Fiscal planning is an actual necessity in every Enterprise since it allows efficient resources generation with direct benefits to stockholders, employees, and consumers.

There are diverse levels of planning depending on the needs and size of each operation although, in this article, we’ll deal with the subject of international fiscal planning from the enterprises operations’ point of view which can obtain important financial benefits if they apply convenient strategies. Unfortunately, we must recognize that this important tool is not used by many Mexican enterprises whether by ignorance or by the wrong belief that its cost is too high. Here, we will try to point out the most important factors that must be considered when evaluating the feasibility of its implementation.

The positive result of its implementation is based on the establishment of a well defined objective and the creation of a work group that understands the possibilities and limitations of the operation in the legal domestic and international framework. Therefore, in order to obtain the wanted result, it is of great importance that all areas of the company are involved in the planning process but above all, there must be an absolute understanding between the financial and the legal areas which unfortunately in most cases show some kind of disagreement in the decision making process.

The creation of an operational structure organized with independent activities (based on cost centers for example) but linked at the same time by a controlling unit, has been one of the most applied solutions by large and medium sized enterprises but does not exclude the small company or even the particular individual with the objective of reducing costs and also fiscal foundations.

Now, it is clear that if these strategies are not implemented correctly, the damages would be more important than the result of not applying any strategy at all. Nevertheless, a professional planning should yield good results.

First we must understand which are the main objectives pursued by the international fiscal planning, and generally, they are the following:

Avoid dual taxation that may arise from operations’ expansion
Postpone taxes payment
Reduce tax on dividends, consolidate losses or locate the business in jurisdictions that facilitate financial operations
An efficient structure of the enterprise

If your business has any of these needs, then you should think about the possibility of exploring the use of this tool. The accomplishment of these objectives can be reached as long as the way in which the plan is carried out fulfills three basic principles: A) that the plan conforms to the domestic and international legal frameworks, B) that it is profitable in the short and long run and, C) that it brings confidence to the group as well as to the tax systems of the countries where operations are located.

To achieve the above, it is mandatory to analyze the legal and fiscal effects of the election of territory where the operations will be established, to choose the best alternative for doing business and selecting the right entity, and the way in which it will be financed.

To that end, the team that carries out the planning task should be without a doubt multidisciplinary since in the process, at least 4 fundamental aspects must be considered; the financial, the legal, the fiscal, and the accounting aspects.

Once such a team is created, the aspects of domestic legislation must be analyzed for it contains two groups of norms, the ones known as anti-abuse norms and the ones that look to avoid dual taxation on behalf of the national investor who profits from foreign sources and in which benefits are pursued through its right application.

In the first group we have measures that have been applied practically all over the world, mainly by member countries of the OECD (Mexico is no exception) that following its guidelines have considered at least (these measures are not mandatory or binding for their members but are such an important reference that they are considered a kind of “soft law”):

Fiscal transparency: It is present when an investor obtains fiscal benefits from operations abroad, but these appear as obtained by another or other diverse entities situated in advantageous fiscal territories. Through the use of this system, tax authorities may find the ownership and control power of a certain investor over these entities, direct or indirect, as a simulation so the corporate link between them disappears taxing the partner who obtains the benefits directly and not the mentioned entities.

Transference prices: Corporate groups carry out numerous related operations (known as “intra-group”) which can affect the corresponding tax authority by eroding the obtained tax base through fiscal benefits and extending expenses or reducing income of opposite results with independent operations. Tax authorities can measure these operations and determine the costs and benefits of such independent operations enabling them to request the taxes not paid derived from these strategies.

Sub capitalization: In intra-group operations, one company financing another is a common practice but it is done through a loan instead of capital which is beneficial to both parts (obtaining interests and not dividends which are fiscally cheaper, also deducting these interests as expenses something that does not happen with dividends). These operations are not necessarily illegal or harmful, but states usually put a limit to loans using this tool so that the interest amounts that exceed such limits can be qualified as dividends by the authorities.

Tax haven: In a corporate group, there are entities that can be located in territories of low or null taxation or in territories with higher corporate fiscal benefits when compared to the rest and in these territories, intra-group professional or financial services are established (with not much willingness to share information with tax authorities of other countries). In consequence, the OECD has created rules to identify such territories and recommended its members to include them as part of their internal fiscal framework. Many countries now apply high taxes to operations celebrated with those territories or in them and to repatriated income with the intention of discouraging these practices.

Nevertheless, all these measures have exceptions that when correctly observed, they allow planned operations to be carried out without important risks.

The other group of internal norms looks to avoid the harmful payment of international dual taxation by the national investor who profits abroad creating the possibility, according to each country, of considering the taxes paid overseas as expenses and deduct them from the tax base in its country of origin or even directly credit the amount paid in its own country.

Once the internal aspects have been analyzed, the planning team must review if agreements exist (agreements between countries of origin and destination that exempt investors from dual taxation) in order to obtain the most convenient benefits according to current regulations in the destination territory.

The above mentioned should not represent an obstacle if this well informed group of experts helps to develop a financial goal that is certain and conforms within the legal framework.

One important aspect is that the plan, once it is established, must be flexible because all around the world the fiscal environment is absolutely dynamic so it must adjust to new changes and necessities that fulfill the objectives.

It is commonly said that “fiscal is financial” and this is correct. Any company, profitable as it may seem, should never neglect the fiscal cost of its operation since results may fall down. International fiscal planning is today an important tool that can yield high financial returns.

If your company (even if it’s not a holding) is established in a fiscal territory as narrow as the Mexican territory, and you have not considered this tool as an option, maybe it is time to do so. If you have implemented it and the results were not the expected, before going back it is recommended that a new team is allowed to analyze the situation and perform the necessary changes.

It should not be considered a priori that a planning of this nature will be high in cost and therefore refuse the opportunity of implementing it since the initial investment in time and resources, when correctly done, should yield very satisfactory results with relatively low maintenance costs of operation.

In case you are interested in implementing a scheme of this nature or revising the one you already have, we invite you to get in touch with us. We have the multidisciplinary team of professionals and the necessary international network for the task.

The Second Courtroom of The Supreme Court of Justice of the Nation, in session August 4 2006, determined that in order to consider the plaintiff in abandonment in an amparo trial and dismissal can be ordered as established in article 74, fraction I, of the Amparo Law (Protection Law), the plaintiff must ratify his abandonment before a judicial authority or notary public since abandonment is cause to consider the amparo trial inexistent and therefore return things to how they were before the trial initiated. The dismissal can transcend to consenting to the facts that were affecting the initiator of the trial and for this reason, the judge must make certain that the plaintiff on his own will decides to end the process and must turn up for an appointment. In the contrary the trial must go on.

The judges established this legal criterion when solving the 14/2006-PL Contradiction Thesis provoked between the then Second Professional Court (currently in Civil Matter) of the Sixth Circuit and the Fourth Professional Court of the Eight Circuit.

The then Second Professional Court (currently in Civil Matter) of the Sixth Circuit determined that if in an amparo trial the plaintiff presents a written abandonment and does not ratify it even when requested by the authority, the abandonment is considered as not formulated and the trial continues. Ratification is necessary for the plaintiff’s abandonment to take place and for that circumstance is dismissed in the constitutional judgment according to article 74, fraction I, of the Amparo Law. If ratification is not presented, abandonment must be considered as not formulated and proceed with the trial process.

The Fourth Professional Court of the Eight Circuit resolved that even when the plaintiff does not ratify his written abandonment, it must be considered reiterated tacitly generating the cause of dismissal stated in article 74, fraction I, of the Amparo Law.

By Sergio Beristain y Alvaro Silva Ordaz

Introduction

When we think about the benefits energy brings us we should pause and analyze its great importance in everyday life; this importance manifests itself in day to day situations with its simple presence. It is so important nowadays that it has become crucial for the development of human activity and consequently, for any society.
Great quantities of energy are consumed throughout the world on a daily basis whether it is electricity, solar energy, liquefied petroleum gas, natural gas, etcetera. The majority of these sources of energy are nonrenewable with a cost far greater and much more contaminating.

Over time, sources of nonrenewable energy will become the worlds greatest worry. For example, petroleum is produced from a chemical processes that takes place in the ground, a transformation that takes thousands or even millions of years to occur, thus an average sized deposit of this type is completely exhausted in just a few decades. What’s more the most important deposits discovered to date belong to a very small number of countries.

The main consequence of the scarcity of petroleum and the events that take place in the world concerning it is an increase in the cost of raw materials on the world stage. This is because the majority of transportation used to distribute merchandise is powered by gasoline. Any increase in the price of this resource is directly reflected in the power of acquisition of workers.

Similarly, consumption of petroleum over time indirectly creates large scale problems such as pollution, which in many cities has exceeded the permissible levels of particles suspended in the air causing respiratory illnesses in the most vulnerable of our populations and in some cases, even death.

It is worth pointing out that our country possesses many alternative sources of energy such as wind and hydropower. It is important therefore to substitute consumption of traditional energy for new energy generation processes using renewable sources of energy that offer additional services to users, encouraging job creation and channeling the resources obtained into the generation of electricity by way of renewable energy.

Encouraging the use of renewable sources of energy must be a priority in the different countries of the world, including Mexico, for economic, social and environmental reasons.

Renewable Energy in Mexico today

There is no doubt that our country is not a leader in the research and development of new ways to produce cleaner, cheaper energy. This is due to countless social, political, economic and cultural factors. Currently, we do not have a legal framework developed enough that is able to provide incentives to generation of renewable energy.

There are a number of promising signs that this topic will attract more attention in the future however, it cannot be left without discussion much longer. This is because our economy is in danger since the most important source of income for our country comes from the sale of petroleum and this source of energy could lose its importance if it is substituted by alternative sources of energy.

A good beginning may have been the 30th of December 2002 which saw the publication of the ENERGY FOR RURAL AREAS LAW published in the Federal Official Gazette. The provisions of this law are in the public’s interest and focus on aiding rural development in the country, establishing actions that promote productivity and competitiveness, which are measures aimed at reducing the asymmetry with respect to other countries.

This law has two important aspects to point out:

A) The ratio legis of this law has, in principle, a sound purpose to encourage development of farming activities in rural areas, such as agriculture, cattle raising, forestry, aquaculture and riverside fisheries, which are all relevant and in line with the national development plan.

B) The negative or poorly analyzed part is that the incentive to farming activities and primary production processes lies in granting low tariffs to the beneficiaries of this law. These stimulate consumption of nonrenewable energy, which primarily includes gasoline, diesel and fuel oil, without considering that these rural areas are ideal to begin generating renewable energy due to their geographical, climatic and regional characteristics.

Our country has signed and ratified the United Nations Framework Convention on Climate Change and therefore we have a commitment to the international community and our nation to reduce our greenhouse gas emissions. This gives rise to an urgent need to legislate on this topic.

If we want to achieve development of different forms of renewable energy in Mexico, the Energy Regulatory Commission, as the government body with expertise on the matter, must indicate guidelines in order to establish clearly and precisely the mechanisms for developing, encouraging and consuming renewable energy. At the same time, it must inform the population of the origin, use and benefit of these different sources of energy, and make them more mindful of saving energy whether it is renewable or not.

The study of diverse ecosystems and their characteristics in each region of the country may help to clear up the guidelines to be followed for the development of each state. For example, in northern Mexico, specifically in the desert regions, there is a very high ambient temperature during the day which suggests that this region would be suitable for harvesting energy from the sun by way of solar panels.

On the other hand, the Federal Government must create awareness in the population concerning the use and application of these new technologies to obtain renewable resources. It must apply a large proportion of the Gross Domestic Product in its Expense Budget to research and encourage their use since these investments would be useful in the short, medium and long term.

Plans to develop new energy technologies must be made jointly with the participation of both the Authorities and the Public and Private Sectors. The authorities have to provide essential support in quickly securing permits, licenses as well as in meeting other requirements placed on private investors, whether they be national or foreign, and attending to the complexities that a project of this nature might face in a timely fashion.

Thanks to price stability, technologies that take advantage of sources of renewable energy help to reduce future risks in our energy system arising from price variations in the cost of fossil fuels. This offers both short and long term benefits to the national economy.

It is foreseeable in the future that the need for resources will gradually decrease given that the cost of certain technologies that take advantage of renewable energy sources, such as wind and biomass, have dropped and will continue to do so.

Similarly, there is a new law under discussion in our country: EXPLOITATION OF RENEWABLE ENERGY SOURCES LAW, which would help to provide incentives for the generation of renewable energy in many different forms.

Renewable Energy New Alternatives

A source of energy is a resource or means capable of producing some type of energy for its later consumption. These sources can be classified as; primary, secondary renewable or nonrenewable.

Primary sources of energy are naturally occurring resources found in nature that do not need to be subjected to a transformation process in order to make use of their energy content. They are available directly (such as hydropower, wind and solar energy) or indirectly (after passing through a mining process such as petroleum, natural gas, mineral coal, etcetera).

Secondary sources of energy are derived from natural energy sources (primary) and are the product of transformation or manufacturing processes or in certain cases come from other sources of energy that have already been elaborated. The only possible origin of secondary energy sources in some kind of transformation center. This transformation process modifies the initial characteristics of the resource and may be physical, chemical or biological.

Secondary energy sources include electricity, the complete range of petroleum products, mineral coal and manufactured gas (or urban gas).

The group encompassing petroleum derivatives includes a wide range of useful energy products which are obtained from processing petroleum in refineries; among these we find gasoline, and fuels such as diesel (gas-oils) and others.

There are a number of methods available to create renewable energy; these include the wind, direct solar radiation, hydropower, ocean energy in its different forms (energy from tides or thermal gradients), wave energy, marine currents and salinity gradients, geothermal energy, energy from biomass or organic wastes or that coming from sugar cane and in general, all forms of energy coming from bio-fuels or renewable and intermittent energy sources, whose use is feasible in many cities in our country because of favorable cost-benefits. Any of these sources are capable of producing amongst others, electrical energy or electricity.

Sources capable of producing some type of energy classified as nonrenewable or exhaustible are coal, petroleum, natural gas, geothermal energy (internal forces of the Earth) and nuclear energy (the atom).

An energy source can be characterized as renewable when the processes that transform and exploit its useful energy do not consume or exhaust it on a human scale. These energy sources include: hydropower, solar, wind and the oceans. Additionally, depending on the way in which they are exploited, energy coming from biomass and geothermal energy can also be cataloged as renewable.

Renewable energy is often classified as being conventional or non-conventional according to the level of development of the technology that exploits it and its penetration into the market. The most widespread amongst conventional sources is hydropower used on a large scale.

Renewable energy considered to be non-conventional includes wind, solar, geothermal energy and that coming from the oceans. In addition, there is a broad range of processes that take advantage of biomass energy, which can also be cataloged in the same way. Likewise, small scale exploitation of hydropower is often classified in this category.

Because they are native and, depending on the way they are exploited, generate far less environmental impact than traditional energy sources, non-conventional renewable energy can contribute to energy policy objectives in areas such as steady supply and environmental sustainability. The magnitude of this contribution and the economic viability of its implementation depend on the peculiarities of each country, such as the potential for exploitation of renewable resources, their geographical location and the characteristics of the energy market where they will compete.

The following is a brief description of some of the alternative energy sources, which have been widely studied and employed in recent years.

Hydropower:

Among other phenomenon, solar radiation causes evaporation of water from the Earth’s surface, largely from the oceans. This water vapor accumulates in clouds that travel long distances to be deposited in the form of rain on mountains, many of which are far from the sea. This water accumulates in streams and by gravity, seeks the sea once more forming rivers. This volume of flow, which can manifest itself in great falls or strong currents, is the source of hydroelectric energy.

In many cases, the water is deposited in reservoirs and its potential energy is transformed into useable energy when it is channeled to lower levels. The moving water is used to turn spinning devices converting it into mechanical energy or to spin electricity generators. This can be applied successfully to any mountainous zone on the planet that enjoys regular rainfall.

Wind energy:

Winds are generated by differences in pressure caused by uneven heating of the Earth’s atmosphere, which results in large air masses moving from areas of high pressure to areas where it is lower. Approximately 2% of the heat from the sun that reaches Earth is converted to wind, but only a very small fraction of this can be exploited since much of this wind is found at high altitudes or over the oceans far out to sea. Additionally, certain levels of intensity and regularity in wind patterns are required to take advantage of them. Winds with average velocities of between 5.0 and 12.5 meters per second are considered to be exploitable.

The energy content of wind is kinetic (arising from the movement of air masses), which can be converted into mechanical energy or electricity by way of air turbines. These are mainly comprised of a tower, generator and some arrangement of blades.

Solar thermal energy systems:

Solar thermal energy systems can be classified into flat panels or concentrators or focusers. Flat solar panel systems or flat solar collectors are devices that heat up when exposed to solar radiation and transmit this heat to a fluid, which generally can be use to heat liquids up to 75º C.

Solar thermal systems that concentrate or focus sunlight work by concentrating direct solar radiation onto a focal area; they can be arranged around a single point or in a line. This collection of devices requires procedures or mechanisms for tracking the sun since the line of incidence varies throughout the day and year. These systems can achieve temperatures of hundreds of degrees centigrade and in special cases, thousands.

Photovoltaic Cells:

Photovoltaic cells are plates manufactured primarily out of silicon. When relatively small quantities of certain materials with very special characteristics are added to the silicon in the presence of sunlight, they create unique electrical properties. The efficiency in the level of conversion of these systems is around 15% which means that one square meter could provide up to 150 Watts of electricity, sufficient enough to operate a medium sized television.

To provide electricity during the night, photovoltaic cells require batteries to store the energy generated during the day, which makes using this system more costly. However, photovoltaic systems connected directly to the electricity grid are currently under development; this will eliminate the use of batteries and make the energy they generate immediately available to the user with the added possibility of selling excess electricity to the companies that generate it.

Energy derived from Fermentation:

Ethanol can be produced by fermenting and distilling alcohol which can then be used as a fuel directly or mixed with gasoline. Similarly, chemical products (such as vitamins, antibiotics, solvents and others) can also be obtained.

Sugar cane, sweet sorghum, fruit and beets are crops that are most easily converted into ethanol; the sugar, which is the basis of fermentation, can be obtained by pre-treatments such as pressing, cutting or washing the crops.

Some busses and trucks are able to operate on almost pure ethanol once their diesel motors have been adequately modified. An example of ethanol application can be found in Brazil where a great many automobiles burn this biofuel mixed with gasoline in proportions of roughly 60 / 40 respectively.

Biomass:

Plants accumulate energy by way of photosynthesis. Fed by solar energy, plants are able to separate carbon dioxide molecules, store the carbon as a type of hydrocarbon and release the oxygen. The level of efficiency involved in converting solar energy to stored energy in the form of organic matter (by way of photosynthesis) is very low and is estimated at a maximum of around 3%, although some forest species exploited commercially achieve conversion efficiencies of up to 1 %.

Energy derived from Sanitary Landfills:

Biogas can be produced from so-called Sanitary Landfills that contain a large amount of wet organic waste and foster conditions suitable enough for the proliferation of anaerobic bacteria. When these digest the waste they give off methane and carbon bioxide inside the landfill. Additionally, the wastes from this energy source can be used as a type of organic fertilizer for the soil.

Is Renewable Energy the Energy of tomorrow?
As we have already mentioned and considering the increasing awareness throughout the world to protect our environment, the use of renewable energy is coming closer day by day.

There are economic factors and vested interests throughout the world that are presently slowing the advance in the development of these new alternative energy sources, especially since petroleum is one of the main motors that drives the international economy. The scarcity of petroleum continues to provoke price rises, stock market crashes and even wars.

The solution to achieving balanced development in the world it to use these new forms of renewable energy since all countries would be able to generate energy by way of at least one of these sources, thus every nation would be capable of supplying its own energy without having to spend huge sums to obtain energy resources. Additionally, this would aid regional development and preserve the environment