SECOND ADDITIONAL PROTOCOL THAT MODIFIES THE CONVENTION BETWEEN 

THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND 

THE GOVERNMENT OF THE UNITED MEXICAN STATES 

FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF 

FISCAL EVASION WITH RESPECT TO TAXES ON INCOME 

The Government of the United States of America and the Government of the United Mexican 

States, desiring to amend the Convention for the Avoidance of Double Taxation and the 

Prevention of Fiscal Evasion with Respect to Taxes on Income, along with a Protocol(the 

"Convention" and " Protocol", respectively), signed at Washington, D.C. on September 18, 

1992; and 

Having amended the Convention by an Additional Protocol that Modifies the Convention, 

signed at Mexico City on September 8, 1994; 

Have agreed upon the following provisions which shall be an integral part of the Convention: 
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ARTICLE I

Article 1 of the Convention is deleted and the following Article is substituted: 

“ARTICLE 1 

General Scope 

1. This Convention shall apply to persons who are residents of one or both of the 

Contracting States, except as otherwise provided in the Convention. 

2. This Convention shall not restrict in any manner any exclusion, exemption, deduction, 

credit or other allowance now or hereafter accorded: 

a) by the laws of either Contracting State; or 

b) by any other agreement between the Contracting States. 

3. Notwithstanding the provisions of subparagraph b) of paragraph 2: 

a) any question arising as to the interpretation or application of this Convention 

and, in particular, whether a taxation measure is within the scope of this Convention, 

shall be determined exclusively in accordance with the provisions of Article 26 (Mutual 

Agreement Procedure) of this Convention; and 

b) the provisions of any other agreement shall not apply to a taxation measure 

unless the competent authorities agree that the measure is not within the scope of 

Article 25 (Non-Discrimination) of this Convention. 

For the purposes of this paragraph, a “measure” is a law, regulation, rule, procedure, decision, 

administrative action, or any similar provision or action. 

4. Notwithstanding any provision of this Convention except paragraph 5, a Contracting 

State may tax its residents (as determined under Article 4 (Residence)), and by reason of 

citizenship may tax its citizens, as if the Convention had not come into effect. 

5. The provisions of paragraph 4 shall not affect: 

a) the benefits conferred by a Contracting State under paragraph 2 of Article 9 

(Associated Enterprises), under subparagraph b) of paragraph 1 and paragraph 3 of 

Article 19 (Pensions, Annuities, Alimony, and Child Support), and under Articles 22 
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(Exempt Organizations), 24 (Relief from Double Taxation), 25 (Non-Discrimination), 

and 26 (Mutual Agreement Procedure); and 

b) the benefits conferred by a Contracting State under Articles 20 (Government 

Service), 21 (Students), and 28 (Diplomatic Agents and Consular Officers), upon 

individuals who are neither citizens of, nor lawful permanent residents in, that State. 

6. a) A former citizen or long-term resident whose loss of citizenship or long-term 

resident status had as one of its principal purposes the avoidance of tax (as defined 

under the laws of the Contracting State of which the person was a citizen or long-term 

resident) shall be treated for purposes of paragraph 4 of this Article as a citizen of that 

Contracting State, but only for a period of 10 years following the loss of such status. 

This paragraph shall apply only in respect of income from sources within that 

Contracting State (including income deemed under the domestic law of that State to 

arise from such sources). 

b) The term “long-term resident” shall mean any individual who is a lawful 

permanent resident of a Contracting State in 8 or more taxable years during the 

preceding 15 taxable years. In determining whether the threshold in the preceding 

sentence is met, there shall not count any year in which the individual is treated as a 

resident of the other Contracting State under this Convention, or as a resident of any 

country other than the first-mentioned Contracting State under the provisions of any 

other tax treaty of that Contracting State, and, in either case, the individual does not 

waive the benefits of such treaty applicable to residents of the other country. 

7. In the case of an individual who is a former citizen of a Contracting State, the following 

factors shall be considered favorably in determining whether or not one of the principal 

purposes of that individual’s loss of citizenship of that Contracting State was the avoidance of 

tax: 

a) at the time of the individual ceasing to be a citizen of that Contracting State or 

within a reasonable period thereafter, the individual is or becomes a resident fully liable 

to income tax in the other Contracting State, and 
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b) i) the individual was a citizen of both Contracting States at birth and has 

remained a citizen of the other Contracting State; 

ii) at the time of the loss of such citizenship (or within a reasonable period 

thereafter), the individual was or became a citizen of the other Contracting State, 

and that other Contracting State was that individual’s country of birth, or the 

country of birth of that individual’s spouse or of either of that individual’s 

parents; 

iii) in the 10 years preceding the loss of such citizenship, the individual was 

present in that Contracting State for no more than 30 days in each taxable year 

or year of assessment; or 

iv) the loss of citizenship occurred before the individual attained the age of 

18 and one half years. 

8. In the case of an individual who is a former long-term resident of a Contracting State, 

the following factors shall be considered favorably in determining whether or not one of the 

principal purposes of that individual’s ceasing to be a long-term resident of that Contracting 

State was the avoidance of tax: 

a) at the time of the individual ceasing to be a long-term resident of that 

Contracting State or within a reasonable period thereafter, the individual is or becomes 

a resident fully liable to income tax in the other Contracting State, and that other 

Contracting State is: 

i) the country in which the individual was born; 

ii) the country in which the individual’s spouse was born; or 

iii) the country where either of the individual’s parents was born; 

b) in the 10 years preceding the individual’s ceasing to be a long-term resident of 

that Contracting State, the individual was present in that Contracting State for no more 

than 30 days in each taxable year or year of assessment; or 

c) the individual ceases to be a long-term resident of that Contracting State before 

reaching the age of 18 and one half years.” 
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ARTICLE II 

a) Article 10 of the Convention is deleted and the following Article is substituted: 

“ARTICLE 10 

Dividends 

1. Dividends paid by a company which is a resident of one of the Contracting States to a 

resident of the other Contracting State may be taxed in that other State. 

2. However, such dividends may also be taxed in the Contracting State of which the 

company paying the dividends is a resident, and according to the law of that State, but if the 

beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged 

shall not exceed: 

a) 5 percent of the gross amount of the dividends, if the beneficial owner is a 

company which owns directly at least 10 percent of the voting stock of the company 

paying the dividends; and 

b) 10 percent of the gross amount of the dividends in all other cases. 

This paragraph shall not affect the taxation of the company in respect of the profits out of 

which the dividends are paid. 

3. Notwithstanding the provisions of paragraph 2, dividends shall not be taxed in the 

Contracting State of which the company paying the dividends is a resident if the beneficial 

owner is a resident of the other Contracting State and is either: 

a) a company that has owned shares representing 80 percent or more of the voting 

stock of the company paying the dividends for a 12-month period ending on the date the 

dividend is declared, and that: 

i) prior to October 1, 1998 owned, directly or indirectly, shares 

representing 80 percent or more of the voting stock of the company paying the 

dividends; or 
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ii) is entitled to the benefits of the Convention under clauses (i) or (ii) of 

subparagraph d) of paragraph 1 of Article 17 (Limitation on Benefits); or 

iii) is entitled to the benefits of the Convention with respect to the dividends 

under subparagraph g) of paragraph 1 of Article 17; or 

iv) has received a determination from the relevant competent authority 

pursuant to paragraph 2 of Article 17 with respect to this paragraph; or 

b) a trust, company, or other organization constituted and operated exclusively to 

administer or provide benefits under one or more plans established to provide pension, 

retirement or other employee benefits and its income is generally exempt from tax in the 

Contracting State of which it is a resident, provided that such dividends are not derived 

from the carrying on of a business, directly or indirectly, by such trust, company or 

organization. 

4. a) Subparagraph a) of paragraph 2 and subparagraph a) of paragraph 3 shall not 

apply in the case of dividends paid by a Regulated Investment Company (RIC) or a 

Real Estate Investment Trust (REIT). 

b) In the case of dividends paid by a RIC, subparagraph b) of paragraph 2 and 

subparagraph b) of paragraph 3 shall apply. 

c) In the case of dividends paid by a REIT, subparagraph b) of paragraph 2 and 

subparagraph b) of paragraph 3 shall apply only if: 

i) the person beneficially entitled to the dividends is an individual or a 

person described in subparagraph b) of paragraph 3, in either case owning an 

interest of not more than 10 percent in the REIT; 

ii) the dividends are paid with respect to a class of stock that is publicly 

traded and the person beneficially entitled to the dividends owns an interest of 

not more than 5 percent of any class of the REIT’s stock; or 

iii) the person beneficially entitled to the dividends owns an interest of not 

more than 10 percent in the REIT and the gross value of no single interest in real 

property held by the REIT exceeds 10 percent of the gross value of the REIT’s 

total interest in real property. 
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5. The provisions of paragraphs 1, 2, 3 and 4 of this Article shall not apply if the 

beneficial owner of the dividends, being a resident of a Contracting State, carries on or has 

carried on business in the other Contracting State, of which the company paying the dividends 

is a resident, through a permanent establishment situated in that other Contracting State, or 

performs or has performed in that other Contracting State independent personal services from a 

fixed base situated in that other State, and the dividends are attributable to such permanent 

establishment or fixed base. In such case the provisions of Article 7 (Business Profits) or 

Article 14 (Independent Personal Services), as the case may be, shall apply. 

6. The term “dividends” as used in this Article means income from shares or other rights, 

not being debt-claims, participating in profits, as well as income from other corporate rights 

that is subjected to the same taxation treatment as income from shares by the laws of the State 

of which the company making the distribution is a resident. 

7. When a company that is a resident of a Contracting State derives profits or income from 

the other Contracting State, that other State may not impose any tax on the dividends paid by a 

company which is not a resident of that State, except insofar as such dividends are paid to a 

resident of that other State or the dividends are attributable to a permanent establishment or 

fixed base situated in that State. 

8. The competent authorities of the Contracting States shall consult each other with a view 

to develop a commonly agreed application of clause iv) of subparagraph a) of paragraph 3 of 

this Article, including the publication of regulations or other public guidance.” 

b) Paragraph 8 of the Protocol is deleted and the following is substituted: 

“8. With reference to paragraph 3 of Article 10 (Dividends). 

If the United States agrees in a treaty with another country to a provision similar to paragraph 3 

of Article 10 of the Convention, but with more beneficial conditions than those contained in 

paragraph 3 of Article 10, the Contracting States shall, at Mexico’s request, consult each other 

with a view to concluding an additional protocol to incorporate similar provisions into 

paragraph 3 of Article 10 to restore the balance of the benefits provided under the Convention.” 

c) With regard to paragraph 9 of the Protocol, the reference to “paragraph 4 of Article 10 

(Dividends),” is deleted and substituted by “paragraph 6 of Article 10 (Dividends),”. 
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ARTICLE III 

Article 11A of the Convention is amended by inserting an additional paragraph as follows: 

“3. Notwithstanding the provisions of the preceding paragraphs, a company will be exempt 

from the tax described in subparagraph a) of paragraph 2 if such company: 

a) prior to October 1, 1998, was engaged in activities giving rise to profits 

attributable to the permanent establishment described in paragraph 2 or to income 

or gains to which the provisions of Article 6 (Income From Immovable Property 

(Real Property)) or, as the case may be, paragraphs 1 and 4 of Article 13 (Capital 

Gains) apply; 

b) is entitled to the benefits of the Convention under clauses (i) or (ii) of 

subparagraph d) of paragraph 1 of Article 17 (Limitation on Benefits); 

c) is entitled to the benefits of the Convention with respect to the dividends under 

subparagraph g) of paragraph 1 of Article 17; or 

d) has received a determination from the relevant competent authority pursuant to 

paragraph 2 of Article 17 with respect to this paragraph.” 

ARTICLE IV 

Paragraph 4 of Article 13 (Capital Gains) of the Convention is deleted and the following 

paragraph is substituted: 

“4. In addition to gains taxable in accordance with the provisions of the preceding 

paragraphs of this Article, gains derived by a resident of a Contracting State from the alienation 

of stock, participation, or other rights in the capital of a company or other legal person which is 

a resident of the other Contracting State may be taxed in that other Contracting State if the 

recipient of the gain, during the 12-month period preceding such alienation, had a participation, 
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directly or indirectly, of at least 25 percent in the capital of that company or other legal 

person.” 

ARTICLE V 

Paragraph 3 of Article 24 (Relief From Double Taxation) of the Convention is deleted and the 

following is substituted:

“3. For the purposes of allowing relief from double taxation pursuant to this Article, an 

item of gross income, as determined under the laws of a Contracting State, derived by a 

resident of that State that under this Convention may be taxed in the other Contracting State 

(other than solely by reason of citizenship in accordance with paragraph 4 of Article 1 (General 

Scope)), shall be deemed to be income from sources in that other State.” 

ARTICLE VI 

a) The Contracting States shall notify each other, through diplomatic channels, when their 

respective constitutional and statutory requirements for the entry into force of this Protocol 

have been satisfied. This Protocol shall enter into force on the date of receipt of the later of 

such notifications. 

b) The provisions of this Protocol shall have effect: 

i) in respect of Article II, for dividends paid or credited on or after the first day of 

the second month next following the date on which the Protocol enters into force; 

ii) in respect of Articles I, III, IV and V, for taxable periods beginning on or after 

the first day of January of the year following the year in which the Protocol enters into 

force. 
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ARTICLE VII 

This Protocol shall remain in force as long as the Convention and Protocol of September 18, 

1992, remain in force. 

IN WITNESS WHEREOF, the undersigned, being duly authorized thereto by their respective 

Governments, have signed this Protocol. 

DONE at __________________, on the _____ day of ______________, 2002, in duplicate, in 

the English and Spanish languages, both texts being equally authentic. 

FOR THE GOVERNMENT OF THE FOR THE GOVERNMENT OF THE 

UNITED STATES OF AMERICA: UNITED MEXICAN STATES: