64. The Mexican Income-Tax Law requires that all taxpayers, except those included in Schedule 6 (recipients of salaries, etc.), keep books of account prescribed by the Regulations (Article 33). The Regulations state that persons engaged in commerce and industry must keep the books of account prescribed in the Commercial Code when their working capital (capital en giro) exceeds 5,000 pesos, and only a book of items of income and expense when the capital is less. The books required by the Commercial Code (Article 33) are the following: the day-book or journal (libro general de diario); the ledger (libro mayor); the book of inventories and balances (libro de inventarios y balances); and companies with share capital must keep books of company acts (libro de actos) — for example, decisions of directors and of general meetings of shareholders.

65. Persons engaged in agriculture must keep the same books when their working capital exceeds 10,000 pesos, after deducting the cadastral value of the real property destined for use in the exploitation; if the capital is less, they must keep a book of items of income and expense. Taxpayers included in the fourth and fifth schedules (creditors and participants in concessions), receiving items of income in excess of 2,000 pesos annually, must maintain at least a book of income and expenditure. Persons included in Schedule 7 (professions) must in any event keep a book showing items of income and expense (Reg., Article 13).

66. The above-mentioned books must be legalised by the Tax Collector’s office (Oficina receptora) of the district in which the taxpayer is situated. The taxpayers who are required to keep the books of account prescribed by the Commercial Code must make in them the respective entries (asientos) within sixty days following the date of the transaction, and must always refer to said date. Those who are required to keep a book of income and expenditure may make the entries within thirty days following that on which the transaction was completed. Taxpayers deriving income from the production, transformation or sale of raw materials extracted from immovable property (inmuebles materias primas), merchandise, natural products, live-stock (semovientes) and fruits must make an annual inventory of the stocks maintained (Reg., Article 15). The inventory must state in detail the separate stocks of goods and their cost. For manufactured products, the cost includes the amount paid for raw materials and for labour. For merchandise, the cost is the net price of acquisition plus freight, transportation, insurance and the necessary expenditures of agents and commission agents and Customs and consular duties. For fruits and natural products or live-stock, the preceding rule applies if the taxpayer acquires them from third parties; if the taxpayer produces them himself, they will be valued at the price prevailing in the region for wholesale (al mayoreo) and cash transactions in such products.

67. If a taxpayer acquires different shipments of a raw material without being able to determine separately the cost of each shipment, he will divide the total cost between them according to his ordinary practice, allotting to each the corresponding part of the total cost (Reg., Article 19). If the taxpayer lists in his inventory a lot of merchandise or articles of the same class that he has acquired or produced at different prices and in different parcels, the cost will be the average price of the different acquisitions.

68. Instalment sales are subject to special requirements. By instalment sale (venta en abonos) is meant every transaction in which the ownership of an article may be acquired through periodical payments and provided the amount which must be covered by the different payments represents at least 75 per cent of the total amount of the transaction. Taxpayers who sell exclusively on the instalment plan or have a department for that purpose must observe the following rules: (1) they must keep a book in which is indicated the cost of the goods sold in each transaction, the total amount, and the estimated profit; (2) they must determine annually the average profit estimated for transactions realised during the year in accordance with the information contained in the previously described book; (3) they must keep separately the accounts of the payments that have been made with regard to the operations realised in each year.

69. When the taxpayer is not engaged exclusively in instalment selling, but has a department for that purpose, he will calculate his profits in accordance with the preceding rules and add the amount to the general profits of his business in order to calculate the amount of tax.

