Attorney Files Affidavit for IRS in Whirlpool Tax Court Case

WHIRLPOOL FINANCIAL CORPORATION & CONSOLIDATED SUBSIDIARIES, ET AL,
Petitioners,
V.
COMMISSIONER OF INTERNAL REVENUE,
Respondent

UNITED STATES TAX COURT

Judge Albert Lauber

SECOND AFFIDAVIT OF JAIME ALAN GONZALEZ BENDIKSEN

I, Jaime Alan Gonzalez Bendiksen, swear and affirm under penalties of perjury that the following statements are true and accurate to the best of my knowledge:

1. I have personal knowledge of the matters set forth in this affidavit, and if called upon, could and would testify concerning the same.

2. On April 23, 2019,1 submitted an affidavit in this case (“First Affidavit”). The First Affidavit includes a copy of my curriculum vitae (Attachment 1 to the First Affidavit).

3. As set forth in the First Affidavit, I am an attorney and founding partner of Bendiksen, Diedrich, Enriquez, Salazar, Santoyo & Yanar, S. C. From 1970-2011,1 practiced with the law firm of Baker & McKenzie, where I was elected partner in 1977. I have written on Mexican tax law issues for Commerce Clearing House (CCH), World Tax Executives, Inc., Thomson Reuters, Tax Notes International, and the Bureau of National Affairs (BNA), among others.

I. WOM Did Not Have a Permanent Establishment in Mexico

4. In 2009, the eighth paragraph of Article 2 (“Article 2(8)”) of the Mexican Income Tax Law (“MITL”) states that:

A nonresident shall not be deemed to have a permanent establishment in Mexico, deriving from the legal or economic relationship with entities carrying on maquila operations, who habitually process in Mexico goods or merchandise kept in Mexico by the nonresident, using assets furnished, directly or indirectly, by the nonresident or any related entity, provided Mexico has executed, with the country of residence of the nonresident, a treaty to avoid double taxation, and the requirements in such treaty, including the mutual agreements entered into under the treaty, as implemented by the parties, to consider that the nonresident has no permanent establishment in Mexico, are complied with. The provision of this paragraph will only apply provided that the enterprise carrying on maquila operations complies with the provisions of Article 216 Bis of this law.

The First Affidavit includes a true and correct copy of Article 2 of the MITL, including an English translation (Attachment 8 to the First Affidavit).

5. In 2009, if a nonresident of Mexico is a resident of a country which has a double taxation treaty with Mexico, and if the enterprise carrying on maquila operations for the nonresident complies with the provisions of Article 216 Bis of the MITL and the Decree to Promote the Manufacturing, Maquila and Services Expert Industry (the “IMMEX Decree”), the “nonresident shall not be deemed to have a permanent establishment in Mexico” deriving from the legal or economic relationship with the entity carrying on maquila operations. See Article 2(8) of the MITL (emphasis added); see also Article 2 of the MITL, ninth paragraph; Article 216 Bis of the MITL, first paragraph; First Affidavit fl 20.

6. In 2009, when a nonresident is deemed not to have a permanent establishment in Mexico under Article 2(8) of the MITL, a permanent establishment does not arise. In other words, the nonresident does not have a permanent establishment in Mexico that Mexico decides not to tax, as no permanent establishment exists at all.

7. In 2009, under Article 1(11) of the MITL, individuals and corporations resident abroad who have a permanent establishment in Mexico are subject to income tax in Mexico regarding the income attributable to the permanent establishment. Accordingly, if a permanent establishment does not exist, Article 1(11) does not apply; therefore, the nonresident is not a Mexican taxpayer and is not subject to taxation in Mexico. The First Affidavit includes a true and correct copy of Article 1 of the MITL, including a translation in English (Attachment 2 to the First Affidavit).

8. In 2009, the primary difference between not having a permanent establishment and having a permanent establishment the income of which is exempt from Mexican income tax is that in the first instance, the nonresident is not a taxpayer in Mexico, while under the second scenario, the nonresident would be a taxpayer in Mexico but the specific item of exempted income would not be subject to tax in Mexico.

9. For example, in 2009, Article 1(1) of the MITL provides that individuals residing in Mexico are subject to taxation on their worldwide income. Accordingly, these individuals are Mexican taxpayers. However, Article 109(XVII) of the MITL provides that individuals subject to tax in Mexico are exempted from paying income taxes on income from life insurance proceeds. Therefore, these individuals are not subject to tax on income from life insurance proceeds; however, these individuals continue to be Mexican taxpayers with all inherent taxpayer obligations. See Article 1(1) of the MITL; Article 109(XVII) of the MITL. Attached as Attachment 1 is a true and correct copy of Article 109 of the MITL, including an unofficial English translation.

10. Because WOM is a resident of Luxembourg, a country which has a double taxation treaty with Mexico, and because WIN complied with all of the requirements of the IMMEX Decree and Articles 2(8) and 216 Bis of the MITL,¹ in 2009 WOM was deemed not to have a permanent establishment in Mexico under Article 2(8) of the MITL.

11. In 2009, because WOM was deemed not to have a permanent establishment in Mexico, WOM did not have a permanent establishment in Mexico. Accordingly, in 2009, WOM was not a Mexican taxpayer and was not subject to tax in Mexico.

12. In 2009, if WOM had a permanent establishment in Mexico, but Mexico exempted the profits attributable to such permanent establishment in Mexico from taxation, then, by virtue of having a permanent establishment, WOM would have been a Mexican taxpayer under Article 1(11) of the MITL, and, as such, as prescribed in Article 4 of the MITL, WOM would have been subject to all of the obligations of Mexican corporate taxpayers set forth in Title II (Articles 10 through 92) of the MITL, including carrying Mexican books of account, issuing Mexican invoices, filing Mexican income tax returns and securing a Mexican tax identification number, as prescribed in Article 86 (I), (II) and (VI) of the MITL and Article 27 first paragraph of the Código Fiscal de la Federación (the “Mexican Federal Fiscal Code”). Attached as Attachment 2 is a true and correct copy of Article 4 of the 2009 MITL, including an unofficial English translation. Attached as Attachment 3 is a true and correct copy of Article 86 of the MITL, including an unofficial English translation. Attached as Attachment 4 is a true and correct copy of Article 27 of the Mexican Federal Fiscal Code, including an unofficial English translation.

13. In 2009, WOM did not have a Mexican tax identification number. See Petitioners' Response to Respondent's First Branerton Request, p. 14, Response to Request 15. Attached as Attachment 5 is a true and correct copy of Petitioners' Response to Respondent's First Branerton Request.

14. In 2009, WOM did not file a Mexican income tax return. See Petitioners' Supplemental Response to Respondent's First Branerton Request, p, 15, Response to Request 7,f(5)(B). Attached as Attachment 6 is a true and correct copy of Petitioners' Supplemental Response to Respondent's First Branerton Request.

15. In 2009, because WOM did not obtain a Mexican tax identification number, file a Mexican income tax return, or otherwise comply with the obligations of a Mexican corporate taxpayer, WOM necessarily took the position that it did not have a permanent establishment in Mexico.

Further Affiant sayeth naught.

Jaime Alan Gonzales Bendiksen