Indirect Taxes and Customs implications for downstream in...
Transcript of Indirect Taxes and Customs implications for downstream in...
Indirect Taxes and Customs implications for downstream in Mexico
March 27, 2017
Page 2
The Energy Reform – Downstream Sector
Source: EY Analysis, Secondary Research
► Controlled pricing all
under Pemex
branding.
► Timetable established
to open markets.
2013 2014
2015 2016
Controlled Price
Increase
Maximum Prices
Free Prices Free Market
► Controlled pricing to
reach maximum levels
all under Pemex
branding.
► Prices may be
adjusted by
international prices
and will differ
regionally due to
logistical differentials.
► SHCP established
maximum price
controls per region.
► CRE will eliminate
maximum price
controls following a
schedule consisting in
5 phases.
► Pemex will carry out an
open season to
reserve pipes and
terminals capacity.
► Full open market.
Energy Reform
Approval ► Controlled price
increases all under
Pemex branding.
2018
► Permits for the sale of
gasolines and diesel to
the public were
granted by the CRE.
► Non-Pemex retail
branding is now
allowed.
► Since April, 2016, all
companies are allowed
to import gasoline and
diesel.
Permits for the Sale
and Import of
Gasolines
2017
Page 3
Gasoline and diesel market chronogram
1
3
2
4 5
15-Feb-2017
30-Mar-2017
• Baja California
• Sonora
14-Sep-2017
30-Oct-2017
• Baja California Sur
• Durango excepto Gomez Palacio
• Sinaloa
16-Oct-2017
30-Nov-2017
• Aguascalientes
• Ciudad de México
• Colima
• Chiapas
• Estado de México
• Guanajuato
• Guerrero
• Hidalgo
• Jalisco
• Michoacán
• Morelos
• Nayarit
• Puebla
• Querétaro
• San Luis Potosí
• Oaxaca
• Tabasco
• Tlaxcala
• Veracruz
• Zacatecas
15-Nov-2017
30-Dec-2017
• Campeche
• Quintana Roo
• Yucatán
1-May-2017
15-Jun-2017
• Chihuahua
• Coahuila
• Nuevo Leon
• Tamaulipas
• Municipio de Gomez Palacio, Durango
► As of January 1, 2017, the Ministry of Finance will establish maximum regional prices, which would recognize the production, transportation and storing costs of gasoline and diesel.
► In a gradual and orderly manner, CRE will liberalize prices, which will fluctuate according to market conditions, in accordance with the following schedule:
Open season decision
Price liberalization
Page 4
Gasoline and diesel maximum prices
► Ministry of Finance (SHCP) establishes maximum prices for those regions where the
gasoline & diesel prices are not fully liberalized according to the chronogram published
by CRE.
Maximum Price = Reference Price + Quality Adjustment + Logistic Costs + Margin + IEPS + VAT
Tuesday
Wednesday max prices available 24 hours
Thursday
Friday
Saturday
Sunday max prices published on Saturday
Monday
Period in which the maximum
prices are applicable
SHCP maximum prices 2017
Date in which maximum prices
are set & publishedJanuary 1 February 4 February 11 February 18
Max prices (approx USD per Gallon)
ITEM GASOLINE < 92
OCTANOS
GASOLINE > 92
OCTANOS DIESEL
MAX $3.14 $3.48 $3.35
MIN $2.90 $3.24 $3.11
AVG $3.04 $3.38 $3.24
Mexico’s Energy Reform – Potential customs implications Page 5
Customs Implications
► Private entities entering the Mexican energy market need
to proactively identify customs strategies that can benefit
them and reduce the duty impact of their import
operations, including:
► Meeting requirements to obtain applicable import and sales
permits for the distribution of gasoline and diesel by private entities
► Identification of preferential customs regime for the importation of
products or the machinery and equipment required for distribution
and sale
► Strategy to minimize duty impact, excise and VAT impact on the
importation of goods, as well as machinery and equipment
required for exploration and manufacturing activities
Mexico’s Energy Reform – Potential customs implications Page 6
Customs Implications
► Some of the available alternatives that may be useful for
private entities entering the Mexican energy market may
include the use of Free Trade Agreements for duty
savings, IMMEX programs for temporary importation of
goods for manufacturing purposes, RFE’s, among others
► Considering that Mexico’s energy sector is set to become
very competitive, private entities should consider
appropriate strategies to maximize their duty savings
which could quickly translate into competitive cost
advantages
Mexico’s Energy Reform – Potential customs implications Page 7
Specific Customs Impact Per Activity
► Upstream Activities: Before, limited to performance-based
service contracts; today, limitation is lifted to allow
production sharing contracts, profit sharing contracts and
license agreements; attracting additional operators
► Increase importation of Machinery & Equipment
► Use of temporary and permanent import regimes
► Use of Free Trade Agreements
► Midstream Activities: Allows transportation and storage of
natural gas, petrochemicals and refined products
► Use of different customs regimes (i.e. fiscal deposit, RFE, transit,
etc.)
Mexico’s Energy Reform – Potential customs implications Page 8
Specific Customs Impact Per Activity
► Downstream Activities: Private companies may carry out
refining and commercialization of fuels, LPG distribution
activities and, as of 2017, retail sales of gasoline and
diesel
► Importation of Machinery & Equipment
► Use of import regimes and customs programs (i.e. IMMEX, RFE,
PROSEC, etc.)
► Use of Free Trade Agreements
► Inbound (raw materials and M&E)
► Outbound (finished goods)
Mexico’s Energy Reform – Potential customs implications Page 9
Importation of Gasoline and Diesel
► Relevant import considerations
► Import taxes
► Customs processing fee (CPF)
► Recinto Fiscalizado Estratégico (RFE):
► RFE Operator
► RFE User
► Responsibilities and benefits
Mexico’s Energy Reform – Potential customs implications Page 10
Imp
ort
C
on
sid
era
tio
ns
Permits (only granted to
Mexican Companies)
Import
Commercialization
Customs Duties and Fees
Gasolines and Diesel exempt from General Import Duty
Customs Processing Fee waiver under NAFTA
In the absence of certificates of origin a CPF of .008 of the value of the gasoline and diesel should apply
Other Indirect Taxes
IEPS (Mexican Excise Tax)
16% Value Added Tax
Relevant Import Considerations
Mexico’s Energy Reform – Potential customs implications Page 11
Import Taxes
► The permanent importation of gasolines and diesel into Mexico is subject to
payment of various taxes and fees including import duties, CPF, VAT and excise
taxes.
► Goods are subject to payment of the general import duty, when permanently
imported.
► The taxable base of the import duty is the customs
value of the imported goods, which is generally the
transaction value (i.e. price actually paid or payable)
► The importation of gasoline and diesel is unconditionally
duty free (no need to claim NAFTA or other Mexican
FTA)
Mexico’s Energy Reform – Potential customs implications Page 12
Customs Processing Fee (CPF)
► The CPF is charged by the Mexican government on all customs
operations which are performed using an import declaration or
“pedimento” to cover the services provided by the Mexican government
during the customs clearance process
► A permanent importation is subject to a 0.8% CPF rate on the
customs value of the product
► Some FTA’s implemented by Mexico, including NAFTA and the EU-
Mexico FTA, provide a CPF waiver or a reduced fixed amount. Special
programs such as the RFE also provide reduced CPF rates
Mexico’s Energy Reform – Potential customs implications Page 13
Recinto Fiscalizado Estratégico (RFE) - Operator
► An entity that owns a property within the territorial limits of any
customs office may request authorization from the Tax Administration
Service to designate and operate such property as a RFE.
► The request must include an investment plan, documentation
demonstrating legal ownership of the property, compliance with minimum
security requirements of the property, etc.
► The authorization may be granted for a 20 year period and can be
extended for an additional 20 year period if requested by the entity.
Mexico’s Energy Reform – Potential customs implications Page 14
Recinto Fiscalizado Estratégico (RFE) - User
► An entity that is legally incorporated according to Mexican legislation,
who owns or leases property within a RFE may request authorization to
introduce goods under the RFE customs regime, as long as it can
demonstrate its technical, administrative and financial capacity and is in
compliance with its tax obligations
► The RFE user will be responsible for performing the customs
clearance process for introducing the goods under the RFE regime
► The authorization may be granted for a 20 year period and can be
extended for an additional 20 year period upon request
Mexico’s Energy Reform – Potential customs implications Page 15
RFE Responsibilities (Comparison Chart)
Operator User
Responsible for managing, supervising and
controlling the RFE
Responsible for customs clearance process
of goods introduced under the RFE regime
Covers expenses related to the
maintenance of the RFE
Must maintain an automated inventory
control system with online access for the
authorities
Build infrastructure for common use within
the RFE
Responsible for filing introduction and
extraction declarations
Responsible for security within the RFE Obligation to return abroad or import on a
permanent basis the goods introduced to
the RFE within 60 months
RFE operator cannot obtain authorization to
introduce goods under the RFE customs
regime
Must comply with VAT and excise tax
certification requirements to obtain the
waiver on the payment of VAT and excise
taxes upon introduction to the RFE
Mexico’s Energy Reform – Potential customs implications Page 16
Determining Value of RFE
Imports under the RFE Permanent importation
Duty payment No payment of import duties will be
due upon entry into the RFE
Import duties, if applicable,
must be paid at time of import
(imports of gasoline, diesel
and aviation fuel are duty free)
Customs processing fee Reduced fixed CPF rate of $297
Mexican pesos (approximately $20
USD)
0.8% of the customs value of
the goods (CPF is waived for
NAFTA originating goods)
VAT / excise tax payment Payment is due upon entry into the
RFE but the VAT / excise tax
certification provides a waiver
Payment is due at time of
importation
Duration Foreign goods may remain for up
to 60 months in the RFE
Goods may remain for an
indefinite period of time
Non-tariff restrictions Compliance at time of entry into
the RFE is not required
Goods must meet all
applicable non-tariff
restrictions at time of entry
Page 17
x
IEPS 101
It only applies to producers and importers
Presidential Decrees provide different IEPS incentives
IEPS on gasoline and diesel is composed by 3 different fees, all IEPS
Mexican Importer
IEPS < 92 ≥ 92 Diesel Import
Fixed Fee Art. 2-I D 4.3000 3.6400 4.7300 ✓
Fossil Fuels Art. 2-I H 0.1141 0.1141 0.1384 ✓
Fixed Fee Art. 2-A 0.3800 0.4637 0.3154 X
IEPS < 92 ≥ 92 Diesel Import
*Fix Fee Reduction 1 - 0.955 ✓
Border Zone
Based on neighbor
prices and only
applicable to Gas
Stations
- X
IEPS Law provided a transitory regime in 2016, that adjusted the IEPS on a
monthly basis.
P = 𝑷𝒓𝒆𝒇𝒆𝒓𝒆𝒏𝒄𝒆 +𝑴𝒂𝒓𝒈𝒊𝒏 + 𝑰𝑬𝑷𝑺 + 𝑽𝑨𝑻
If P within range = no adjustment
IF P > range = reduction
If P< range = increase
Distributors
x
* It has constantly been changing. This incentive was publishes for march 25 - 31, 2017. Needs to be continuously monitored.
Page 18
Example – IEPS computation
< 92
octanes
> 92
octanes
Fixed fee (Article 2, section I (D) of the ETL) 4.3000 3.6400 4.7300
Incentive applicable to Fixed fee of Article 2, section I
(D) of the ETL(1.1200) (0.0500) (1.1500) <----
Additional fee for fossil fuels (Article 2, section I (H)
of the ETL)0.1141 0.1141 0.1384
Total IEPS fees applicable for importation
(pesos per liter)3.2941 3.7041 3.7184
< 92
octanes
> 92
octanes
Fixed fee (Article 2, section I (D) of the ETL) 4.3000 3.6400 4.7300
Incentive applicable to Fixed fee of Article 2, section I
(D) of the ETL(1.1200) (0.0500) (1.1500) <----
Additional fee for fossil fuels (Article 2, section I (H)
of the ETL)0.1141 0.1141 0.1384
Fixed fee (Article 2-A of the Excise Tax Law) 0.3800 0.4637 0.3154 <----
Total IEPS fees applicable for sales
(pesos per liter)3.6741 4.1678 4.0338
This fee is not included in
the VAT taxable base
Note that this incentive has
been constantly changing
Note that this incentive has
been constantly changing
IMPORTATION
Concept
Gasoline
Diesel
SALE
Concept
Gasoline
Diesel
IEPS paid upon importation 3.2941 3.7041 3.7184
IEPS collected in sales 3.6741 4.1678 4.0338
IEPS payable / (favorable) 0.3800 0.4637 0.3154
IEPS Credit Mechanism
< 92
octanes
> 92
octanes
January (1.1200) (0.0500) (1.1500)
February 4 - 11 (1.7730) (0.1570) (1.6010)
February 11 - 18 (1.7730) (0.1570) (1.6010)
February 18 - 24 (1.3050) (0.0900) (1.4600)
February 25 - March 3 (1.1500) - (1.3430)
March 4 - 10 (0.9760) - (1.1350)
March 11 - 17 (0.8440) - (0.9890)
March 18 - 24 (0.8960) - (0.9220)
March 25 - 31 (1.0000) - (0.9550)
Incentive applicable to Fixed fee of Article 2, section I (D) of the
ETL
Gasoline
Diesel
Page 19
Breakdown of maximum prices
Acquisition price
Importation costs
Transportation / Storage
Exchange rate
Profit margin
IEPS & VAT Approx. USD $1.14 per
Gallon
Approx. USD $1.89 per
Gallon ?
Page 20
% of IEPS and VAT within the Max Prices published for January 2017
Maximum price
MxP per liter IEPS VAT IEPS + VAT
% of IEPS vs max
price
% of VAT vs max
price
% of IEPS + VAT vs
max price
MAX $16.59 $3.67 $2.24 $5.91 22.15% 13.48% 35.62%
MIN $15.33 $3.67 $2.06 $5.74 23.97% 13.45% 37.42%
AVG $16.06 $3.67 $2.16 $5.84 22.87% 13.47% 36.34%
ITEM
GASOLINE < 92 OCTANOS
Maximum price
MxP per liter IEPS VAT IEPS + VAT
% of IEPS vs max
price
% of VAT vs max
price
% of IEPS + VAT vs
max price
MAX $18.41 $4.17 $2.48 $6.64 22.64% 13.45% 36.08%
MIN $17.11 $4.17 $2.30 $6.46 24.36% 13.42% 37.78%
AVG $17.85 $4.17 $2.40 $6.57 23.35% 13.43% 36.78%
ITEM
GASOLINE > 92 OCTANOS
Maximum price
MxP per liter IEPS VAT IEPS + VAT
% of IEPS vs max
price
% of VAT vs max
price
% of IEPS + VAT vs
max price
MAX $17.68 $4.03 $2.40 $6.43 22.82% 13.55% 36.36%
MIN $16.41 $4.03 $2.22 $6.25 24.58% 13.53% 38.11%
AVG $17.11 $4.03 $2.32 $6.35 23.57% 13.54% 37.11%
ITEM
DIESEL
* Note that today, maximum prices for controlled regions are published daily.
Speakers’
credentials
Page 22 22
Tax Services (Dallas Office)
Armando is a Global Trade Executive Director in Dallas Office .
►Armando F. Beteta is an Executive Director of Ernst & Young LLP’s Global Trade practice. He also leads the customs and
international trade practice in the Latin American Business Center. Based in Dallas, he advises multinational corporations with
business interests in Mexico and Latin America.
►Prior to joining Ernst & Young LLP, Armando was Mexico’s former representative at the North American Free Trade Agreement
(NAFTA) Center, a tri-national office in charge of providing exporters, importers and producers from North America with technical
information regarding customs procedures under NAFTA. He was appointed to the NAFTA Center by the Ministry of Finance and
Public Credit of Mexico (Tax Administration Service) in March 1995.
►During his 10-year career in the public sector, he served as the Chief of Staff for the Federal Fiscal Attorney of Mexico, Deputy
Director of Legislative Affairs on Indirect Taxes. He has also served as Legal Advisor to the Technical Secretariat of the Economic
Cabinet in the Presidency of Mexico.
►Armando has extensive experience with customs guidelines for the establishment of IMMEX (Maquila or Pitex) operations in Mexico;
customs and NAFTA due diligence and compliance reviews; customs and international trade advisory services; as well as duty
strategic planning through Free Trade Agreements.
►Armando received his law degree from the Escuela Libre de Derecho in Mexico City and his master’s degree in international trade law
from the University of British Columbia. He has written several articles in the customs and international trade area and is also a
frequent lecturer at various international trade conferences.
Armando F. Beteta
Executive Director – Global Trade – Latin
American Business Center
Tel +214 969 8596
Mobile: +972 743 2639
Email [email protected]
Page 23 23
Tax Services (Mexico Office)
Salvador is a Business Tax Advisory Senior Manager based in Mexico City.
►From 2012 to 2014 Salvador was an International Tax Manager in the Latin American Business Center of the EY NY office.
►Currently, Salvador is a Senior Manager in the EY Mexico City office, specialized in international tax services, particularly active in the
oil and gas industry.
►Salvador has been advising several E&P companies participating in Mexico’s Round 1, as well as in the migration of Integrated
Exploration and Production Contracts (CIEPS per its acronym in Spanish) previously granted by PEMEX to oilfield service companies.
►Salvador regularly provides tax advisory services to oilfield service companies, pipeline operators, drillers and shipping companies
operating in Mexico.
►Salvador has been very active in investment projects in the midstream and downstream sectors in Mexico.
►Salvador has in depth knowledge in excise tax and VAT applicable to the importation and sale of automotive fuels in Mexico.
►Salvador has been very active in advising private equity firms investing in energy projects in Mexico.
►Main Oil & Gas clients during my career; PEMEX, Chevron, Halliburton, Perseus, Sierra Oil & Gas, Diavaz, Sanchez Energy, CASA
Exploration, Fieldwood Energy, Jaguar, among others.
Salvador Meljem Elías
Senior Manager | Oil & Gas
EY Mexico
Office: +52 55 1101 7254
Mobile: +52 1 55 2755 1850
Page 24 24
Tax Services (Houston Office)
Professional experience summary
Sam is a manager in EY’s Indirect Tax Practice specializing in excise and sales & use tax. Sam has experience in managing federal and state excise
tax compliance, consulting, and IRS and state audit engagements for fuel producers and consumers. He has a breadth of experience in consulting on
alternative fuels, tax implications of legislative changes, excise tax licensing and registration requirements, audit defense, and tax position
memorandum drafting. Sam also has experience with the air transportation excise tax, medical devise excise tax, and various other transaction tax
matters.
Engagement experience
Sam has managed and consulted on a wide array of process improvement and data integrity projects surrounding indirect tax compliance issues,
including full process reviews and implementation of process improvement protocols in the midstream and downstream oil and gas industry.
Sam has had the opportunity to manage or serve on projects in a variety of industries. During his tenure in the Big Four, Sam has written and
submitted a federal and state private letter rulings related to sales & use and excise tax transactional issues; drafted multiple technical memorandum
and opinion letters on various topics, including the gross income treatment of federal excise tax credits and the sales tax imposition of atmospheric air
capture at a GTL facility; and developed and successfully executed audit defense strategies and responses for multiple clients encompassing many
areas of excise tax law, both on a federal and state level.
Sam has had the privilege of presenting technical topics to the Federation of Tax Administrators concerning the tax effects of legislative changes to
the current alternative fuel landscape on both a federal and state level as well as co-presenting to an industry group on the future of natural gas use
as a transportation fuel in the United States, focusing on federal and state funding issues and the congressional actions over the past years to correct
such issues through taxation.
Samuel R. Dagley
Manager | Indirect Tax
Houston, Texas
Office: +1 713 750 8614
Mobile: +1 254 716 4006
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