At the moment of signing 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 undersigned have agreed upon the following provisions which shall be an integral part of the Convention. 　　1. With reference to paragraphs 1(f) and (g) of Article 3 (General Definitions), When referred to in a geographical sense, Mexico and the United States include the areas of the seabed and subsoil adjacent to their respective territorial seas in which they may exercise rights in accordance with domestic legislation and international law. 　　2. With reference to paragraph 1 of Article 4 (Residence), For purposes of paragraph 1 of Article 4 it is understood that: 　　a) Mexico shall consider a United States citizen or an alien admitted to the United States for permanent residence (a "green card" holder) to be a resident of the United States only if the individual has a substantial presence in the United States or would be a resident of the United States and not of another country under the principles of subparagraph (a) and (b) of paragraph 2 of that Article; 　　b) a partnership, estate, or trust is a resident of a Contracting State only to the extent that the income it derives is subject to tax in that State as the income of a resident, either in the hands of the partnership, estate or trust, or in the hands of its partners or beneficiaries; 　　c) the term "resident" also includes a Contracting State or a political subdivision or local authority thereof. 　　3. With reference to Articles 5 (Permanent Establishment), 6 (Income from Immovable Property (Real Property)), 7 (Business Profits) and 12 (Royalties), 　　It is understood that the asset tax imposed by Mexico shall not be applied to residents of the United States that are not subject to tax under the terms of Articles 5 and 7 of this Convention, except for the assets referred to in paragraph 2 of Article 6 and in paragraph 3 of Article 12 that are furnished by those residents to a resident of Mexico. In the former case, Mexico shall grant a credit against the tax on such assets in an amount equal to the income tax that would be imposed under the Mexican Income Tax Law on the gross income (if any) referred to in paragraph 1 of Article 6, whether or not the resident of the United States makes the election under paragraph 5 of Article 6 to be taxed on a net basis, provided less than 50 percent of the United States resident's gross income from such assets is used directly or indirectly to meet liabilities (including liabilities for interest) to persons who are not United States residents. In the latter case, Mexico shall grant a credit against the tax on such assets in an amount equal to the income tax that would have been imposed on the royalties paid (if any) applying the rate of tax provided in the Mexican Income Tax Law instead of the rate provided in Article 12. 　　4. With reference to Article 7 (Business Profits), 　　Nothing in this Article shall affect the application of any law of a Contracting State relating to the determination of the tax liability of a person in any case where the information available to the competent authority of that State is inadequate to determine the profits to be attributed to a permanent establishment or in the cases covered by Article 23 of the Income Tax Law of Mexico, provided that, on the basis of the available information, the determination of the profits of the permanent establishment is consistent with the principles stated in this Article. 　　5. With reference to paragraph 3 of Article 7 (Business Profits), Expenses allowed as a deduction include a reasonable allocation of research and development expense, interest, and other expenses incurred in the taxable year for the purposes of the enterprise as a whole (or the part thereof which includes the permanent establishment), regardless of where incurred, but only to the extent that such expenses have not been deducted by such enterprise and are not reflected in other deductions allowed to the permanent establishment, such as the deduction for the cost of goods sold or of the value of the purchases. 　　6. With reference to Article 8 (Shipping and Air Transport), Residents of the United States, whose profits derived from Mexico may not be taxed by Mexico in accordance with the provisions of Article 8 of the Convention, may not be subject to the Mexican assets tax on the assets used to produce such profits. 　　7. With reference to Article 9 (Associated Enterprises), 　　The provisions of paragraph 2 shall not apply in the case of fraud, gross negligence, or willful default. 　　8. With reference to paragraphs 2 and 3 of Article 10 (Dividends), 　　a) In the case of the United States, subparagraph (a) of paragraph 2 shall not apply to dividends paid by a United States Regulated Investment Company or a Real Estate Investment Trust. Subparagraph (b) of paragraph 2 and paragraph 3 shall apply in the case of dividends paid by a Regulated Investment Company. In the case of dividends paid by a Real Estate Investment Trust, subparagraph (b) of paragraph 2 and paragraph 3 shall apply if the beneficial owner of the dividends is an individual holding a less than 10 percent interest in the real estate investment trust; otherwise the rate of withholding applicable under domestic law shall apply. 　　b) If the United States agrees in a treaty with another country to impose a lower rate on dividends than the rate specified in subparagraph (a) of paragraph 2, both Contracting States shall apply that lower rate instead of the rate specified in subparagraph (a) of that paragraph. 　　9. With reference to paragraph 3 of Article 7 (Business Profits), paragraph 4 of Article 10 (Dividends), and paragraph 5 of Article 11 (Interest), 　　If the law of a Contracting State calls for a payment to be characterized in whole or in part as a dividend or limits the deductibility of such payment because of thin capitalization rules or because the relevant debt instrument includes an equity interest, the Contracting State may treat such payment in accordance with such law. 　　10. With reference to paragraphs 2, 3, and 4 of Article 11 (Interest), 　　a) The provision, of paragraphs 2, 3, and 4 shall not apply to a Mexican resident that is a holder of a residual interest in a U.S. real estate mortgage investment conduit (REMIC) with respect to any excess inclusion. Upon notification of the United States competent authority by the Mexican competent authority that, after this treaty takes effect, Mexico has authorized the marketing of securitized mortgages in a manner identical to a REMIC, the provisions of paragraphs 2, 3, and 4 also shall not apply to a U.S. resident that is a holder of an interest in any such entity with respect to income that is comparable to an excess inclusion. Moreover, if either of the Contracting States develops an entity that, although not identical to a REMIC, is substantially similar to a REMIC or an instrument that is substantially similar to a residual interest in a REMIC, the competent authorities of the Contracting States shall consult to determine whether the treatment provided in this paragraph for REMICs shall apply to such instrument or entity. 　　b) With reference to subparagraph b (ii) of paragraph 2 of Article 11, the rate specified shall apply only if the beneficial owner of the interest is the original seller of the machinery and equipment. If the original seller transfers the beneficial ownership of the interest, the identity of the transferee will determine the rate of tax that may be charged upon the interest by the Contracting State in which the interest arises. 　　11. With reference to paragraph 3 of Article 12 (Royalties), It is understood that the term "information concerning industrial, commercial or scientific experience"　will be defined in accordance with paragraph 12 of the commentary on Article 12 (Royalties) of the 1977 Model Convention for the Avoidance of Double Taxation with Respect to Taxes on Income and on capital of the Organization for Economic Cooperation and Development. 　　12. With reference to paragraph 2 of Article 13 (Capital Gains), The term "immovable property situated in the other Contracting State", as described in this paragraph, when the United States is that other Contracting State includes a United States real property interest. 　　13. With reference to paragraph 4 of Article 13 (Capital Gains), For purposes of this paragraph, no tax shall apply in the case of a transfer of property between members of a group of companies that file a consolidated tax return, to the extent that the consideration received by the transferor consists of participation or other rights in the capital of the transferee or of another company resident in the same Contracting State that owns directly or indirectly 80 percent or more of the voting rights and value of the transferee, if: 　　a) the transferor and transferee are companies resident in the same Contracting State: 　　b) before and immediately after the transfer, the transferor or the transferee owns, directly or indirectly, 80 percent or more of the voting rights and value of the other, or a company resident in the same Contracting State owns directly or indirectly (through companies resident in the same Contracting State) 80 percent or more of the voting rights and value of each of them; and 　　c) for the purpose of determining gain on any subsequent disposition, 　　(i) the initial cost of the asset for the transferee is determined based on the cost it had for the transferor, increased by any cash or other property paid, or 　　(ii) the gain is measured by another method that gives substantially the same result. Notwithstanding the foregoing, if cash or property other than such participation or other rights is received, the amount of the gain (limited to the amount of cash or other property received), may be taxed by the other Contracting State. 　　14. With reference to paragraph 1 of Article 14 (Independent Personal Services), Article 14 shall also apply to income derived by a company which is a resident of the United States from the furnishing of personal services through a fixed base in Mexico in accordance with subparagraph (a) of paragraph 1. In that case, the company may compute the tax on the income from such services on a net basis as if that income were attributable to a permanent establishment in Mexico. 　　15. With reference to paragraph 2 of Article 11 (Interest), paragraph 2 of Article 11A (Branch Tax), and paragraph 1 of Article 17 (Limitation on Benefits), 　　a) For purposes of subparagraph (c) of paragraph 1 of Article 17 and paragraph 2 of Article 11A, the term "trade or business" means, in the case of Mexico, activities carried on through a permanent establishment as defined in the Income Tax Law of Mexico. 　　b) For purposes of subparagraph (a)(ii) of paragraph 2 of Article 11 and subparagraph (d) of paragraph 1 of Article 17, the term "recognized securities exchange" means: 　　(i) the NASDAQ System owned by the National Association of Securities Dealers, Inc. and any stock exchange registered with the Securities and Exchange Commission as a national securities exchange for purposes of the Securities Exchange Act of 1934; 　　(ii) stock exchanges duly authorized under the terms of the Stock Market ("Mercado de Valores") Law of January 2, 1975; and 　　(iii) any other stock exchange agreed upon by the competent authorities of the Contracting States. 　　