arising prior to the date on which those shares were acquired and amortized during the holding period and; - Any capital reductions of the issuing company. Losses on the sale of shares are deductible only if the acquisition and sale comply with the general rules established by the tax authorities. The deductible amount is limited to the gains from similar transactions in the same or the following five fiscal years. Losses may not be deducted by non-residents selling shares, and these losses are not deductible against ordinary income. Certain exceptions to the capital loss recognition rules may apply. • Non-resident sellers of Mexican shares In general terms, the sale by non-residents of shares issued by a Mexican company is subject to a 25% income tax applicable on the gross amount of the transaction. Alternatively, gains realized by non-residents on the sale of shares issued by a Mexican company may be taxed by applying the statutory 35% rate applied to the net gain (i.e., value of the transfer less the tax basis of the shares). This election is only available if the foreign shareholder is a resident of a country that is not considered to qualify as a "preferred tax regime jurisdiction"1 (tax haven) or a country with a territorial tax system. The selling resident abroad must have previously appointed a representative in Mexico and have a public accountant issue a statutory tax audit report on the transfer of shares. The public accountant issuing the respective report must specify the accounting value of the shares sold, and explain the factors used in determining the sales price and the market value of the shares, when shares are sold between related parties.

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