Doing Business

Doing Business in Mexico 2015

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137 Doing Business in Mexico 2015 Association in Participation ("Asociación de Participación", "A de P") Associations in Participation are not separate legal entities. Legally, all the activities of the Association in Participation are conducted in the name of the active partner. Nevertheless, the Association in Participation is treated as a separate regular corporation for tax purposes, even though the active partner must pay the tax and comply with the Association's tax obligations. The active partner does not combine the taxable income or loss of the Association in Participation with its other taxable income or losses. Distributions received by passive partners from the Association in Participation are taxed as dividends. The Association in Participation should record its own CUFIN, profit distributions are subject to the treatment applicable to dividends, and when the Association in Participation agreement is cancelled or terminated, the capital reduction rules apply. Contributions of non-cash assets to the capital of corporations are treated for tax purposes as sold at fair market value by the shareholders. However, goods contributed to an Association in Participation by the active and passive partners are considered to be sold to the joint venture at a value equivalent to the restated net adjusted tax basis of the investment. Depreciation may only applied on assets which have been contributed to the Association in Participation. Nontaxable income The relatively few types of corporate income that are not subject to income tax include the following: • Dividend income from Mexican resident corporations.Proceeds from stock redemptions associated with investments in shares of Mexican corporations. However, the redeeming corporation is subject to tax in certain cases. • Income from certain investments made by foreign funded pension plans whenever the funds are exempt from taxes in their home country, and these funds are registered. • Capital contributions or repayment by shareholders of losses sustained by a corporation. • Premiums charged upon the issuance of new shares. • Income recognized for financial purposes by using the equity method for valuing shares of investee corporations. • Income recognized for financial purposes as a result of revaluing assets or capital to recognize the effects of inflation. 15

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