US-Mexico Tax Treaty Protocol Comes Into Effect

by Mike Godfrey, Tax-News.com, Washington

10 July 2003

The US Treasury Department announced last week that the Protocol amending the existing bilateral income tax treaty between the United States and Mexico entered into force on Thursday.

In a statement, it revealed that:

'The Protocol, which was signed in Mexico City on November 26, 2002, is only the third agreement entered into by the United States that eliminates source-country withholding taxes on certain intercompany dividends.'

According to the Treasury, this is designed to eliminate potential tax barriers between the two countries, and thus facilitate cross-border investment. The Department also revealed last week that:

'The Protocol...includes provisions that modernize the treaty to take into account developments in the tax laws and treaty policies of both countries since the treaty entered into force in 1993.'

The new provisions in the treaty with regard to the withholding tax on dividends will be effective for dividends paid on or after September 1 this year, the statement concluded. However, all other revisions of the Protocol will be effective with respect to taxable periods beginning on or after January 1, 2004.

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