St. Mary's Law Journal


Raul S. Moreyra


To prevent double taxation and income tax evasion, the Mexico and United States governments signed a convention in September 1992. The convention establishes when businesses may be subject to either United States or Mexico tax liabilities. Key to the application of the convention is the concept of permanent establishment. Permanent establishment is the designation given to a business situated in Mexico that transacts operations for a United States enterprise. This designation determines which nation, the United States or Mexico, will collect taxes from the business. If the business is a permanent establishment, the Mexican government will collect taxes. The types of operations alone are not the only factors in determining permanent establishment. The use or ownership of property in Mexico, insurance, inventory, and business associations are also undertakings which may trigger designation as a permanent establishment. In addition to businesses, the convention also delineates tax treatment of individuals as well. United States citizens, in specific circumstances, could be liable for Mexico income taxes for monies earned while working in Mexico. The convention identifies three broad categories applicable to individuals. Independent and dependent personal services, and director’s fees. Determining factors for tax treatment of individuals will depend on whether they are paid by a United States company designated as a permanent establishment in Mexico, whether an individual has worked 183 days or more in Mexico during a twelve month period, whether an independent contractor has a permanent place of business in Mexico, and if a U.S. citizen manages a business registered in Mexico. The convention requires staged implementation of the various parts of the agreement. The implementation schedule will commence after the latter of the two countries provides notification that statutory requirements have been satisfied allowing the convention to enter into force.


St. Mary's University School of Law