under the domestic laws of the country receiving the information. The exchanged information could be disclosed only to persons or authorities (including courts and administrative bodies) involved in the determination, assessment, collection, or administration of, the recovery and collection of claims derived from, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes to which the treaty would apply. Such persons or authorities could use the information for such purposes only. Persons involved in the administration of taxes include legislative bodies, such as, for example, the tax-writing committees of Congress and the U.S. General Accounting Office. Exchanged information could be disclosed in public court proceedings or in judicial deci

sions.

Explanation of the Tax Information Exchange Agree

ment

Article 1-Object and Scope

The objective of the TIEA is to facilitate the exchange of information between the United States and Mexico on the assessment and collection of taxes, with a view to better enable each country to prevent fiscal evasion and fraud, and to develop improved information sources for tax matters. Under the TIEA, the two countries are to cooperate with one another to carry out this objective. Such cooperation is to be exercised in conformity with, and subject to the limitations of, each country's respective national laws and regulations. Information is to be exchanged to fulfill the purpose of the TIEA without regard to whether the person to whom the information relates is, or whether the information is held by, a resident or national of the United States or Mexico.

Requests for assistance under the TIEA are to be executed except to the extent that execution of the request would require the requested country to exceed its legal authority or would otherwise be prohibited by the laws of that country, or when the information requested is not obtainable under such laws or in the normal course of the administration of either country, in which case the competent authorities of the two countries are to consult with each other to establish alternative lawful means for rendering assistance. Nor must a request for assistance be executed to the extent that (1) execution of the request would in the judgment of the requested country be contrary to its national security or public policy; (2) the supplying of requested information would disclose any trade, business, industrial, commercial, or professional secret or trade process; or (3) the request does not comply with the provisions of the TIEA.

A request for assistance also could be denied to the extent that the supplying of the requested information by the applicant country to administer or enforce a provision of its tax law (or any connected requirement) would discriminate against a national of the country receiving the request. A provision of tax law (or connected requirement) is considered discriminatory against such a person if it is more burdensome with respect to such person than with respect to a national of the country requesting assistance in the same circumstance. The TIEA explicitly states that for purposes of this rule, a national of the requesting country that is subject to tax on

worldwide income is not in the same circumstances as a national of the requested country that is not subject to such taxation. It further states that this provision is not to be construed to prevent the exchange of information with respect to the taxes imposed by the United States or Mexico on branch profits or branch-level interest or on the premium income of foreign insurers.

Article 2-Taxes Covered

In the case of the United States, the TIEA applies to the following taxes: Federal income taxes, Federal taxes on employment income, Federal taxes on transfers to avoid income tax, Federal estate and gift taxes, and Federal excise taxes. In the case of Mexico, it applies to: Federal income taxes, Federal taxes on employment income, Federal taxes on business assets, Federal value added taxes, and Federal excise taxes. The TIEA also applies to any identical or substantially similar taxes which are imposed after the date of signature of the TIEA in addition to or in place of the existing taxes. The competent authority of a country is responsible for notifying the other competent authority of changes in laws which may affect the obligations of that country pursuant to the TIEA.

The TIEA does not apply to the extent that an action or proceeding concerning covered taxes is barred by the statute of limitations of the country requesting assistance. Nor does the TIEA apply to taxes imposed by states, municipalities or other political subdivisions, or possessions of a country.

Article 3-Definitions

The TIEA provides definitions, as set forth below, for certain terms contained therein.

The U.S. competent authority is the Secretary of the Treasury or his delegate. The competent authority in Mexico is the Secretary of Finance and Public Credit.

Under the TIEA, a person is considered a U.S. national if the person is a citizen or any legal person, partnership, corporation, trust, estate, association, or other entity deriving its status as such from the laws in force in the United States. A national of Mexico is a Mexican citizen or any legal person, partnership, corporation, trust, estate, association, or other entity deriving its status as such from the laws in force in Mexico.

The term "person" includes an individual and any legal person, including a partnership, corporation, trust, estate, or association. The term "tax" means any tax to which the TIEA applies.

The term "information" means any fact or statement, in whatever form, that may be relevant or material to tax administration and enforcement, including (but not limited to) testimony of an individual, and documents, records or other personal property of a person or of one of the countries.

For purposes of determining the geographical area within which jurisdiction to compel production of information may be exercised, the term "United States" means the United States of America. The term "Mexico," for this purpose, means the United Mexican States. The TIEA also provides that, unless the context otherwise requires or the competent authorities of the two countries establish a common meaning, all terms not explicitly defined have the mean

ing which they have under the laws of the country applying the TIEA relating to the taxes covered by the TIEA.

Article 4-Exchange of Information

Under the TIEA, the competent authorities of the United States and Mexico are to exchange information to administer and enforce each country's domestic laws concerning covered taxes. Such information includes information to effect the determination, assessment, and collection of tax, the recovery and enforcement of tax claims, or the investigation or prosecution of tax crimes or crimes involving the contravention of tax administration. The competent authorities are to automatically transmit information to each other for this purpose, and are to determine the items of information to be exchanged and the procedures to be used.

A competent authority is to spontaneously transmit to the other competent authority information which has come to its attention and which is likely to be relevant to, and bear significantly on, accomplishment of the purposes of the TIEA. The competent authorities are to determine the information to be exchanged under the TIEA and take such measures and implement such procedures as are necessary to ensure that the information is forwarded to one another.

