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Electrical reform

Electricity initiative is disguised to filter out the State monopoly monster: Santamarina and Steta

Written by Santamarina + Steta en . Published in Updates.

  • Constitutional changes are not necessary to encourage clean energy.
  • To establish a monopoly, yes. 

CDMX, March 24, 2022. Mariano Calderón, Expert partner in constitutional matters at the law firm Santamarina and Steta He pointed out that the possible "adjustments" that are being announced in the electricity reform initiative are “a green make-up that aims to filter out a whole state monopoly monster”.

The specialist explained that it is good to incorporate fiscal incentives in ISR and VAT for the purchase of electric vehicles, but this does not compensate in any way for the damage and disaster that the intention of returning to a monopoly and monopsony means.. “To establish a stimulus, it is not necessary to reform the Constitution. It is not a constitutional issue. There are already incentives. The damage of the constitutional reform initiative is in no way comparable to the minimal benefit that incentives for the purchase of electric vehicles can represent.” said.

Mariano Calderón pointed out that the same applies to incentives for the development of electric motor technology and the revision of tariffs, which are also not a matter for constitutional reforms. “A legal reform is enough and does not mitigate the underlying damage that a constitutional reform would bring, which is required to establish a state monopoly. This damages the entire electrical system and also undermines the certainty of the rule of law in Mexico. Consequently, investment projects in the energy sector and several other industries are also affected,” stressed.

The expert also clarified that incorporating a human right to electricity is nothing more than a wishful thinking and a dead letter. If there is no budget to make it effective, it is useless. It has no effect. “In fact, the reform initiative as it stands even contradicts this right, because by making the electricity system less competitive, it makes it less viable to supply electricity in the future and goes against consumers being able to choose who to buy from. Establishing a monopoly/monopsony is contrary to promoting the human right to electricity,” concluded.

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commercial competition

Votes in the SCJN, key to the future of the electricity sector and legal certainty in the country; a tough test of the effectiveness of constitutional control: Santamarina and Steta

Written by Santamarina + Steta en . Published in Updates.

  • Judicial train at full steam that joins the train of the majority bloc in Congress.
  • District Judges and Collegiate Courts attentive to the exercise of resolving amparos. 

CDMX. April 6, 2022. Experts from the law firm Santamarina and Steta They highlighted the relevance of the debate that is currently taking place in the Supreme Court of Justice of the Nation (SCJN), regarding the constitutional controversies and the action of unconstitutionality initiated in relation to the reforms to the Electricity Industry Law (LIE) and the concept of constitutional control.

Juan Carlos Machorro, an expert partner in energy sector law, pointed out that the work to be carried out by the Court in reviewing the project presented by Minister Loretta Ortiz constitutes a great opportunity for the Court to reiterate its highly relevant role in matters of constitutional control, beyond political ideologies or personal positions.

“It is essential that the Court assumes its role as guardian of constitutionality in our country; these issues require a broad vision and a purely constitutional analysis, beyond political likes and dislikes and the immediacy of the elections.” he claimed.

The expert explained that this exercise tests the effectiveness of the rules on constitutional control, built on a presumption of constitutionality in the norms emanating from the legislative power, requiring therefore a qualified majority (eight votes out of 11 ministers) to declare unconstitutionality with general effects. "The problem is that the reform to the LIE is clearly unconstitutional on several fronts and now a qualified majority needs to be gathered to declare it as such. In this way, the 'constitutionality' of something that is clearly not so could be declared," he pointed.

For its part, Mariano Calderon, an expert partner in constitutional law and amparos, stressed that although the discussion regarding the constitutional controversy and unconstitutionality action will define the SCJN's criteria regarding the LIE, the amparos that the companies promoted individually against the same LIE will be resolved with a different mechanism, according to the vote of a simple majority of such ministers."If 7 or 6 ministers consider the LIE unconstitutional, that is enough for the District Judges and Collegiate Courts to 'follow' that majority and grant the amparos on the basis that the LIE does violate the constitution," said.

The expert explained that the debate regarding the unconstitutionality of the LIE at this time revolves around three different mechanisms of constitutional control, namely: action of unconstitutionality, constitutional controversy and amparo trial. The first two require a qualified majority of 8 ministers, while the amparo trial only requires a simple majority. The first two, if they win the vote, have general effects (the corresponding norm ceases to have effects for the entire country), while for the amparo, in such a scenario, those effects disappear only for the companies or individuals who promoted them.

“Many things can happen during the discussions of the SCJN and it may be necessary to vote on the various parts of the reform to the LIE. The Ministers will not necessarily resolve 'all or nothing', but will go topic by topic, article by article, and it may be the case that they declare 'X', 'Y' and 'Z' unconstitutional, but 'A', 'B' and 'C' constitutional”, concluded.  

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Mexico an attractive country for investment

The war accelerates a favorable readjustment for Mexico: Santamarina and Steta

Written by Santamarina + Steta en . Published in Updates.

  • The US is demanding positions and China is strengthening its presence in our country.
  • Hardening and crack of electrical counter-reform. 

CDMX. April 7, 2022. Jorge León Orantes, expert in Mexico, China, US relations at the law firm Santamarina and Steta, predicted a readjustment of trade positions between these countries that will place Mexico in a favorable business position, based on the trade restrictions resulting from the Russia-Ukraine war. “We already saw how a lot of money from investors became available after the cash injections that the governments of several countries applied to companies due to the pandemic. This made such investors look to Mexico as a safe place to establish their supply lines. Now, beyond the military events, the ideological pressure of the Cold War confirms the need for Mexico to consolidate itself as that opportunity. Diplomatic demands to take a position with Russia are leaving a clearer geopolitical panorama for business strategists,” said.

The specialist noted that Chinese investors are establishing supply lines in Mexico every day, larger and more frequent, because they do not expect a change in the US position against them. This is how they see our country as their natural gateway to the North American market.. “We are seeing the first of many. It is something that we can already consider a trend. The Chinese are betting on the USMCA via Mexico. Now more so, because they see that the United States is increasingly demanding greater certainty and asserting its rights as partners of our country,” clarified.

Jorge León Orantes added that the situation will become much clearer when the pressure on the Court regarding the unconstitutionality or not of the reforms to the Electricity Law decreases. The Mexican government is hardening its position, but it could be expected that after the current situation, it will make room for diplomatic negotiations with the North American giant. “Various political analysts are pointing this out. We can think that a dignified and very convenient way out is coming for Mexico, especially if a climate of rule of law is confirmed, which many investors are waiting for.”He said.  

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solution of controversies solution

Mexican companies need their war kit: Santamarina and Steta

Written by Santamarina + Steta en . Published in Updates.

  • Wave of non-compliance follows pressure from Russia-NATO restrictions on supply chains.
  • It will be very damaging to those who have not prepared themselves with a legal warfare kit.

CDMX, April 21, 2022. “We have not yet measured the impact that the war between Ukraine and Russia and NATO restrictions will have on Mexican companies,” said Roberto Fernandez del Valle, partner in charge of the law firm's disputes area Santamarina and Steta. “What is very clear is that there is a significant impact on supply chains, which will become more pronounced in the coming weeks. This will be added to the closure of markets due to the pandemic, economic crisis, widespread global inflation and shortage of raw materials due to economic restrictions on both sides of Russia, Europe and the United States. People are not going out to work, companies are inactive, ports and several ships are stranded,” he claimed. 

The expert explained that those who receive inputs in their supply chains, such as sectors like construction and automotive, will be immediately affected by increases in the price of steel, fuel and many other raw materials and strategic inputs. Consequently, they will incur delays and an unexpected increase in prices. This is how a climate of non-compliance is being triggered.“It will be very damaging for those who have not prepared themselves with a legal war kit that allows them to foresee this situation in their contracts, resolve their disputes and move forward,” clarified.

Roberto Fernández del Valle listed the main actions to be taken so that Mexican companies can better navigate the new economic and commercial conditions in the world:

1.- Review contracts in light of the situation of potential clients, suppliers and materials from abroad.

2.- Calculate risk scenarios in production logistics, times and delays in the delivery of raw materials and supplies.

3.- Calculate and predict the consequences of non-compliance by each and every part of the supply chain.

4.- Assess the consequences of the company itself falling into non-compliance with third parties. Calculate the cost of compensation, fines, etc.

5.- Conduct a general check-up of the company to avoid additional domestic complications.

6. Define in detail the measures to be taken in each case and the legal means for resolving disputes.

The specialist stressed that, so far, Mexican companies in general have entrenched themselves and are not moving, waiting for the general business outlook to improve. However, he predicted that those that move forward and tackle the legal consequences of noncompliance in the early stages will have the best luck. To this end, he stressed that there are several alternative legal mechanisms that avoid going to courts which, due to saturation, will resolve in a prolonged period of time, which can be serious for everyone. Among them, he pointed out the dispute resolution panels, which resolve differences on the spot, and other options such as arbitration. 

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New tax requirements

Legal News: New tax requirements for the appointment of a tax representative for the sale of shares

Written by Santamarina + Steta en . Published in Updates.

printable version | February 2022

Derived from the tax reform to the Income Tax Law (“ISR”) which came into force on January 1, 2022, new obligations were included to appoint a legal representative in Mexico by a resident abroad in article 174 of the Income Tax Law.

We believe that the imposition of such obligations may have a major impact on the application of the benefits provided under domestic legislation or even on the application of treaties to avoid double taxation, for example, in the case of the sale of shares by residents abroad.

The above is true since when a resident abroad makes a transfer of shares of a Mexican issuer, the general rule is that said resident would be subject to a 25% ISR rate on the sale price. However, the resident abroad may choose to apply the 35% rate on the profit obtained or even, under certain treaties, business reorganizations may be exempt if, among other requirements, a legal representative is appointed in the country.

Considering the above, in order to comply with the requirement of appointing a legal representative, the representative will have to voluntarily assume joint liability for those he or she represents, in addition to having the necessary solvency to respond as a jointly liable party with respect to the contributions of said resident abroad.

Likewise, Annex 1-A of the Miscellaneous Tax Resolution 2022 (published on December 30, 2021) adds the obligation to file a notice with the tax authorities to report the appointment as legal representative of the resident abroad. The aforementioned notice must be submitted prior to the expiration of the deadline to pay the ISR to which the resident abroad is obliged for obtaining income from a source of wealth in Mexico.

Among the most relevant requirements that must be met to submit the aforementioned notice are the following:

  • That a power of attorney be granted to the legal representative of the resident abroad for acts of ownership.
  • Provide a list of the assets of the foreign resident or representative that may be seized, to guarantee the ISR caused by the foreign resident.

In our opinion, the application of these requirements could result in the foreign resident not being able to apply the alternative that is most beneficial to him, for example, applying the 35% rate on the profit obtained from the sale of the aforementioned shares or applying the benefits of the treaty to avoid double taxation in question, since in order to do so it is necessary to comply with all the new requirements for appointing a legal representative, an issue that now goes beyond the requirements established in the Income Tax Law before the reform that came into force in 2022.

Likewise, we consider that it leaves residents abroad in a state of legal uncertainty, since there are certain issues regarding the amount required to guarantee the assets, whether the amount should be updated, as well as the interpretation that should be given to said requirements to be in compliance with said provisions, among other considerations.

In light of the above, we remain at your service to support you in meeting these requirements, as well as to analyze what alternatives can be implemented for their compliance.

**The publication of this note does not constitute legal advice, nor is it intended to be applicable to particular cases.

If you require additional information, please contact the partner responsible for your matters or one of the lawyers mentioned below:

Mexico Office

Mr. Mariano Calderon V. (Partner), mcalderon@s-s.mx

Lic. Karina Robledo Y. (Counsel), krobledo@s-s.mx

Phone: +52 55 5279-5400

Monterrey Office

Mr. Cesar Cruz A. (Partner), ccruz@s-s.mx

Phone: +52 81 8133-6000

Queretaro Office

Mr. Jose Ramon Ayala A. (Partner) Jayala@s-s.mx

Phone: +52 442 290-0290

agreement by which various are repealed

Legal Update: Agreement by which various reporting, supervision and surveillance agreements of various NOMs for hydrocarbon sector activities are repealed

Written by Santamarina + Steta en . Published in Updates.

printable version | February 2022

On February 8, 2022, the Ministry of Environment and Natural Resources (“SEMARNAT”) published in the Official Gazette of the Federation (“DOF”) the “Agreement repealing the Procedure for the supervision and surveillance of the Mexican Official Standards (“NOMs”) regarding Petroleum Products, Liquefied Petroleum Gas, and Natural Gas, subject to compliance by the regulated holders of transportation permits by means other than pipelines for Liquefied Petroleum Gas, as well as for the Distribution and Sale to the Public of Petroleum Products, Liquefied Petroleum Gas, and Natural Gas” (the “Agreement”).

The Agreement repeals the following agreements:

  1. “Procedure for the supervision and surveillance of NOMs regarding Petroleum Products, Liquefied Petroleum Gas and Natural Gas, subject to compliance by the regulated holders of transportation permits by means other than Liquefied Petroleum Gas pipelines, as well as Distribution and Sale to the Public of Petroleum Products, Liquefied Petroleum Gas and Natural Gas”, published in the DOF on April 3, 2018.
  2. Agreement announcing the single format of Technical Report Type C (Installation) - Distribution of liquefied petroleum gas through a distribution plant, applicable to the procedure for the supervision and surveillance of the NOMs regarding petroleum products, liquefied petroleum gas and natural gas, subject to compliance by the regulated holders of transportation permits by means other than liquefied petroleum gas pipelines, as well as distribution and sale to the public of petroleum products, liquefied petroleum gas and natural gas”, published in the DOF on November 29, 2018.
  3. "Agreement announcing the single format of Technical Report Type D Sale to the public of liquefied petroleum gas, through a service station with a specific purpose, applicable to the Procedure for the supervision and surveillance of the NOMs regarding petroleum products, liquefied petroleum gas and natural gas, subject to observance by the regulated holders of transportation permits by means other than liquefied petroleum gas pipelines, as well as distribution and sale to the public of petroleum products, liquefied petroleum gas and natural gas", published in the DOF on November 29, 2018.

The Quality Infrastructure Law (“LIC”) establishes that the NOMs must be reviewed by the Standardizing Authority[1] corresponding at least every five years after its publication in the DOF or its last modification, through a systematic review process in terms of the LIC Regulations. In this sense, a NOM must establish the infrastructure for the Conformity Assessment[2] applicable to it, which is of utmost importance since this is the determination of the degree of compliance with the NOMs. In relation to the Conformity Assessment, there are Conformity Assessment Bodies[3], who are responsible for carrying out the evaluation of the NOM in question.

It is important to mention that the Agreement does not exempt regulated subjects.[4] to comply with the obligations contained in the various NOMs and administrative provisions that regulate said activities in the hydrocarbon sector.

The Agreement entered into force the day after its publication in the DOF.

[1] LIC Article 4, VI.- Standardizing Authority: the competent departments or entities of the Federal Public Administration that have express powers or faculties to carry out normalization and standardization activities.

[2] LIC Article 4, XI.- Quality Assessment: the technical process that allows demonstrating compliance with the Mexican Official Standards, Standards, International Standards referred to therein or other legal provisions. It includes, among others, sampling, testing, inspection, evaluation and certification procedures.

[3] LIC Article 4, XVII.- Conformity Assessment Bodies: the person accredited by an Accreditation Entity or, where appropriate, by the Standardizing Authority and, when it comes to Mexican Official Standards, Standards, International Standards referred to therein or other legal provisions; in the event that the accreditation is carried out by an Accreditation Entity, the Body must be approved by the competent Standardizing Authority to carry out the Conformity Assessment.

[4] Holders of permits for transportation by means other than pipelines of Liquefied Petroleum Gas, as well as for Distribution and Sale to the Public of Petroleum Products, Liquefied Petroleum Gas and Natural Gas.

If you require additional information, please contact the partner responsible for your matters or one of the lawyers mentioned below:

TERRITORIAL PLANNING WILL RENOVATE PUBLIC SPACES IN MEXICO

First territorial planning regulation will renew public spaces in Mexico

Written by Santamarina + Steta en . Published in Updates.

Printable versionimir | March 2022

  • Public space is essential for the sustainable development of a city and affects people's well-being.
  • NOM-001-SEDATU-2021 establishes and unifies the bases of territorial planning at the national level.
  • Federal, state and municipal governments are required to follow this NOM when preparing plans and programs regarding land use planning and urban development.

On February 22, 2022, the Ministry of Agrarian, Territorial and Urban Development published the “Mexican Official Standard NOM-001-SEDATU-2021. Public spaces in human settlements”.

What is public space?

Public space is the set of areas in cities intended for collective use. It is essential for the sustainable development of a city, and its proper management affects people's well-being by linking areas and providing access to services, while reducing environmental impact and supporting economic development.

Why is this standard important?

This regulation, the first of its kind in Mexico, establishes and unifies the bases of territorial planning focused on the well-being of people and their right to enjoy decent public spaces.

Its objective is:

  • To standardize the terminology, content and methodologies of public spaces in the preparation of urban development and territorial planning plans and programs, including their classification and components.
  • Support local governments in creating more inclusive, safe, resilient and sustainable public spaces at the national level.
  • It provides local governments with self-assessment tools to formulate and implement specific actions to promote and protect their public spaces.
  • Distinguish 15 types of public spaces, classified under three criteria: by their function, by their administration and by the scale of service provided.

Who does this rule impact?

From now on, the three levels of government are required to follow NOM-001-SEDATU-2021 when preparing plans and programs regarding territorial planning and urban development.

The rule will enter into force 60 calendar days after the day following its publication in the DOF. To consult the original publication in the DOF, visit: NOM-001-SEDATU-2021

If you require additional information, please contact the partner responsible for your matters or one of the lawyers mentioned below:

Guarantee of hearing for the people included in the list

Inclusion of a Hearing Guarantee for persons included in the list of blocked persons of the Credit Institutions Act

Written by Santamarina + Steta en . Published in Updates.

Version for iprint | March 2022

  • The Credit Institutions Law establishes that the SHCP must present banking institutions with a list of blocked persons in order to prevent and detect acts, omissions and operations related to terrorist financing.
  • Persons included in the list of blocked persons may assert their rights through the Hearing Guarantee procedure before the Financial Intelligence Unit (FIU).

The Credit Institutions Law is the legal instrument that regulates banking and credit services, as well as the activities and operations that can be carried out, the protection of public interests and the terms under which the State will exercise financial control over the Mexican Banking System.

Article 115 of the Law establishes that the Ministry of Finance and Public Credit must submit to banking institutions a list of blocked persons in order to prevent and detect acts, omissions and operations that could be classified as crimes related to the financing of terrorism.

Amendments to the Credit Institutions Act

On March 11, 2022, the General Congress of the United Mexican States published the “Decree amending the name of Title Five and adding a Chapter V to Title Five of the Credit Institutions Act".

Through this Decree, the Ministry of Finance and Public Credit, in the exercise of its powers, may add a person to the list when it has sufficient evidence that he or she is related to:

  • Terrorism financing crimes
  • Operations with resources of illicit origin
  • Activities associated with the previous crimes

Inclusion of Audience Guarantee

Persons included in the list of blocked persons may exercise their rights through the following procedure before the Financial Intelligence Unit (FIU):

  • The authority will inform the individual of the reasons why he or she is being included on the list of blocked persons.
  • If the individual wishes to exercise his right to a hearing with the corresponding authority, he must request it within five days following the initial notification.
  • Once this has been done, you will be given a period of ten business days, following notification from the credit institution, to offer evidence and make arguments in your defense.
  • The UIF, ex officio or at the request of a party, may extend the deadline for submitting statements, evidence and arguments for a single occasion for up to the same period.
  • Once the deadline for the interested party to respond has elapsed, the UIF will have a period of fifteen working days from the date on which the file is compiled to issue the administrative resolution justifying and justifying the inclusion or elimination of the person on the list.
  • The interested party will be notified of the decision by letter within ten days of its issuance. The interested party may challenge the decision in accordance with the Federal Law on Administrative Procedure.

When a person is included in the list of blocked persons of the Ministry of Finance and Public Credit due to a resolution of the United Nations Security Council, the removal process stipulated by the Committee by which the inclusion was designated will be carried out.

We consider that within the procedure there are certain violations of the right to legal certainty recognized in the Federal Constitution, which could be asserted through the corresponding means of appeal if it is included in the List.

If you require additional information, please contact the partner responsible for your matters or one of the lawyers mentioned below:

ILO Convention 190

Mexico approves Convention 190 of the International Labour Organization

Written by Santamarina + Steta en . Published in Updates.

printable version | March 2022

  • ILO Convention 190 promotes and ensures the enjoyment of the right of every person to a world of work free from violence and harassment.
  • The Mexican State ratified the convention on March 15, 2022, which requires legislation that obliges employers to take measures to prevent violence and harassment, including based on gender.

Convention 190 of the International Labour Organization (ILO) promotes and ensures the enjoyment of the right of every person to a world of work free from violence and harassment. The Convention was adopted on June 29, 2019, and entered into force for Member States that have ratified it on June 25, 2021.

Actions under ILO Convention 190

The Convention obliges Member States to conduct awareness-raising campaigns, prohibit violence and harassment, provide avenues for redress and remedy, protect the privacy and confidentiality of individuals, and provide for sanctions and inspection measures.

Likewise, it must be guaranteed that every worker has the right to leave a work situation without suffering reprisals or other undue consequences if he or she has reasonable grounds to consider that it presents a serious and imminent danger to his or her life, health or safety as a result of acts of violence and harassment, with the duty to report this situation to the company management.

Approval of the Mexican State

On March 15, 2022, the Senate of the Republic unanimously approved the ratification of ILO Convention 190 and, consequently, the Federal Executive Branch may initiate the ratification process on behalf of the Mexican State.

This ratification requires legislation requiring employers to take measures to prevent violence and harassment, including gender-based violence, in particular:

  • Adopt and implement, in consultation with workers and their representatives, a workplace policy regarding violence and harassment.
  • Consider violence and harassment, as well as the associated psychosocial risks, when managing occupational health and safety.
  • Identify hazards and assess the risks of violence and harassment, with the participation of workers and their representatives, and take measures to prevent and control such hazards and risks.
  • Provide workers and other concerned persons, in an accessible manner, with information and training about the identified hazards and risks of violence and harassment, and about the corresponding prevention and protection measures, including the rights and responsibilities of workers and other concerned persons in relation to the implementation of the policy mentioned in point (a).

The full text of ILO Convention 190 can be consulted directly at the following link: ILO Convention 190.

If you require additional information, please contact the partner responsible for your matters or one of the lawyers mentioned below: