2019-08-16 | DOF 5568225Added
The Mexican Secretariat of Finance and Public Credit establishes the requirements for Assignees to qualify for fiscal stimuli regarding hydrocarbon extraction costs and expenses. Assignees must demonstrate that hydrocarbon extraction in their Assignment Area is profitable by calculating Net Present Value against the 33rd percentile of a distribution function. The administrative unit has 60 business days to validate these requests, which must be submitted by the last business day of March, with specific documentation regarding costs, reserves, and production profiles required.
DOF: 16/08/2019
GENERAL PROVISIONS Referenced in Article Six of the Decree Granting Tax Benefits to Specified Taxpayers, Published May 24, 2019
A seal with the National Coat of Arms appears at the margin, stating: United Mexican States.- GOVERNMENT OF MEXICO.-
FINANCE.- Secretariat of Finance and Public Credit.- Unit of Non-Tax Revenue Policy.
IVÁN CAJEME VILLARREAL CAMERO, Head of the Unit of Non-Tax Revenue Policy of the Secretariat of Finance and Public Credit, based on the provisions of Article Six of the Decree Granting Tax Benefits to Specified Taxpayers, published in the Official Journal of the Federation on May 24, 2019; as well as Article 38, Section XXVIII of the Internal Regulations of the Secretariat of Finance and Public Credit, hereby make known the general provisions necessary for the application of the Decree Granting Tax Benefits to Specified Taxpayers, published in the Official Journal of the Federation on May 24, 2019, and
CONSIDERING
That the Head of the Federal Executive deemed it necessary to grant a fiscal stimulus to Assignee companies for the development of their exploration and extraction activities;
That in view of the above, on May 24, 2019, the "Decree Granting Tax Benefits to Specified Taxpayers" was published in the Official Journal of the Federation, through which a fiscal stimulus is granted to Assignees in Articles Second and Third regarding the percentage applicable for the limit on the amount of deduction for costs, expenses, and investments in the calculation of the right to shared profit, in accordance with Articles 41, Sections I and II, and 42, Section I, subsections a) and b) of the Hydrocarbon Revenue Law;
That the application of the aforementioned Decree allowed Assignees to apply deduction limits for costs, expenses, and investments higher than those provided in the Hydrocarbon Revenue Law in Assignments that have not previously obtained a fiscal benefit;
That the application of the Decree seeks to promote additional benefits with the aim of generating conditions that allow Assignees to meet production commitments established for the benefit of hydrocarbon extraction activities in the country;
That the fiscal stimulus will be granted with profitability criteria that take into account the financial conditions of the Assignees, enabling them to achieve a more solid and sustainable position in the medium term;
That in accordance with the above, I have deemed it appropriate to issue the following:
GENERAL PROVISIONS REFERENCED IN ARTICLE SIX OF THE DECREE GRANTING TAX BENEFITS TO SPECIFIED TAXPAYERS, PUBLISHED IN THE OFFICIAL JOURNAL OF THE FEDERATION ON MAY 24, 2019
CHAPTER I
GENERAL PROVISIONS
Article 1. These General Provisions are mandatory and aim to establish the requirements that Assignees must meet to be entitled to the fiscal benefits granted through the Decree.
The Secretariat of Finance and Public Credit, through the Administrative Unit, is responsible for interpreting these General Provisions for administrative purposes. In order to achieve the objectives of the Decree, the interpretation must favor the meaning that prioritizes the fulfillment of its purposes.
Article 2. For the application and interpretation of these General Provisions, the definitions provided in the Hydrocarbon Law, the Hydrocarbon Revenue Law, and their respective Regulations shall apply, as well as the following:
I. Total Costs: Sum of all capital costs and operating costs incurred for the extraction of hydrocarbons in the extraction area during a specific period.
II. Decree: Decree Granting Tax Benefits to Specified Taxpayers, published in the Official Journal of the Federation on May 24, 2019.
III. Provisions: General Provisions referenced in Article Six of the Decree.
IV. Gross Income: Amount obtained from the sale of extracted hydrocarbons in the Assignment Area, resulting from multiplying the quantity of hydrocarbon by its price during a specific period.
V. Distribution Function: Mathematical function that describes the probability that the value taken from a group of observations has a value less than or equal to a certain given value.
VI. Percentile: A measure of position used in statistics that indicates, once data are ordered from smallest to largest, the value of the variable below which a certain percentage of data is found.
VII. Administrative Unit: Unit of Non-Tax Revenue Policy of the Undersecretariat of Revenues of the Secretariat of Finance and Public Credit, or the administrative unit of the Secretariat of Finance and Public Credit that, if applicable, replaces it, responsible for analyzing the validation request and issuing the corresponding response, as referred to in Article Five of the Decree.
CHAPTER II
ON CRITERIA
Article 3. For the purposes of Article Five, Section IV, subsections a), b), and c) of the Decree, Assignees must demonstrate that hydrocarbon extraction in the Assignment Area is profitable, according to the following criteria:
The procedure to be followed to calculate the available income of the Assignment Area to be used in the application of the aforementioned formula, for the purposes of the economic evaluation referred to in Section IV of Article Five of the Decree:
For the purposes of subsection a) of Section IV of Article Five of the Decree, in a given year, available income before applying the corresponding duties and taxes in accordance with applicable regulations, shall be calculated by subtracting Total Costs from Gross Income. The result obtained will be used to calculate the Net Present Value and demonstrate the profitability of extraction in the Assignment Area before the application of the corresponding duties and taxes in accordance with applicable regulations.
For the purposes of subsection b) of Section IV of Article Five of the Decree, in a given year, available income after applying the corresponding duties and taxes in accordance with applicable regulations, shall be calculated by subtracting Total Costs and the corresponding duties and taxes from Gross Income. This result will be used to calculate the Net Present Value and demonstrate the profitability of the Assignment Area after applying the corresponding duties and taxes in accordance with applicable regulations.
For the purposes of subsection c) of Section IV of Article Five of the Decree, in a given year, available income after applying the corresponding duties and taxes in accordance with applicable regulations, as well as the stimulus established in the Decree, shall be calculated by subtracting from Gross Income the Total Costs and the corresponding duties and taxes in accordance with applicable regulations, which will consider the application of the fiscal stimulus established in the Decree. The resulting value will be used to calculate the Net Present Value and demonstrate the profitability of the Assignment Area after applying the corresponding duties and taxes in accordance with applicable regulations, as well as the stimulus established in the Decree.
II. The 33rd percentile (P33) of the Distribution Function of the Net Present Value for the set of Assignments presented by the Assignee that have a positive Net Present Value before the application of the corresponding duties and taxes in accordance with applicable regulations will be identified.
Since P33 can assume a range of values, to apply the provisions in the following section, the numerical value that maximizes the quantity of average daily annual barrels of oil and its condensates that would benefit from the fiscal stimulus provided in the Decree will be used.
III. Hydrocarbon extraction in the Assignment Area in question shall be considered profitable when its Net Present Value is greater than or equal to the value of P33.
The feasibility analysis referred to in the second paragraph of Section IV of Article Five of the Decree must contain, at least, a work plan that includes a diagnosis of the problematic situation facing the Assignment Area to increase profitability, as well as the details of the actions to be undertaken in the short term to make hydrocarbon extraction in the Assignment Area viable in accordance with the Decree.
CHAPTER III
ON THE VALIDATION REQUEST
Article 4. For the purposes of Article Five of the Decree, the Assignee may submit their validation request no later than the last business day of March of the fiscal year in question, accompanied by the information or documentation provided for in Sections II and III of Article Five of the Decree.
The Administrative Unit will respond to the validation request no later than within the following 60 business days counted from the day following the day on which the Assignee submits the corresponding request.
The Administrative Unit may notify the Assignee within 10 business days counted from the day following the receipt of the validation request, through a request for additional information, granting a period of 10 business days to respond.
The period referred to in the second paragraph of this article shall be suspended from the date on which the Administrative Unit issues the notification until the period granted to the Assignee to submit the requested information has elapsed.
If the Assignee does not deliver the information or does not deliver it in the terms required by the Administrative Unit, the latter may require it again from the Assignee, in accordance with the aforementioned period; warning them that if they fail to do so within the 10-day period, they will be considered to have withdrawn the request.
Article 5. For the purposes of the previous Article, in addition to the information required in Article Five of the Decree, the Administrative Unit may request the Assignee to provide the following:
I. Profiles of operating expenses, investments, and well drilling in the Assignment Areas, as well as any clarifying documentation of income and expenses thereof.
II. The remaining fiscal value of assets in the Assignment Areas.
III. The value of remaining proven (1P) and probable (2P) hydrocarbon reserves in the Assignment Areas.
IV. Observed and expected profiles of annual production broken down by type of hydrocarbon in the Assignment Areas.
V. Information on exchange rates, average crude oil price, and average natural gas price used in the estimates.
VI. Any other information determined by the Administrative Unit.
TRANSITIONAL PROVISIONS
FIRST. These Provisions shall enter into force the day following their issuance.
SECOND.- During the year 2019, for the purposes of submitting the validation request, the provisions of the Second Transitional Provision of the Decree shall apply.
Mexico City, August 14, 2019.- The Head of the Unit of Non-Tax Revenue Policy, Iván Cajeme Villarreal Camero.- Signature.
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