The competent authority of the country whose assistance is requested under the TIEA is to provide information upon such request. If the information available in its tax files is insufficient to enable compliance with the request, it is to take all relevant measures to provide the requesting country with the information requested. Under the TIEA, the requested country has the authority to: (1) examine any books, papers, records, or other tangible property which may be relevant or material to the inquiry; (2) question any person having knowledge or in possession, custody or control of information which may be relevant or material to the inquiry; (3) compel any person having knowledge or in possession, custody or control of information which may be relevant or material to the inquiry to appear at a stated time and place and testify under oath and produce books papers, records, or other tangible property; and (4) take such testimony of any individual under oath.

If the United States is requested to obtain the types of information covered by section 3402 of the Right of Financial Privacy Act of 1978 (12 UŠCA 3402), it is to obtain the requested information pursuant to that statute. If Mexico is requested to obtain the types of information covered by Article 93 of the Regulatory Law of Banking and Credit Public Service, it is to obtain the requested information pursuant to that provision. Laws or practices of the requested country do not prevent or otherwise affect the authority of the competent authority of the requested country to obtain and provide the types of information covered by the above-cited statutes. Privileges under the laws of the country requesting assistance under the TIEA do not apply in the requested country in the execution of a request. Claims of privilege under the laws and practices of the requesting country are to be determined exclusively by the courts of that country, and claims of privilege under the laws and practices of the requested country are to be determined exclusively by the courts of that country.

If information is requested under the TIEA by one of the countries, the other country is to obtain the information requested in the same manner, and provide it in the same form, as if the tax of the requesting country were the tax of the requested country and were being imposed by it. However, if specifically requested by the competent authority of the requesting country, the other country is to: (1) specify the time and place for the taking of testimony or the production of books, papers, records, and other tangible property; (2) place the individual giving testimony or producing books, papers, records and other tangible property under oath; (3) permit the presence of individuals (who may be accompanied by their attorneys) designated by the competent authority of the country requesting assistance as being involved in or affected by execution of the request; (4) provide individuals described in (3) with an opportunity to question the individual giving testimony or producing books, papers, records and other tangible property through the executing authority (or if Mexico is the requesting country, directly); (5) secure original and unedited books, papers, and records, and other tangible property; (6) secure or produce true and correct copies of original and unedited books, papers, and records; (7) determine the authenticity of books, papers, records, and other tangible property produced; (8) examine the individual producing books, papers, records, and other tangible property regarding the purpose for which and the manner in which the item produced is or was maintained; (9) permit the competent authority of the requesting country to provide written questions through the executing authorities of the requested country to which the individual producing books, papers, records, and other tangible property is to respond regarding the item produced; (10) perform any other act not in violation of the laws or at variance with the administrative practice of the requested country; (11) certify either that procedures requested by the competent authority of the requesting country were followed or that the procedures requested could not be followed, with an explanation of the deviation and the reason therefor.

The provisions of the preceding paragraph are to be construed so as to impose on a country the obligation to use all legal means and its best efforts to execute a request. A country may, in its discretion, take measures to obtain and transmit to the other country information which, pursuant to the limitations of Article 1 of the TIEA, it has no obligation to transmit.

Any information received by a country is to be treated as secret in the same manner as information obtained under its domestic laws and is to be disclosed only to individuals or authorities (including judicial and administrative bodies) involved in the determination, assessment, collection, and administration of, the recovery and collection of claims derived from, the enforcement or prosecution in respect of, or the determination of appeals in respect of, the taxes which are the subject of the TIEA, or the oversight of the above. Such individuals or authorities are to use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

Article 5-Mutual Agreement Procedure

The competent authorities of Mexico and the United States are to agree to implement a program to carry out the purposes of the TIEA. This program may include, in addition to information exchanges specified in the TIEA, other measures to improve tax compliance, such as exchanges of technical know-how, development of new audit techniques (including simultaneous examinations and simultaneous criminal investigations in their respective jurisdictions and by their respective competent authorities), identification of new areas of non-compliance, and joint studies of non-compliance areas. They may communicate with each other directly for the purposes of reaching such an agreement.

The competent authorities are to endeavor to resolve by mutual agreement any difficulties or doubts arising as to the interpretation or application of the TIEA. In particular, they may agree to a common meaning of a term and may determine when costs are extraordinary for purposes of Article 6 of the TIEA.

Article 6-Costs

Unless the competent authorities of the two countries otherwise agree, ordinary costs incurred in providing assistance under the TIEA are to be borne by the country whose assistance is requested. Extraordinary costs incurred in such endeavors are to be borne by the country requesting assistance.

Article 28. Diplomatic Agents and Consular Officers

The proposed treaty contains the rule found in other U.S. tax treaties that its provisions would not affect the privileges of diplomatic agents or consular officials under the general rules of international law or the provisions of special agreements. Accordingly, the treaty would not defeat the exemption from tax which a host country may grant to the salary of diplomatic officials of the other country. The saving clause does not apply in the application of this article to host country residents who are neither citizens nor lawful permanent residents of that country. Thus, for example, U.S. diplomats who are considered Mexican residents may be protected from Mexican tax.

Article 29. Entry Into Force

Under the proposed treaty, each country would be required to notify the other when their respective constitutional and statutory requirements for the entry into force of the proposed treaty have been satisfied. The treaty would enter into force on the date of receipt of the later of such notifications.

With respect to taxes withheld at source (i.e., taxes imposed in accordance with Articles 10 (Dividends), 11 (Interest), and 12 (Royalties)), the proposed treaty would be effective for amounts paid or credited on or after the first day of the second month next following the date on which the proposed treaty enters into force if it enters into force prior to July 1 of that year. Otherwise, it would be effective with respect to these taxes on the first day of January of the year following the year in which the proposed treaty enters into force.

With respect to other income taxes, the treaty would be effective for taxable periods beginning on or after the first day of January