Mexico: Energy Reform – Chapter II: Income By The State From Activities Of Exploration And Extraction Of Hydrocarbons (Upstream)

Last Updated: 26 June 2015
Article by Turanzas, Bravo & Ambrosi

The State shall receive income from activities in connection with the Exploration and Extraction of Hydrocarbons, including general concepts: (i) fees and (ii) taxes, and (iii) specific: Sign-in bonus, contractual fee, Royalties, specific Considerations set forth in the Contracts, and state Dividend by PEMEX and its EPS.

We believe a classification that provides a practical understanding of such income has been proposed by Carlos Giuliani Fonrouge1 within the scope of Financial Law, which classifies income in tax-based and non-tax-based, depending on the legal tax income of their origin or source.

Tax-based income are those that arise from the legal-tax relationship, that is, taxpayers' obligation to contribute part of their income, profits or yielding to be contributed towards public expense; whereas non-tax based income are those that have another origin or source, they are not generated from the above-mentioned legal-tax relationship.

The regime of tax-based and non-tax-based income for activities in connection with the Exploration and Extraction of Hydrocarbons is established mainly by the LISH, the LPEMEX, and their corresponding regulations.

1. General scheme of tax-based income and non-tax-based income from activities related with the Exploration and Extraction of Hydrocarbons

2. Tax-based Income

Contributions on energy matter arising from activities related to Exploration and Extraction of Hydrocarbons.

The following five are contributions on energy matters arising from activities related to Hydrocarbons:

  1. Fee for shared profits,
  2. Fee for the extraction of Hydrocarbons and
  3. Fee for exploration of Hydrocarbons),
  4. Tax on the activities of Exploration and Extraction of Hydrocarbons.
  5. Income tax for profits arising for Contractors and Assignees.

The three above-mentioned Fees (Fee for shared profits, Fee for the extraction of Hydrocarbons and Fee for exploration of Hydrocarbons), are contributions especially designed for Assignees, which are regulated in the LISH.

Let us be reminded that the only subject that can act as Assignees2 are PEMEX or any other EPE that is holder of an Assignment and operator of an Assignment Area; understanding as Assignment the administrative act by which the Federal Executive grants the right to carry on with Exploration and Extraction activities of Hydrocarbons in the Assignment Area, exclusively to an Assignee, for a given duration.

Taxes for Exploration and Extraction activities of Hydrocarbons are a contribution set forth for Contractors and Assignees, that are also regulated in the LISH; while Income Tax caused by Contractors and Assignees for income arising in connection with their Exploration and Extraction activities shall be caused and determined pursuant to the rules set forth in the LISR, with certain specific rules for their determination set forth in the LISH.

All of the above-mentioned tax-based income, with the exception of the Income Tax, shall be received by the Mexican Fund for Stabilization of Oil and for Development and is exempt from concentration rules contained in the Law on Federal Income.

Let us be reminded that concentration rules contained mainly in Article 12 of the LIF, essentially refer that income collected by agencies of the Federal Public Administration or their de-concentrated administrative bodies for the different concepts set forth in the LIF itself, shall concentrate in the Federal Treasury on the business day following that of their reception and shall, whichever their nature, be reflected both in the records of the Treasury itself, as in the Account of the Federal Public Treasury.

2.1. Fee for shared profits

a) Subjects and Purpose.- The subjects that shall pay the Fee for shared profits are the Assignees, that is, PEMEX or any other EPE that holds an Assignment and is operator of an Assignment Area.

In case SENER authorizes migration of an Assignment to Contracts for Exploration and Extraction, PEMEX or the EPE that acted as Assignee, shall immediately forfeit its quality as subject that shall pay the Fee for shared profits, since such migration implies the extinction of the administrative act of the Assignment giving rise to the applicable legal-tax regime for Contracts for Exploration and/or Extraction.

This same scenario occurs with the rest of the contributions (tax-based income) that an Assignee has obligation to pay.

This Fee has the purpose of taxing the extraction of Hydrocarbons made by Assignees during the corresponding tax year.

b) Grounds.- The grounds for this Fee is the (positive) difference between the value of Hydrocarbons extracted in the corresponding year (including their consumption by the Assignee, as well as any waste for spillages or burn of said products) and permitted deductions.

- Deductible items:

Article 40 of the LISH provides the Fee for extraction of Hydrocarbons actually paid, costs and expenses, the original amount of certain investments as items subject to being deducted from the value of Hydrocarbons extracted in the term, with the following relevant provisions:

(i) Extraction fee for Hydrocarbons actually paid during the corresponding term.

(ii) Costs and expenses.

For the purpose of determining the grounds for this Fee, costs and expenses are the disbursements required for the extraction from the Oil or Natural Gas fields determined in accordance with the Mexican Financial Information Provisions, in the understanding that the only costs and expenses that can be deducted are those of the Exploitation, transportation and delivery of Hydrocarbons.

An exception is set forth for those investments which original amount is also subject to being deducted, which are not considered costs and expenses; this is consistent and avoids duplicity in the deduction.

The rule regarding the time of deduction of costs and expenses is the same set forth for Income Tax purposes, in which these items shall be deducted when they have been effectively paid in the term for which payment is made.

Assignees have a formal obligation to keep record of Exploration and Extraction costs and expenses for each Hydrocarbon's Extraction field, as well as the specific types of Hydrocarbons obtained, which shall be sent regularly to the Lower Chamber (Cámara de Diputados) and the Tax Administration Service (SAT, for its initials in Spanish, Servicio de Administración Tributaria). Such record shall be integrated in accordance with the general rules that are issued for such purpose.

Rule 10.3 of the Miscellaneous Tax Resolution 2015 (RMF 2015, for its initials in Spanish, Resolución Miscelánea Fiscal) provides that Assignees shall submit to SAT information included in the cost and expenses record of exploration and extraction of each Hydrocarbons' extraction field, as well as the type of Hydrocarbons obtained, no later than on February 15 of each year.

(iii) Original investment amount.

The original amount of the following investments may be deducted:

  • 100% of the original investments made in connection with the Exploration, secondary recovery and non-capitalized maintenance, in the year in which they are made.
  • 25% of the original amount of investments made in connection with the development and extraction of Oil or Natural gas fields, in each year.
  • 10% of the original amount of investments made in Storage and transportation infrastructure essential to carry on with the activities under the Assignment, such as oil pipes, gas pipes, terminals or Storage tanks, in each year.

The LISH provides that the original amounts of investments mentioned in items "b" and "c" shall be adjusted pursuant to the ad hoc provisions of the Income Tax, which implies that Assignees must update such original amounts in accordance with the rules set forth for such purpose in Article 31 of the LISR.

Unlike the rule for determining the original amount of investment set forth in the LISR, which provides several items that compose such original amount of investment, the LISH only provides two items to conform said amount: the price of the corresponding investment; and foreign trade duties actually paid in connection with such investments.

It is questionable that the LISH limits or shortens the determination of the original amount of such investments so drastically, because such restrictions imply a determination of a concept that does not match with the economic reality to obtain them.

We want to note that the fact of considering only foreign trade duties actually paid in connection with such investments constituting objects of deduction, as part of the original amount of investment, excludes the possibility of considering DTA as part of such original amount, because their nature is different to that of taxes.

Regarding the moment in which the Assignee can begin to deduct the above-mentioned original amount of investments, the LISH provides a rule that differs from the one set forth in the LISR. Actually, while the latter provides that the taxpayer can begin to deduct investments from the year in which the authorization for the asset begins, or from the following year; the LISH provides that the Assignee may begin to deduct from the moment in which the disbursement is made to acquire the investments, or from their use; we find this rule to be logical and fair, by acknowledging that the right to begin deducting such items is from the moment in which the taxpayer made the disbursement for their acquisition, said rule conforms to the Assignee's economic reality.

To read this Report in full, please click here.


1 Giuliani, Carlos, Derecho Financiero, Ed. Fondo Editorial de Derecho y Economía, Buenos Aires, Argentina.

2 This, consistent with the Administrative Law principle under which entities of public order may hold Assignments inasmuch as private entities of concessions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions