Mexican Tax Consequences : Mexico Essay

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Mexican Tax Consequences

1. As a result of the sale of the building and the land, St. John Mexico will accrue Mexican income tax liability of $1. 3M (using the U.S. net book value)/$1.7M (Using the Mexican net book value).
2. As a result of the lease transaction, the company will be assessed on annual rent payment an annual VAT amount of $ 93K. Additionally, it is minimal taxable income will be increase by 44K due to the increase in the operating expense as result of the inclusion of the rent expense, which would result in an additional income tax liability of $13K.
3. Generally, Mexico imposes 10% withholding taxes on the distributed divided. However, under the US/Mexico treaty the distribution is exempt from the withholding taxes.

U.S. Tax Consequences

1. The sale of business assets does not trigger Subpart F income and therefore, the sale transaction does not have any US. Income tax consequences.
2. Even though net proceeds available for distribution from the sale of the real estate is $4.9M [i.e. $6.2M (i.e. net proceeds – $1. 3M (i.e. Mexico income taxes)], only $2.9M will includible in the U.S. taxable income after apply the rules of IRC Sections 959 and 987.
3. The distribution of the net proceeds from the sale of the real estate will result in U.S. tax liability of $200K, which will be offset by attributes carried over from prior years.

Other Business Perspectives:

Currently, the company experiences, among others, two types of risks with respect to its

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