The contracting of derivative financial operations (OFD) has increased significantly in recent years in Mexico, due to the coverage needs of companies that, either because of their structure or exposure to risk, require these instruments to be used with the purpose of limiting losses or maximizing profits.

Among the most common contracts we find forwards, swaps, options and cross currency swaps, which may have as underlying commodities, shares or stock indexes, interest rates or baskets of debt instruments and some currencies.   In the provisions there are rules on tax treatment that must be assigned to these operations at the time of their agreement, during their validity and at their natural or anticipated expiration.

A few weeks before the deadline for the presentation of the annual statement for 2017 and the Informative Statement on Tax Situation (DISIF), it is necessary to carry out an in-depth analysis of the tax effects of these operations on the Income Tax , cash, deferred, Value Added Tax and withholdings that may apply, which allow them to make sure that the assigned treatment has been correct.

The following are some of the most relevant aspects to be considered of the Derivative Financial Transactions:

• Business reason in the celebration of derivative financial transactions (hedging or negotiation and its strict indispensability).
• Formalities in the contracting of Derivative Financial Transactions (OFD) (framework, contract and confirmations).
• Reconciliation of the financial valuation of the period under review.
• Reconciliation of the inventory of transactions valued for financial and tax purposes.
• Criteria for the valuation of derivative financial instruments referred to two currencies.
• Use of exchange rates in the Official Gazette of the Federation or those to resolve obligations in the tax valuation and at their expiration.
• Exchange fluctuation of fair value or Mark to Market.
• Identification of the unpaid balances in amortizable operations throughout the instrument´s life.
• Moments of accumulation for the purposes of the provisional payment of Income Tax.
• Impacts of derivative financial transactions from the annual adjustment for inflation.
• Update of the premium on option expiration
• Impacts of derivative financial transactions in the calculation of crediting factor of the Value Added Tax.
• Impact of financial valuations on current, deferred tax and effective rate.
• Issuance of tax receipts for derivative financial transactions (OFD) and the use of their complements, payments abroad, interest payments and forex trading.
• Reporting Obligations in Annual Statement, Informative Statement on Tax Situation (DISIF) and form 76.
• Withholding obligations for payments abroad.