Manuel Cervantes, Head of MCM Abogados, a firm of Mexican lawyers rendering integral legal services specialized in the development of oil & gas, energy and infrastructure projects, has kindly provided a courtesy note on the new tax regime for Pemex – President Peña Nieto’s proposal:
In general terms, pursuant to the proposal, there will be a contract between Pemex (the National Oil Company) and the Federal Government, in order to coordinate the allocation of earnings/taxes resulting from the E&P activity at hydrocarbons contractual areas. The new tax regime for Pemex would consider the following elements:
- A surface fee, applicable to those contractual areas that are not yet in the phase of production. This would be a sort of incentive, to motivate Pemex so that the development of the area is not delayed.
- Production royalty. A percentage, approximately of 10%, of the value of the production.
- Allocation of operations profits between Pemex and the Federal Government, pursuant to pre-established percentages, adjusted according to the accumulated profits. All the related E&P costs would be considered in order to calculate said profits (subject to a limitation per period of time), in order to regulate the speed for the amortization of investments.
- Income Tax. Pemex will pay corporate tax as any other company in Mexico.
- State Dividends. A mechanism to decide between paying dividends or reinvesting in Pemex from the net profits after tax. Minimum levels of state dividends per year are established. For instance, in the first year of effectiveness of the reform, 30% of annual state dividends would be considered applicable to the earnings resulting from profit sharing agreements. This minimum levels are reduced gradually down to zero in year 2026.
A gradual migration to the new tax scheme is established, becoming effective in year 2015. However, in the case of profit sharing contracts (if the energy reform is approved by Congress), the same may immediately consider the new tax regime in the calculation therein.