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Viewing cable 07MEXICO3859, U.S. FIRMS REACT TO MEXICAN FISCAL REFORM PLAN

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Reference ID Created Released Classification Origin
07MEXICO3859 2007-07-20 20:47 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Mexico
VZCZCXRO8673
PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
DE RUEHME #3859/01 2012047
ZNR UUUUU ZZH
P 202047Z JUL 07
FM AMEMBASSY MEXICO
TO RUEHC/SECSTATE WASHDC PRIORITY 8093
INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
RHEHNSC/NSC WASHDC
RHMFIUU/CDR USSOUTHCOM MIAMI FL
RHMFIUU/CDR USNORTHCOM
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 02 MEXICO 003859 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR A/S SHANNON 
STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, AND DRL/AWH 
USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD 
TREASURY FOR IA (ALICE FAIBISHENKO) 
DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH AND ALOCKWOOD 
NSC FOR RICHARD MILES, DAN FISK 
STATE PASS TO USTR (EISSENSTAT/MELLE) 
STATE PASS TO FEDERAL RESERVE (CARLOS ARTETA) 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN PINR PGOV MX
SUBJECT: U.S. FIRMS REACT TO MEXICAN FISCAL REFORM PLAN 
 
REF: MEXICO 3246 
 
Sensitive but unclassified, entire text. 
 
Summary 
------- 
 
1.  (SBU) While American Chamber of Commerce in Mexico 
(AmCham) member firms object to many portions of the Calderon 
Administration's fiscal reform plan, they have given their 
qualified support to the proposal.   The draft law would set 
up a minimum business tax in an attempt to plug the numerous 
loopholes companies use to reduce their tax payments 
(reftel).  The AmCham member firms noted that proposed 
additional taxes would potentially not be deductible from 
U.S. taxes under the U.S.-Mexico Tax Treaty; hurt labor 
intensive firms, harming employment; and limit a firm's 
ability to shelter income.  Nonetheless, because of the 
political momentum behind the reform, as well as its 
significance, AmCham leadership cautioned U.S. firms against 
rejecting the tax outright. 
 
Reform May Disadvantage American Companies. . . 
--------------------------------------------- -- 
 
2.  (SBU) U.S. companies in Mexico expressed their concern 
over the Calderon administration's plan for fiscal reform 
through the AmCham's participation in a Chamber of Deputies 
(lower house) Competitiveness Committee hearing.  The AmCham 
will also be meeting with Finance Secretariat (Hacienda) 
officials, and they are seeking a meeting with Finance 
Secretary Carstens to share their views.  While the reform 
 
SIPDIS 
will raise the tax bill for many companies operating in 
Mexico, AmCham executives believe passage of the proposal is 
both necessary and politically inevitable, thus, they have 
chosen to urge modification, rather than to reject the bill. 
 
 
3.  (SBU) Of greatest concern, U.S. firms may not be able to 
credit taxes paid under the reform's proposed "Single Rate 
Business Tax" (CETU) toward their U.S. tax bill because the 
tax is not structured like a U.S. income tax.  This could put 
U.S. firms in Mexico under a significant disadvantage. 
Businesses have said that the failure to achieve 
creditability of this tax would have a negative impact on 
investment and employment, as it would be more expensive to 
operate in Mexico. 
 
4.  (SBU) AmCham representatives also told the Committee 
that, despite Hacienda's claims to the contrary, the CETU 
will cost jobs in the maquila sector, specifically among 
firms with large labor inputs, because neither the cost of 
labor nor the cost of maquila manufacturing inputs would be 
deducible under the CETU regime.  In his testimony, the 
AmCham representative told the congress this could send 
operations to other countries in Central America and the 
Caribbean. 
 
5.  (SBU) The AmCham analysis also raised concerns over the 
lack of any transition between the current system and the 
CETU regime and suggested that the CETU rate be dropped to 
12% from 19%.  The CETU applies to all businesses under a 
parent equally, keeping companies from using losses at one 
business unit to offset earnings in another.  Additionally, 
under the CETU, businesses would not be able to "carry 
forward" losses to offset gains in future years. 
 
6.  (SBU) Turning to a second aspect of the Calderon 
proposal, a plan to levy a 2% tax on monthly cash bank 
deposits over about USD  2000 in an attempt to tax the 
informal economy, the AmCham called for the proposal to be 
limited to individuals.  AmCham member analysis also 
suggested the new draft rules favor the taxing authority 
rather than the taxpayer as do current Mexican tax rules. 
 
 
MEXICO 00003859  002 OF 002 
 
 
. . . But the Plusses Still Outweigh the Minuses 
--------------------------------------------- --- 
 
7.  (SBU) Despite the AmCham's concerns over the provisions 
of the reform, AmCham leadership suggested to its member 
firms that the organization "tread lightly" with its 
differences on the fiscal reform package.  Substantively and 
on the positive side, the AmCham believes that legislation 
would increase accountability of all taxpayers.  They also 
applauded its multi-year budgeting proposals which would do 
away with paralyzing annual fall debates over the Mexican 
budget.  The AmCham President also noted the importance of 
this proposal to President Calderon, making the business 
community's ability to change it less likely. 
 
 
Visit Mexico City's Classified Web Site at 
http://www.state.sgov.gov/p/wha/mexicocity and the North American 
 Partnership Blog at http://www.intelink.gov/communities/state/nap / 
BASSETT