2002 Tax Reform in a Nutshell   

n April 2001, the President of Mexico sent the bill for his announced integral tax reform to the Chamber of Deputies, entitled New Distributive Public Finances. The reform was published on January 1, 2002, entering into force on that same date.

The most important aspects of this reform are:

wThe progressive rate reduction for corporations, and the maximum rate for individuals, to 32%.

wThe elimination of the 5% withholding tax on dividends and profits distributed to individuals and nonresidents.

wThe reestablishment of the immediate investment deduction.

wThe inclusion of transitional rules in order to avoid the existence of permanent establishments by reason of maquila activities.

wThe allowance of deductions for certain items that previously were not deductible, such as employer-paid employee contributions to social security, restaurant consumptions, and possibly, employee profit sharing.

wThe reduction of the consolidated participation of all holding companies, to 60%, including for pure holding companies (the concept of which no longer exists).

wThe upward and downward equalization of withholding rates for payments to nonresidents.

wThe modification of the value added tax, to a cash-flow system.

wThe creation of a new substitute tax for the salary credit.

wThe creation of a new tax on luxury goods and services.

wThe empowerment to the States to establish taxes on business income or individuals' professional income, as well as taxes on sales and services to the general public.

wAn increased special production and services tax for soft drinks and telecommunications.

Source: Baker & McKenzie, Tax Practice Group. Please Contact: Isis Morales-Sanchez, Baker & McKenzie, Chihuahua, Mexico
E-mail:Isis.Morales-Sanchez@
BAKERNET.com Tel.  011 (52-656) 629-1320 Fax. 011 (52-656) 629-1399.                       

Toyota announced on January 4, 2002 that it selected a 700 acre site outside of Tijuana in Baja California, Mexico as the  location for its manufacturing plant.

The plant will make and ship decks (truck beds) for Tacoma pickup trucks, which are built at New United Motor Manufacturing, Inc. (NUMMI). NUMMI is a joint venture with Toyota and General Motors, located in Fremont, CA.

Baja Governor Eugenio Elorduy Walther officially made the           announcement at a news            conference in Tijuana. "Baja California realizes today, in a search for regional development to benefit its inhabitants, an important project that will thrust local economy and will broaden the perspectives of our state worldwide," said Governor Eugenio Elorduy Walther.

"Toyota and Baja California together for a great state," he added. Start of production for the Baja plant is scheduled for 2004, with construction beginning this spring.

Toshiaki Taguchi, president and CEO of Toyota Motor North America, was among several high

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