Indirect Taxes And Customs Implications For Downstream In .
Indirect Taxes and Customsimplications for downstream inMexicoMarch 27, 2017
The Energy Reform – Downstream SectorPermits for the Saleand Import ofGasolines Maximum Prices Energy ReformApproval Controlled pricing allunder Pemexbranding. Timetable establishedto open markets.Controlled PriceIncrease Controlled priceincreases all underPemex branding.Source: EY Analysis, Secondary ResearchPage 2Prices may beadjusted byinternational pricesand will differregionally due tologistical differentials.201520142013 Controlled pricing toreach maximum levelsall under Pemexbranding.Permits for the sale ofgasolines and diesel tothe public weregranted by the CRE. Non-Pemex retailbranding is nowallowed. Since April, 2016, allcompanies are allowedto import gasoline anddiesel.2016Free MarketFree Prices SHCP establishedmaximum pricecontrols per region. CRE will eliminatemaximum pricecontrols following aschedule consisting in5 phases. Pemex will carry out anopen season toreserve pipes andterminals capacity.2017 Full open market.2018
Gasoline and diesel market chronogram115-Feb-2017 As of January 1, 2017, the Ministry of Finance will establish maximum regionalprices, which would recognize the production, transportation and storing costs ofgasoline and diesel. In a gradual and orderly manner, CRE will liberalize prices, which will fluctuateaccording to market conditions, in accordance with the following schedule:30-Mar-2017 Baja California Sonora214-Sep-201715-Jun-2017Price liberalization Coahuila Baja California Sur Nuevo Leon Durango excepto Gomez Palacio Tamaulipas Sinaloa416-Oct-201730-Nov-2017 AguascalientesOpen season decision Chihuahua330-Oct-20171-May-2017 Municipio de GomezPalacio, Durango5 Morelos Oaxaca15-Nov-2017 Ciudad de México Guerrero Nayarit Tabasco30-Dec-2017 Colima Hidalgo Puebla Tlaxcala Campeche Chiapas Jalisco Querétaro Veracruz Quintana Roo Guanajuato Estado de México MichoacánPage 3 San Luis Potosí Zacatecas Yucatán
Gasoline and diesel maximum prices Ministry of Finance (SHCP) establishes maximum prices for those regions where thegasoline & diesel prices are not fully liberalized according to the chronogram publishedby CRE.Maximum Price Reference Price Quality Adjustment Logistic Costs Margin IEPS VATSHCP maximum prices 2017Period in which the maximumprices are applicableDate in which maximum pricesare set & publishedJanuary 1February 4February 11Max prices (approx USD per Gallon)ITEMMAXMINAVGPage 4GASOLINE 92 GASOLINE 92OCTANOSOCTANOS 3.14 3.48 2.90 3.24 3.04 3.38February 18TuesdayWednesdayThursdayFridaymax prices available 24 hoursDIESEL 3.35 3.11 3.24SaturdaySundayMondaymax prices published on Saturday
Customs Implications Private entities entering the Mexican energy market needto proactively identify customs strategies that can benefitthem and reduce the duty impact of their importoperations, including: Meeting requirements to obtain applicable import and salespermits for the distribution of gasoline and diesel by private entitiesIdentification of preferential customs regime for the importation ofproducts or the machinery and equipment required for distributionand saleStrategy to minimize duty impact, excise and VAT impact on theimportation of goods, as well as machinery and equipmentrequired for exploration and manufacturing activitiesPage 5Mexico’s Energy Reform – Potential customs implications
Customs Implications Some of the available alternatives that may be useful forprivate entities entering the Mexican energy market mayinclude the use of Free Trade Agreements for dutysavings, IMMEX programs for temporary importation ofgoods for manufacturing purposes, RFE’s, among others Considering that Mexico’s energy sector is set to becomevery competitive, private entities should considerappropriate strategies to maximize their duty savingswhich could quickly translate into competitive costadvantagesPage 6Mexico’s Energy Reform – Potential customs implications
Specific Customs Impact Per Activity Upstream Activities: Before, limited to performance-basedservice contracts; today, limitation is lifted to allowproduction sharing contracts, profit sharing contracts andlicense agreements; attracting additional operators Increase importation of Machinery & EquipmentUse of temporary and permanent import regimesUse of Free Trade AgreementsMidstream Activities: Allows transportation and storage ofnatural gas, petrochemicals and refined products Use of different customs regimes (i.e. fiscal deposit, RFE, transit,etc.)Page 7Mexico’s Energy Reform – Potential customs implications
Specific Customs Impact Per Activity Downstream Activities: Private companies may carry outrefining and commercialization of fuels, LPG distributionactivities and, as of 2017, retail sales of gasoline anddiesel Importation of Machinery & EquipmentUse of import regimes and customs programs (i.e. IMMEX, RFE,PROSEC, etc.)Use of Free Trade Agreements Page 8Inbound (raw materials and M&E)Outbound (finished goods)Mexico’s Energy Reform – Potential customs implications
Importation of Gasoline and Diesel Relevant import considerations Import taxes Customs processing fee (CPF) Recinto Fiscalizado Estratégico (RFE): RFE OperatorRFE UserResponsibilities and benefitsPage 9Mexico’s Energy Reform – Potential customs implications
Relevant Import ConsiderationsImportConsiderationsPermits (only granted toMexican Companies)ImportCommercializationGasolines and Diesel exempt from General Import DutyCustoms Duties and FeesCustoms Processing Fee waiver under NAFTAIn the absence of certificates of origin a CPF of .008 of thevalue of the gasoline and diesel should applyIEPS (Mexican Excise Tax)Other Indirect Taxes16% Value Added TaxPage 10Mexico’s Energy Reform – Potential customs implications
Import TaxesThe permanent importation of gasolines and diesel into Mexico is subject topayment of various taxes and fees including import duties, CPF, VAT and excisetaxes. Goods are subject to payment of the general import duty, when permanentlyimported. The taxable base of the import duty is the customsvalue of the imported goods, which is generally thetransaction value (i.e. price actually paid or payable)The importation of gasoline and diesel is unconditionallyduty free (no need to claim NAFTA or other MexicanFTA)Page 11Mexico’s Energy Reform – Potential customs implications
Customs Processing Fee (CPF)The CPF is charged by the Mexican government on all customsoperations which are performed using an import declaration or“pedimento” to cover the services provided by the Mexican governmentduring the customs clearance process A permanent importation is subject to a 0.8% CPF rate on thecustoms value of the product Some FTA’s implemented by Mexico, including NAFTA and the EUMexico FTA, provide a CPF waiver or a reduced fixed amount. Specialprograms such as the RFE also provide reduced CPF rates Page 12Mexico’s Energy Reform – Potential customs implications
Recinto Fiscalizado Estratégico (RFE) - OperatorAn entity that owns a property within the territorial limits of anycustoms office may request authorization from the Tax AdministrationService to designate and operate such property as a RFE. The request must include an investment plan, documentationdemonstrating legal ownership of the property, compliance with minimumsecurity requirements of the property, etc. The authorization may be granted for a 20 year period and can beextended for an additional 20 year period if requested by the entity. Page 13Mexico’s Energy Reform – Potential customs implications
Recinto Fiscalizado Estratégico (RFE) - UserAn entity that is legally incorporated according to Mexican legislation,who owns or leases property within a RFE may request authorization tointroduce goods under the RFE customs regime, as long as it candemonstrate its technical, administrative and financial capacity and is incompliance with its tax obligations The RFE user will be responsible for performing the customsclearance process for introducing the goods under the RFE regime The authorization may be granted for a 20 year period and can beextended for an additional 20 year period upon request Page 14Mexico’s Energy Reform – Potential customs implications
