AUSTRIA

“Executive Summary” covering the main Tax Reforms for 2002, which became effective and were published in the Official Gazette of the Federation (DOF) on January 1, 2002.

FEDERAL INCOME ACT(LIF)

1. Through the LIF, changes to the Value-Added Tax Law (LIVA) are made, the most important of which are as follows:

a) IVA will be based on cash flow-basis
b) Taxpayers will be required to indicate on their receipts issued if payment is to be made in one lump sum or in installments.

2. The LIF grants the States of the Federation the discretionary authority to establish a new tax called “Tax on Sales and Services to the General Public,” when this tax fulfills the following characteristics, among others:

a) They are charged to individuals and corporations that offer the following activities to the general public within the country:

Sale of goods
Provide services
Provide temporary use and enjoyment of furnishings

b) The tax rate must not exceed 3% of the value of the activities
c) The tax will be on a cash-flow basis.

There are exemptions to this tax, which will be mentioned in our 2002 Tax Bulletin.

3. The LIF also established a new “Tax on the Sale of Luxury Goods and Services.”

This tax will only be applied to the sale of luxury goods and services to the general public. The general public is understood to mean those individuals who do not require receipts with a breakdown of VAT and the cost of goods.

The tax will be payable by individuals or corporations that:

I.   Sell or import:

Caviar, smoked salmon, motorcycles larger than 350cc, perfumes, automobiles with a capacity of up to 15 passengers that cost more than 250,000.00 Mexican pesos, silk or leather clothing, except shoes, watches that cost more than 5,000.00 Mexican pesos, televisions with screens larger than 25 inches, flat screen monitors and televisions, etc.

II.  Provide the following services:

Playing golf, horseback riding, including membership fees, among others.

Membership fees for restaurants, nightclubs or bars with restricted access, among others.

III. Provide temporary use and enjoyment of:

Airplanes
Motorcycles with certain characteristics
Some goods pointed out in Point I

SPECIAL TAX  ON PRODUCTION AND SERVICES LAW (LIEPS)

There are significant changes to this law. We consider the more relevant points to be:

Soda or mineral water, soft drinks, hydrating or rehydrating beverages, concentrates, powders, syrups, flavor essences or extracts used in the preparation of soft drinks, hydrating or rehydrating beverages and that contain sweeteners other than sugar will be taxed at a rate of 20%.

Similarly, syrups or concentrates used in the preparation of soft drinks served from soft drink cylinders that use automatic, electric or mechanical equipment, using sweeteners other than sugar, will be taxed at a rate of 20%.

The following communication and communication-related services will be taxed at a rate of 10%:

• Cellular telephones, fixed or mobile wireless access except those contracted with prepaid cards up to 200 Mexican pesos.
• Mobile radiolocation of people or goods
• Groups or individuals mobile voice and data radio communications services: with mobile or fixed equipment.
• Restricted television services whether by cable or any other means of transmission.
• Any type of commercial telecommunications services, including broadcasting, reception or transmission of voice, data or video signals
• Related or accessory services even when they are not a condition of telecommunication services such as call waiting, caller ID, voice mail

NEW MEXICAN INCOME TAX LAW (LISR)

1. The rendering of independent services is incorporated to the concept of “permanent establishment” and the concept of “fixed base” is cancelled.

CORPORATE ENTITIES

GENERAL PROVISONS

2. The statutory income tax rate is decreased for corporate entities. This will be gradual as shown below:

3. The following are eliminated:

• Deferred ISR. Therefore, as of fiscal year 2002, the Net Reinvested Fiscal Profit (UFINRE) must not be calculated
• The 5% ISR withholding on dividends
• The filing of the semi-annual adjustment of income tax return
• Provisional quarterly payments. These payments will be made monthly

INCOME

4. Accrued interest will be accumulated with no adjustment for inflation

5. A new procedure will be established to determine the Fiscal Cost of shares

6. The annual adjustment for inflation will be considered accumulated income

DEDUCTIONS

7. Social Security quotas fees paid by the employer including those corresponding to the workers.

8. Accrued interest payable without adjustment for inflation.

9. Checks greater than 2,000.00 Mexican pesos will have to be issued to the order of a person (nominative).

10. Employee benefits will be deductible only when union workers’ benefits are equal to those granted to non-union employees.

11. Corporate entities will be permitted to deduct certain fixed assets investments in the year in which they are acquired, rather than applying the regular tax depreciation rates. This option cannot be applied in the metropolitan areas of the Federal District, Guadalajara, Monterrey and their areas of influence.

12. Depreciation of automobiles, in all cases, with a maximum value of 200,000.00 Mexican pesos (not including VAT).

13. The concept of “utilitarian vehicles” (“automóviles utilitarios”) is eliminated.

14. 50% of consumption in restaurants paid with corporate credit or debit cards. Bars are excluded.

OBLIGATIONS

15. The negative Net Fiscal Profit (“UFIN”) will begin when the total of ISR and non-deductible items are greater than the profit subject to taxation for the tax period. The difference will be decreased from the balance of the CUFIN or UFIN, determined for future fiscal periods until exhausted.

INDIVIDUALS

16. They will be required to declare loans, donations and prizes that they may have obtained and which single or aggregated amount exceed 1,000,000.00 Mexican pesos in a tax return for the fiscal period even when they are not required to file a yearly tax return.

17. Donations that a family member receives directly from his children will not be exempt from income tax when such properties are in turn donated by that family member to another child.

18. Income from copyrights will be tax exempt for amounts up to two annualized general minimum salaries of the taxpayer’s geographic location

19. Income obtained from the sale of shares or other securities carried out through the authorized stock market is taxable, unless the related public offering was made five years before and that 35% of the capital shares of the company is being traded. The tax will also apply when the seller of shares resides abroad.

INDIVIDUALS WITH BUSINESS ACTIVITIES AND THOSEPROVIDING PROFESSIONAL SERVICES

20. These individuals will pay taxes based on amounts effectively collected and paid. That is, on a cash flow basis

21. They are required to make estimated advance tax payments monthly

22. The new income tax rates mentioned for corporate entities will apply

23. Fiscal losses can be carry-forward by complying with certain requirements

RULES GOVERNING SMALL TAXPAYERS

24. When income has not exceeded 1,500,000.00 Mexican pesos in the immediately prior fiscal period

25. They will pay 1% income tax on income collected, reduced by three times the legal minimum salary

OTHER

26. As of January 1, 2002, individuals whose salaries and wages exceed 300,000.00 Mexican pesos are required to file an annual income tax return.

27. New personal deductions:

Real interest paid to banks during the tax period exclusively resulting from home mortgages contracted with banks (in force in 2003).

• Insurance premiums for medical expenses

SUBSTITUTE TAX FROM SALARY CREDIT

a) Individuals and corporate entities that pay wages and salaries and other similar concepts are subject to a 3% tax on the total of such payments.

b) The tax referred to in Paragraph a) may not be paid as long as taxpayers do not reduce the salary credit they grant their workers from income tax payable or withheld from third parties. Therefore, the salary credit granted to workers would be absorbed by the employer and not by the Federal Tax Authorities.

c) Professional fees considered salaries for tax purposes and profits paid by professional associations to their partners, among others, will also be considered payments for the effects of this tax.

Finally, it is important to point out that all the above comments are indicative, but not comprehensive, as they only represent a summary of what we consider the higlights of the new tax regulations. Our 2002 Tax Reform Bulletin presents in greater detail all the tax reforms we consider of general interest.