On November 12, 2024, the Decree granting a deferral of the moment of accrual of the interest obtained in swap transactions which underlying indicator is the Interbank Equilibrium Interest Rate (“TIIE” for its acronym in Spanish) for a term of 28 days, converted into other swap transactions, and which underlying indicator is the Interbank Equilibrium Interest Rate for a term of one banking business day referred to as Funding TIIE (“TIIE de Fondeo”), in order for such transactions to be considered as a single integrated financial derivative transaction with the corresponding tax effects, was published in the Official Gazette of the Federation ("DOF").
Such decree has been issued to facilitate the transition to the use of the TIIE de Fondeo within standardized derivative transactions, in line with the international recommendations regarding the characteristics that the reference rates should have and to avoid the reputational risk and uncertainty that could be generated by the delay or the lack of conversion of swap contracts from TIIE 28 to TIIE de Fondeo.
In this regard, Article First of the Decree establishes that individuals and legal entities residing in Mexico and abroad who are subject to income tax and are party to a swap derivative transaction which underlying indicator is the TIIE 28, may opt for the deferral of the moment of accrual for tax purposes of the interest earned in the conversion of such swap transaction into the following set of transactions:
I. A second swap derivative transaction with identical characteristics to the original one, however, with maturity date no later than December 31, 2025; and
II. A third swap derivative transaction with the TIIE de Fondeo as underlying indicator, with the date of maturity of the second transaction as starting date and with a maturity date equal to that of the first derivative transaction prior to the conversion.
The aforementioned financial derivative transactions shall be considered as a single integrated financial derivative transaction as a whole, and which maturity date shall correspond to that of the third swap derivative transaction.
On the other hand, Article Second of the Decree establishes that the deferral may take place as long as the following conditions are met:
1) All the financial derivative transactions shall qualify as standardized derivative operation (as defined in accordance with Circular4/2012 of the Bank of Mexico, published in the DOF on March 2, 2012, and its subsequent amendments);
2) They shall be offset and settled in a clearing house acting as a central counterparty and approved by the Bank of Mexico, or by a foreign institution acting as a central counterparty in terms of the aforementioned Circular 4/2012 and its subsequent amendments;
3) That the parties to the agreements of the referred financial derivative transactions are the same as those of the conversion;
4) That in the cases of financial derivative transactions in which differences are settled during their term thereof, the conversion and the maturity of the second swap transaction are considered as one more settlements of the integrated operation, triggering the taxable or deductible interest, as appropriate, in accordance with the Income Tax Law;
5) That the deduction of the amounts corresponding to the interest payable in the financial derivative transactions referred to in the previous numeral takes place on the next settlement date; and
6) That the conversion takes place no later than December 31, 2024.
On the other hand, Article Third of the Decree establishes that the deferral granted will be terminated in any of the following cases:
1) At the time of settlement following the conversion or following the maturity of the second swap transaction;
2) At the time of disposal of the rights or obligations recorded in the securities or contracts in which any of the referred derivative financial transactions that make up the integrated financial derivative transaction are recorded; or
3) At the time of maturity of the integrated financial derivative transaction.
Likewise, in the event that due to the conversion a cash amount is received or paid, the deferral will not be applicable and at the time of the conversion the interest shall be accrued or deducted, as appropriate.
Finally, the Tax Administration Service is empowered to issue the general guidelines necessary for the correct enforcement of the Decree, in which case we will inform you.
The Decree entered into force on November 13, 2024, and in accordance with Article Second, section V, the conversions must be effected no later than December 31, 2024.
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