RFE Responsibilities (Comparison Chart)OperatorUserResponsible for managing, supervising andcontrolling the RFEResponsible for customs clearance processof goods introduced under the RFE regimeCovers expenses related to themaintenance of the RFEMust maintain an automated inventorycontrol system with online access for theauthoritiesBuild infrastructure for common use withinthe RFEResponsible for filing introduction andextraction declarationsResponsible for security within the RFEObligation to return abroad or import on apermanent basis the goods introduced tothe RFE within 60 monthsRFE operator cannot obtain authorization tointroduce goods under the RFE customsregimeMust comply with VAT and excise taxcertification requirements to obtain thewaiver on the payment of VAT and excisetaxes upon introduction to the RFEPage 15Mexico’s Energy Reform – Potential customs implications
Determining Value of RFEImports under the RFEPermanent importationDuty paymentNo payment of import duties will bedue upon entry into the RFEImport duties, if applicable,must be paid at time of import(imports of gasoline, dieseland aviation fuel are duty free)Customs processing feeReduced fixed CPF rate of 297Mexican pesos (approximately 20USD)0.8% of the customs value ofthe goods (CPF is waived forNAFTA originating goods)VAT / excise tax paymentPayment is due upon entry into theRFE but the VAT / excise taxcertification provides a waiverPayment is due at time ofimportationDurationForeign goods may remain for upto 60 months in the RFEGoods may remain for anindefinite period of timeNon-tariff restrictionsCompliance at time of entry intothe RFE is not requiredGoods must meet allapplicable non-tariffrestrictions at time of entryPage 16Mexico’s Energy Reform – Potential customs implications
IEPS 101It only applies to producers andimportersMexican ImporterIEPS on gasoline and diesel iscomposed by 3 different fees, all IEPSxIEPS 92 92DieselImportFixed Fee Art. 2-I D4.30003.64004.7300 Fossil Fuels Art. 2-I H0.11410.11410.1384 Fixed Fee Art. 2-A0.38000.46370.3154XDistributorsPresidential Decrees provide differentIEPS incentivesIEPS Law provided a transitory regimein 2016, that adjusted the IEPS on amonthly basis.xIEPS 92 92DieselImport*Fix Fee Reduction1-0.955 P 𝑷𝒓𝒆𝒇𝒆𝒓𝒆𝒏𝒄𝒆 𝑴𝒂𝒓𝒈𝒊𝒏 𝑰𝑬𝑷𝑺 𝑽𝑨𝑻-XIf P within range no adjustmentIF P range reductionIf P range increaseBorder ZoneBased on neighborprices and onlyapplicable to GasStationsPage 17 * It has constantly been changing. This incentive was publishes for march 25 - 31, 2017. Needs to be continuously monitored.
Example – IEPS computationIncentive applicable to Fixed fee of Article 2, section I (D) of theETLGasoline 92octanesIMPORTATIONGasoline 92 92octanes octanesConceptFixed fee (Article 2, section I (D) of the ETL)4.3000 3.6400Incentive applicable to Fixed fee of Article 2, section I(1.1200) (0.0500)(D) of the ETLAdditional fee for fossil fuels (Article 2, section I (H)0.1141 0.1141of the ETL)Total IEPS fees applicable for importation3.2941 3.7041(pesos per liter)Diesel4.7300(1.1500) ----ConceptFixed fee (Article 2, section I (D) of the ETL)4.30003.6400Incentive applicable to Fixed fee of Article 2, section I(1.1200) (0.0500)(D) of the ETLAdditional fee for fossil fuels (Article 2, section I (H)0.1141 0.1141of the ETL)Fixed fee (Article 2-A of the Excise Tax Law)0.3800 0.4637Total IEPS fees applicable for sales3.6741 4.1678(pesos per liter)Page S Credit MechanismSALEGasoline 92 92octanes octanesNote that this incentive hasbeen constantly changingJanuaryFebruary 4 - 11February 11 - 18February 18 - 24February 25 - March 3March 4 - 10March 11 - 17March 18 - 24March 25 - 31 92octanesIEPS paid upon importation3.29413.70413.7184IEPS collected in sales3.67414.16784.0338IEPS payable / (favorable)0.38000.46370.3154Diesel4.7300(1.1500) ----Note that this incentive hasbeen constantly changing0.13840.3154 ---4.0338This fee is not included inthe VAT taxable base
Breakdown of maximum pricesAcquisition priceApprox. USD 1.89 perGallonImportation costs?Transportation / StorageExchange rateProfit marginApprox. USD 1.14 perGallonPage 19IEPS & VAT
% of IEPS and VAT within the Max Prices published forJanuary 2017GASOLINE 92 OCTANOSITEMMaxim um priceMxP per literIEPSVATIEPS VAT% of IEPS vs m axprice% of VAT vs m axprice% of IEPS VAT vsm ax priceMAX 16.59 3.67 2.24 5.9122.15%13.48%35.62%MIN 15.33 3.67 2.06 5.7423.97%13.45%37.42%AVG 16.06 3.67 2.16 5.8422.87%13.47%36.34%GASOLINE 92 OCTANOSITEMMaxim um priceMxP per literIEPSVATIEPS VAT% of IEPS vs m axprice% of VAT vs m axprice% of IEPS VAT vsm ax priceMAX 18.41 4.17 2.48 6.6422.64%13.45%36.08%MIN 17.11 4.17 2.30 6.4624.36%13.42%37.78%AVG 17.85 4.17 2.40 6.5723.35%13.43%36.78%DIESELITEMMaxim um priceMxP per literIEPSVATIEPS VAT% of IEPS vs m axprice% of VAT vs m axprice% of IEPS VAT vsm ax priceMAX 17.68 4.03 2.40 6.4322.82%13.55%36.36%MIN 16.41 4.03 2.22 6.2524.58%13.53%38.11%AVG 17.11 4.03 2.32 6.3523.57%13.54%37.11%Page 20 * Note that today, maximum prices for controlled regions are published daily.
Speakers’credentials
Tax Services (Dallas Office)Armando F. BetetaExecutive Director – Global Trade – LatinAmerican Business CenterTel 214 969 8596Mobile: 972 743 2639Emailarmando.beteta@ey.comArmando 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 andinternational trade practice in the Latin American Business Center. Based in Dallas, he advises multinational corporations withbusiness 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 technicalinformation regarding customs procedures under NAFTA. He was appointed to the NAFTA Center by the Ministry of Finance andPublic 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, DeputyDirector of Legislative Affairs on Indirect Taxes. He has also served as Legal Advisor to the Technical Secretariat of the EconomicCabinet 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 dutystrategic 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 lawfrom the University of British Columbia. He has written several articles in the customs and international trade area and is also afrequent lecturer at various international trade conferences.Page 2222
Tax Services (Mexico Office)Salvador Meljem ElíasSenior Manager Oil & GasEY MexicoOffice: 52 55 1101 7254Mobile: 52 1 55 2755 1850salvador.meljem@mx.ey.comSalvador 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 theoil and gas industry. Salvador has been advising several E&P companies participating in Mexico’s Round 1, as well as in the migration of IntegratedExploration 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 companiesoperating 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, CASAExploration, Fieldwood Energy, Jaguar, among others.Page 2323
Tax Services (Houston Office)Samuel R. DagleyManager Indirect TaxHouston, TexasOffice: 1 713 750 8614Mobile: 1 254 716 4006Samuel.Dagley@ey.comProfessional experience summarySam is a manager in EY’s Indirect Tax Practice specializing in excise and sales & use tax. Sam has experience in managing federal and state excisetax compliance, consulting, and IRS and state audit engagements for fuel producers and consumers. He has a breadth of experience in consulting onalternative fuels, tax implications of legislative changes, excise tax licensing and registration requirements, audit defense, and tax positionmemorandum drafting. Sam also has experience with the air transportation excise tax, medical devise excise tax, and various other transaction taxmatters.Engagement experienceSam 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 andsubmitted a federal and state private letter rulings related to sales & use and excise tax transactional issues; drafted multiple technical memorandumand opinion letters on various topics, including the gross income treatment of federal excise tax credits and the sales tax imposition of atmospheric aircapture at a GTL facility; and developed and successfully executed audit defense strategies and responses for multiple clients encompassing manyareas 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 tothe 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 useas a transportation fuel in the United States, focusing on federal and state funding issues and the congressional actions over the past years to correctsuch issues through taxation.Page 2424
