Subpart A.—Tax Conventions and Other Related Items

Mexico LLC MAP Agreement

Income, along with a Protocol, signed on Sept. 18, 1992, and as amended by the Additional Protocol signed on Sept. 8, 1994, and the Second Additional Protocol signed on Nov. 26, 2002. The Agreement specifies the cases where fiscally transparent entities are entitled to treaty benefits and clarifies the procedure for claiming treaty benefits from Mexico

The text of the Agreement is as follows:

Announcement 2005–72

Following is a copy of the News Release issued by the Director, International (U.S. Competent Authority), on September 19, 2005 (IR–2005–107).

U.S., Mexico Reach Mutual Agreement Regarding Eligibility of Fiscally Transparent Entities Benefits

IR–2005–107, Sept. 19, 2005

WASHINGTON - On Aug. 26, 2005, the Competent Authorities of the United States and Mexico entered into a mutual agreement (“the Agreement”) regarding the eligibility of entities that are treated as fiscally transparent under the laws of either Contracting State to benefits under the Convention Between the United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on

COMPETENT AUTHORITY MUTUAL AGREEMENT

The Competent Authorities of the United States and Mexico hereby enter into the following mutual agreement (“the Agreement”) regarding the eligibility of entities that are treated as fiscally transparent under the laws of either Contracting State to benefits under the Convention Between the United States of America and the Government of the United Mexican States for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, along with a Protocol, signed on September 18, 1992, and as amended by the Additional Protocol signed on September 8, 1994, and the Second Additional Protocol signed on November 26, 2002. The Agreement specifies the cases where fiscally transparent entities are entitled to treaty benefits and clarifies the procedure for claiming treaty benefits from Mexico. The Agreement is entered into under paragraph 3 of Article 26 (Mutual Agreement Procedure).

1. Eligibility of fiscally transparent entities for treaty benefits

Paragraph 2(b) of the Protocol provides:

For purposes of paragraph 1 of Article 4 it is understood that:

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b) a partnership, estate, or trust is a resident of a Contracting State only to the extent that the income it derives is subject to tax in that State as the income of a resident, either in the hands of the partnership, estate or trust, or in the hands of its partners or beneficiaries;

The Competent Authorities agree that in applying paragraph 2(b) of the Protocol, it is understood that income from sources within one of the Contracting States received by an entity that is treated as fiscally transparent under the laws of either Contracting State, will be treated as income derived by a resident of the other Contracting State to the extent that such income is subject to tax as the income of a resident of the other Contracting State.

For example, if a resident of the United States is a member of a limited liability company (“LLC”) organized in the United States, and the LLC is treated for U.S. federal tax purposes as a partnership, the resident of the United States would be afforded benefits of the Treaty on the income that the resident derives from Mexico through the LLC to the extent of the resident’s share of that income. Similar rules would apply to a resident of the United States that is a shareholder of a U.S. subchapter S Corporation, an LLC that is disregarded as an entity separate from its owner, or a U.S. grantor trust.

It is understood that Mexican law currently does not provide for any fiscally transparent entities. However, if Mexico were to introduce legislation that provided for the creation of fiscally transparent entities, then it is intended that income received by such entity will be treated as income derived by a resident of Mexico to the extent that such income is subject to tax as the income of a resident of Mexico.

Additionally, Mexico agrees to apply this Agreement with respect to amounts paid to an entity created and subject to the laws of a third state or jurisdiction only where such third state or jurisdiction has in force a comprehensive exchange of information agreement as provided in Mexican tax provisions and such information is effectively exchanged. The following is the current list of countries that Mexico has a comprehensive exchange of information in force. Such a list is published under Mexican administrative regulations and may be amended from time to time.

2005–41 I.R.B. 692 October 11, 2005