In the framework of the Repatriation Program announced last January, certain advisors have been promoting a solution under which a client could comply with the requirement to invest repatriated funds into eligible Mexican assets while still keeping the funds in custody abroad. The solution consisted in investing the repatriated funds into a Mexican holding company, arguing the subsequent investments of such monies by the company do not need to comply with the investment requirements set forth by the Program.
 
The Mexican Tax Authorities confirmed in a Q&A published in their website in June 2017 that when individuals who repatriate funds invest these in shares of Mexican entities, the latter did not need to comply with the requirement to invest those funds in Mexican financial instruments or shares, or more generally in eligible assets under the Program. This led some to believe the solution described above was validated.
 
However, the Mexican Tax Authorities have recently released an amendment to Annex III of the Miscellaneous Tax Resolution of 2017 in which they clarify the above-described solution would be considered an undue tax practice if the client directly or indirectly controls the Mexican entity (e.g. controls when dividends are to be distributed). They further specify that anyone advising, suggesting or assisting in the implementation of this solution would incur in an undue tax practice.
 
In conclusion, those benefiting from the Repatriation Program should keep in mind the spirit of the Program, whose main objective is that funds held abroad are repatriated to Mexico and maintained there for at least 2 years. In this sense, only strong solutions which comply with the requirements of the Repatriation Program should be advised to clients. Some of these solutions still allow international banks to keep custody and management of the assets while the client is certain he/she complies with all conditions under the Program.

By Pablo Peciña