EYAssurance Tax Transactions AdvisoryAbout EYEY is a global leader in assurance, tax, transaction andadvisory services. Worldwide, our 190,000 people areunited by our shared values and an unwaveringcommitment to quality. We make a difference by helpingour people, our clients and our wider communitiesachieve their potential.For more information, please visitwww.ey.com.EY refers to the global organization ofmember firms of EY Global Limited, each ofwhich is a separate legal entity. EY GlobalLimited, a UK company limited by guarantee, does notprovide services to clients. For more information aboutour organization.EY LLP is a client-serving member firm ofEY Global and of EY Americasoperating in the US. 2014 EYGM Limited. All Rights Reserved.This publication contains inform
Other Indirect Taxes IEPS (Mexican Excise Tax) 16% Value Added Tax Relevant Import Considerations . Page 11 Mexico’s Energy Reform – Potential customs implications 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
1.iscover the three basic tax types—taxes on what you earn, taxes on D what you buy, and taxes on what you own. 2. Learn about 12 specific taxes, four within each main category—earn: individual income taxes, corporate income taxes, payroll taxes, and capital gains taxes; buy: sales taxes, gross receipts taxes, value-
Global Indirect Taxes September 2015 Issue 06 Indirect tax continues to be the tax of choice by the OECD and IMF, with both bodies preferring indirect taxes over direct taxes as a revenue raising tool which they see as less harmful to growth. There are now over 160 countries around the world, all operating a system of indirect tax based on .
Due to lack of any precise definition, all taxes on commodities and services other than personal services are treated as indirect taxes Thus, all types of sales tax, excise and customs duties are grouped as indirect taxes. Merits of Indirect Taxes 1. Highly Revenue givers in Developing Countries 2. Convenient 3. Elastic 4. Productive 5.
Customs Broker in a Customs Station, shall before applying to the Principal Commissioner of Customs or Commissioner of Customs, meet the following conditions that: — (a) he is a citizen of India; . 1984 or regulation 8 of the Custom House Agents Licensing Regulation, 2004 or regulation 6 of the Customs Brokers Licensing Regulations, .
INDIRECT TAXATION. Amendments brought in by the Finance Act, 2015. Study Note 1 : Canons of Taxation- Indirect taxes. 1.1 Basis for Taxation 1.1 1.2 Direct Taxes and Indirect Taxes 1.1 1.3 Features of Indirect Tax, 1.2 1.4 Constitutional Validity 1.4 1.5 Administration and Relevant Procedures 1.4. Study Note 2 : Central Excise Act, 1944
charges (duties, taxes, or other debts owed Customs) in the event the charges are not paid by the broker. Therefore, if you pay by check, Customs charges may be paid with a separate check made payable to the U.S. Customs Service, which shall be delivered to Customs by the broker. Importers (Please see page 2) Lisa Ragan Customs Brokerage
taxpayer to someone else. An indirect tax may increase the price of a good so that consumers are actually paying the tax by paying more for the products. The some important indirect taxes imposed in India are as under: Customs Duty: The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods.
The ISO 14001 Standard has been through a number of revisions since it was first published in 1996. ISO Standards are reviewed every five years to establish if a revision is required in order to keep them current and relevant. The current Standard, ISO 14001:2015, responds to the increasing need for management systems to be integrated by using “Annex SL”, a common format for management ISO .