70. The only deductible expenditure for maintenance are the amounts paid for maintaining the assets of the enterprise in a good working condition without adding a new value to such assets. The following rule applies to amounts expended in the restoration or reconstruction of property. Taxpayers engaged in commerce or industry or in the leasing of commercial, industrial or agricultural enterprises (negociaciones), in order to take the allowable deduction for amortisation1 (amortización), must enter in their accounts the investments (inversiones) and expenses exclusively incurred in connection with or for the purpose of the business, whose utility disappears during its course or at its close, and which constitutes an investment of fixed capital — such as outlays for the constitution of companies, the organisation of the enterprise, installation of the business; payments for the granting of goodwill (credito mercantile); cost of acquisition of concessions, patents for inventions, trade-marks, or copyrights for literary and artistic property, acquisition of forests, sand or stone quarries; cost of acquisition of land for ways of communication; expenses for the making of plans or designs, for the execution of permanent and necessary improvements, which are not the property of the taxpayer and which, in conformity with leasing agreements, remain the property of the lessor; costs of construction, enlargement and permanent improvement of buildings which, because of their structure or special constitution, can only be used for the commercial or industrial purposes for which they are destined; cost of construction of conduits, canals, ditches (bordos), and aqueducts, of ways of communication (with regard to material employed as well as labour, when it is a matter of making new ways or their entire replacement, but not their reparation); cost of installation of machinery, storage tanks and piping for water or oil (Reg., Article 23).


71. Taxpayers engaged in commerce, industry or agriculture or in the leasing of enterprises must, in order to take advantage of the allowable deduction for depreciation (depreciación), inscribe in their accounts the amounts invested in the acquisition of property which deteriorates through use, the action of time, work or obsolescence (incostabilidad), provided that this property is used exclusively in the exploitation and may be realised separately, such as: furniture and fixtures, machinery, vehicles, apparatus, scientific instruments, posts, cables, storage tanks, pipes for supplying water or oil, and working animals which do not constitute the object of the exploitation, (Reg., Article 24).

72. Persons engaged in commerce, in claiming the allowance of up to 5 per cent, and by special authorisation in the case of certain industries, of up to 10 per cent for amortisation of the investments or expenditure described above, and in order to claim the depreciation allowance of up to 10 per cent, or if authorised in the case of certain industries, of up to 20 per cent (Reg., Article 28), must observe the following rules:

73. If a business is liquidated, without its investments subject to amortisation or depreciation having been completely amortised or depreciated, it may deduct in its last declaration the balance to be amortised or depreciated and will consider as profit the commercial value of the assets involved at the date of liquidation. If, on liquidating the business, said investments have already been completely amortised or depreciated and there exists some assets which may be realised by sale, the taxpayer should indicate expressly in his last declaration, as taxable profit, the commercial value that they represent on the date of liquidation (Reg., Article 25).

74. In case an enterprise occupies property which should be included in the accounts of amortisable capital or of depreciation, but which does not belong to the taxpayer because of being leased, it is incumbent upon the owner of such property to declare the income therefrom and to produce the accounts of amortisable capital and of depreciation of such property (Reg., Article 26).

75. In addition to the above articles contained in the Income-Tax Regulations, various circulars interpreting or amplifying the provisions in the articles have been issued from time to time.


1. Method of Separate Accounting

76. The income of a foreign enterprise derived from sources situated within or from transactions realised within the territory of Mexico is taxed on the basis of the separate accounts which the enterprise must keep in accordance with the provisions previously described. The policy of the administration is to tax the local branch as if it were an independent enterprise and on the basis of its accounts. It is only when such accounts are inadequate, or are not produced, that the local assessment board (Junta calificadora) resorts to making an estimative assessment.

77. The Mexican Income-Tax Law does not contain any principles of apportionment, but requires that the accounts of the Mexican branch reflect the entire net income pertaining to the business in Mexico — that is to say, in the case of an industrial and mercantile enterprise, the total difference between receipts and allowable deductions. There is no distinction between buying profit, manufacturing profit, and selling profit. If a foreign enterprise manufactures abroad and sells in Mexico, the total profit realised in Mexico is taxable, without any allowance for a manufacturing profit allocable to the factory abroad. Inversely, if an enterprise manufactures in Mexico and sells abroad, the total net profit, including what might be considered a foreign sales profit, is taxable within the Republic, but the tax paid abroad on the income derived there is deductible from gross income.

2. Empirical Methods

78. If the local assessment board, to which the declaration of the taxpayer is referred, is not convinced of the accuracy of the declaration, as supported by the balance-sheet and profit-and-loss statement submitted, it ordinarily resorts to making an assessment based on exterior signs, for example, the size of the establishment, its turnover, the amount of capital invested, the number of employees and the salaries paid them. If the taxpayer accepts this assessment, further enquiry is seldom made. If the taxpayer considers it to be excessive, he may appeal against it within twenty days to the Board of Revision (Junta revisora). This Board will reduce the assessment, only if the taxpayer produces all the accounts and other information necessary to prove that the true income is lower in amount.

3. Method of Fractional Apportionment

79. This method is not employed, as it is contrary to the essential spirit of the Mexican law. The Assessment Board looks to the sources of income within Mexico without considering their place or importance in the world activities of the enterprise.

4. Requirements for Selection of Methods and Value of the Various Methods

80. The method of separate accounting is the one intended by the law and it is always employed, unless the insufficiency of the declaration and accounts of the taxpayer forces the Assessment Board to resort to an empirical assessment.


1. Apportionment of Gross Profit of Local Branch to Real Centre of Management abroad

81. As the tax is imposed upon the entire net profit from Mexican sources, no part of the profit is allocated to the real centre of management in a foreign country. The importance of the part that the real centre of management abroad may have played in earning the profit realised by the Mexican branch is not considered.

2. Apportionment of Expenses of Real Centre of Management to Branch

Interest Charges

82. If a foreign enterprise has a general debt, whether or not represented by bonds, and definitely uses a part of the borrowed funds for its branch in Mexico, the interest paid on such part by the branch may be deducted from its profits, provided the tax imposed on interest by Schedule 4 is withheld.

General Overhead

83. No deduction of a proportionate part of the general overhead of the real centre of management abroad is allowed against the gross profits of the local branch.

3. Apportionment of Net Profit of Branch to Deficitary Parent and vice versa

84. As the branch in Mexico is taxed independently of the rest of the enterprise abroad, no account is taken of profit or loss of the enterprise as a whole in assessing the branch.


85. A company organised under Mexican law, which is a subsidiary of a foreign company, is taxed as an independent Mexican company on the basis of its own accounts. If the declaration and accounts of the subsidiary are insufficient, the Assessment Board may make an empirical assessment, subject to appeal to the Board of Revision within twenty days, in the same manner as has been described in connection with branches.



1. Selling Establishments

Local Establishments selling in National Market

86. A foreign enterprise which sells at its Mexican establishment goods which have been (a) manufactured abroad, or (b) bought abroad, or (c) in part manufactured and in part bought abroad, is subject in every case to tax on the entire profit in excess of the cost of the goods and other allowable deductions. In other words, no allowance is made for a foreign manufacturing or buying profit. The tax return for enterprises deriving a profit of over 100,000 pesos calls for a statement of cost of the goods, as well as the receipts derived from their sale. In practice, the price at which goods have been invoiced to the local branch by the foreign enterprise is taken as the cost price, especially if it has served as the basis of payment of Customs duties. This price is not conclusive, however, and if the Assessment Board considers it necessary, it will request full information as to the foreign cost of manufacture or purchase.

87. Travelling salesmen, commission agents or employees or companies domiciled abroad must declare the total amount of sales made through them. For this purpose, they must keep a special book of orders in which they enter chronologically the transactions effected through them, specifying the merchandise sold, the sale price, the name and domicile of the purchaser and the number of the invoice, if any. They must keep, furthermore, their correspondence in accordance with the requirements of the Commercial Code (Reg., Article 40 bis).1


Local Establishments selling abroad

88. If a foreign enterprise with its real centre of management in a foreign country has a branch in Mexico which makes sales in a third State in which the enterprise has no permanent establishment, the profits derived from the sales in the third State will be ascribed to the branch in Mexico if they have been realised through its activities — that is to say, if the contract of sale has been made there, or if the delivery of the goods or the payment therefor has been effected there.

2. Manufacturing Establishments

89. If a foreign enterprise manufactures goods at its factory in Mexico for exportation and sale at another establishment in a foreign country, the whole of the profit derived from the manufacture and sale is taxable in Mexico. If goods have been invoiced from the factory to the foreign sales branch, in practice the invoice price may be taken as indicative of the gross receipts of the local factory, provided it affords a reasonable factory profit. The invoice price is not conclusive, however, and the authorities may require full information as to the eventual sale price of the goods exported in order to calculate the total net profit allocable to Mexico.

3. Processing Establishments

90. If a foreign enterprise produces goods in one foreign country, processes them at an establishment in Mexico and ships them to an establishment in a third country for further processing and sale, the profit attributable to the processing establishment will be computed in the same way as has been described above in connection with a local manufacturing establishment.

4. Buying Establishments

91. No attempt is made to compute a buying profit as such, but, under Article 9 of the Income-Tax Law, agents and commission agents and representatives of foreign enterprises who purchase articles for exportation pay a tax of 0.5 per cent on the total amount of their purchases. They must make a declaration, in the months of July and January, of the total amount of their purchases during the first and second half-years respectively. Purchases made direct from abroad, even from a local subsidiary, are not taxable.

5. Research or Statistical Establishments, Display Rooms, etc

92. If a foreign enterprise has an establishment in Mexico which does not directly engage in any profit-making transactions, but renders services to the enterprise which contribute indirectly to the realisation of profit — e.g., a statistical bureau, a display room — in principle no profits will be ascribed to it, but the enterprise will be taxable on any profit realised in Mexico at another establishment or through an agent or employee.


93. The branch in Mexico of a foreign bank is taxable on its receipts, less allowable deductions. In practice, foreign banks allot to the local branch a sufficient capital and the branch is carried on, and its books are maintained, as if it were an independent bank. The branch charges the foreign parent for collection or for other services rendered to it. Interest paid by the branch to the foreign bank is subject to the Schedule 4 tax by withholding at source. The balance-sheet and other accounts of the branch are examined by official bank examiners, and their determination of the income of the branch is accepted by the tax authorities.


94. The profit of a Mexican branch of a foreign life insurance company is computed from its profit-and-loss statement, in accordance with the insurance law and the provisions regarding deductions in Article 28 of the Regulations. The taxable profit of the local establishment or agency of companies engaged in other kinds of insurance is ascertained from its profit-and-loss statement which shows the reserves on premiums of the previous year, the amount of the premiums due in the current year and all the other items of income corresponding to the same period from which are deducted the amounts actually paid in indemnities, together with the premium reserves of the year to which the declaration refers and the amount of the expenses allowed under Article 28, paragraphs II and XII of the Regulations (see Part I, paragraph 18). The premium reserves last mentioned may not exceed the premiums corresponding to the year in question and they may only be deducted if it is shown that the amount of such reserves is maintained in the country.


95. In the case of foreign railroad companies operating within and without Mexico, the taxpayer keeps accounts of amounts received for transportation in Mexico, and from these receipts are deducted the expenses pertaining to the operation of the railroad in Mexico. Similarly, the Sleeping-Car Company pays tax on the basis for receipts for accommodation in Mexico, less expenses relating thereto.

96. Maritime navigation companies having branches in Mexico are taxed on the net income resulting from subtracting from amounts received in Mexico, in payment for freight or passages, the expenses of the local branch together with a certain portion of the expense incurred in operating the ships outside Mexican waters. The determination of this portion gives rise to difficult questions of apportionment, and these cases are generally appealed to the Board of Revision for final determination. If the foreign steamship company has no branch in Mexico, but sells tickets through an agent, a stamp tax is paid on the amount of the ticket.

97. Air navigation companies are taxed in a manner similar to maritime navigation companies — that is, on amounts received in Mexico less expenses allocable to Mexico.


98. The administration has never had occasion to formulate any special method for apportioning the profits of such enterprises. In some instances, companies in a contiguous country sell power, light or gas to another company across the border in Mexico, and the latter is taxed on its receipts less the prices paid for power, light or gas, and other expenditure.


99. The telegraph belongs to the State, but the private telephone enterprises are taxable on the basis of their separate accounts showing receipts in Mexico, less expenses.


100. Foreign enterprises carry on mining in Mexico through local companies, and the profit from mining is shown by the books of the Mexican company. It is ordinarily the difference between the price received for the minerals or oils on the world markets, less the cost of extraction and other deductible expenses. As, under the Mexican constitution, the subsoil belongs to the State, the local company receives only a concession to extract the oil or mineral, and is not allowed any deduction for depletion.1