Transfer Pricing Aspects Of Phase 2 In The International Public Bidding Process For Hydrocarbon Exploration And Extraction Contracts In Mexico (Round One) - Government - Mondaq Mexico - Mondaq Business Briefing - Books and Journals - VLEX 575924030

Transfer Pricing Aspects Of Phase 2 In The International Public Bidding Process For Hydrocarbon Exploration And Extraction Contracts In Mexico (Round One)

Author:Mr Carlos Linares-García, Marco Molina-Amaya, Daniel Williams-de La Cruz and Alejandro Zavala-Rosas
Profession:Baker & McKenzie
 
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On December 11, 2014 call for biddings CNH-R01-C01/2014 was published in the Federal Official Gazette ("DOF"), whereby the National Hydrocarbons Commission (the Comisión Nacional de Hidrocarburos or "CNH") of Mexico called national or foreign legal entities and the State's productive enterprises to participate in the first stage of Round One for the awarding of Hydrocarbon Exploration and Extraction Contracts (Contratos de Exploración y Extracción de Hidrocarburos, or "CEE"). During that Round One stage, the CNH will hold biddings for 14 contractual areas of exploration and extraction of hydrocarbons in shallow waters of the coasts of the states of Veracruz, Tabasco, and Campeche. As part of the bidding rules published with respect to that call for bids, the model contract for the first phase of Round One was issued ("MC1"), in two versions: one for consortium contractors and another for contractors.

Thereafter, on February 27, 2015, the second stage of Round One was issued in call for biddings CNH-R01-C02/2015, tendering nine fields for the exploitation of shallow waters in five CEEs in the Gulf of Mexico1. Similarly, as part of the bidding rules for this stage, the model contract ("MC2") was published in the aforesaid versions. This model contract contains significant differences with respect to MC1, in aspects such as the recording of costs, expenses and investments, procurement procedures, and intercompany transactions, among others.

In this regard, on March 6, 2015, the "Guidelines for the preparation and presentation of costs, expenses and investments; the procurement of goods and services in contracts and assignments; the accounting and tax review of contracts; and the updating of royalties in contracts and the hydrocarbon extraction fee" (the "Guidelines") were published in the DOF by the Ministry of Finance and Public Credit (the "SHCP" for its Spanish acronym), among other things to avoid abuse in the acquisition of goods and the contracting of services at costs above market benchmarks, so as to ensure the maximization of the nation's revenues. In this sense, it should be noted that, unlike MC1, MC2 is consistent with the Guidelines in the recording of costs, expenses and investments, procurement procedures, and intercompany transaction issues mentioned above.

This alert provides an analysis of the aforesaid issues in both MC2 and the Guidelines, emphasizing the differences vis-à-vis the provisions of MC1.

Consideration

MC2 contains significant differences with respect to MC1, with regard to the procedure to determine the consideration of the State and the contractor, specifically with respect to the mechanics for calculating the Contractual Price of Hydrocarbons. The most important change lies in the fact that, unlike MC1, MC2 does not consider the possibility that the Contractual Prices may correspond to arm's length prices in related-party transactions.

This is due to the MC2 definition of Market Rules, referring to the mechanism to determine the contractual price of hydrocarbons. In particular, MC2 defines Market Rules as the "competitive principle whereby the parties involved in a transaction are unrelated and participate in like conditions according to their own...

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