c) For purposes of subparagraph (f)(ii) of paragraph 1 of Article 17, the term "gross income" means gross receipts, or where an enterprise is engaged in a business which includes the manufacture or production of goods, gross receipts reduced by the direct costs of labor and materials attributable to such manufacture or production and paid or payable out of such receipts. 　　d) the provisions of subparagraphs (d)(iii) and (g) of paragraph 1 of Article 17 shall only take effect when NAFTA enters into force. 　　16. With reference to Article 18 (Artistes and Athletes), Remuneration derived by an entertainer or athlete who is a resident of a Contracting State shall include remuneration for any personal activities performed in the other Contracting State relating to that individuals reputation as an entertainer or athlete. The provisions of this Article shall not apply to auxiliary or supporting personnel, such as technicians, or to managers or coaches, who shall remain subject to the provisions of Articles 14 and 15. 　　17. With reference to paragraphs 1, 2, and 3 of Article 22 (Exempt Organizations), 　　a) The certification made by a Contracting State of the status of a resident of that State as an organization which is operated exclusively for religious, scientific, literary, educational or other charitable purposes and exempt from tax in that State shall be accepted by the other Contracting State for the purpose of allowing such organization to be exempt from tax in that other Contracting State in accordance with the provisions of paragraph 1. However, if the competent authority of the other Contracting State determines that granting an exemption is inappropriate in a specific case or circumstance, the exemption may be denied after consultation with the competent authority of the first Contracting State. 　　b) The Contracting States agree that: 　　(i) Article 70-B of the Mexican Income Tax Law and section 509(a)(l) and (2), except for organizations described in section 170(b)(l)(A)(i), of the United States Internal Revenue Code, as interpreted by the governing regulations and administrative rulings of Mexico and the United States, respectively, in effect on the date of the signing of this Convention, provide essentially equivalent standards for organizations within their coverage, within the meaning of paragraphs 2 and 3; and 　　(ii) Therefore, a finding by the tax authorities of Mexico that an organization qualifies under Article 70-B, or by the United States tax authorities that an organization qualifies under section 509(a)(l) or (2), except for an organization described in section 170(b)(l)(A)(i), shall be accepted by the other Contracting State for the purpose of extending to such organization the benefits provided for in paragraphs 2 and 3. However, if the competent authority of the other Contracting State determines that granting such benefits is inappropriate with respect to a particular organization or type of organization, such benefits may be denied after consultation with the competent authority of the first Contracting State. 　　18. With reference to paragraph 5 of Article 26 (Mutual Agreement Procedure), 　　a) After a period of three years after the entry into force of this Convention, the competent authorities shall consult in order to determine whether it is appropriate to make the exchange of diplomatic notes referred to in paragraph 5 of Article 26 (Mutual Agreement Procedure). 　　b) If the competent authorities of both States agree to submit a disagreement regarding the interpretation or application of this Convention in a specific case to arbitration according to paragraph 5 of Article 26, the following procedures will apply: 　　(i) If, in applying paragraphs 1 to 4 of Article 26, the competent authorities fail to reach an agreement within two years of the date on which the case was submitted to one of the competent authorities, they may agree to invoke arbitration in a specific case, but only after fully exhausting the procedures available for paragraphs 1 to 4 of Article 26. The competent authorities will not accede to arbitration with respect to matters concerning the tax policy or domestic law of either State. 　　(ii) The competent authorities shall establish an arbitration board for each specific case in the following manner: 　　A. An arbitration board shall consist of not fewer than three members. Each competent authority shall appoint the same number of members, and these members shall agree on the appointment of the other member(s). The competent authorities may issue further instructions regarding the criteria for selecting the other member(s) of the arbitration board. 　　B. Arbitration board member(s) (and their staffs) upon their appointment must agree in writing to abide by and be subject to the applicable confidentiality and disclosure provisions of both States and the Convention. In case those provisions conflict, the most restrictive condition will apply. 　　(iii) The competent authorities may agree on and instruct the arbitration board regarding specific rules of procedure, such as appointment of a chairman, procedures for reaching a decision, establishment of time limits, etc. Otherwise, the arbitration board shall establish its own rules of procedure consistent with generally accepted principles of equity. 　　(iv) Taxpayers and/or their representatives shall be afforded the opportunity to present their views to the arbitration board. 　　(v) The arbitration board shall decide each specific case on the basis of the Convention, giving due consideration to the domestic laws of the States and the principles of international law. The arbitration board will provide to the competent authorities an explanation of its decision. The decision of the arbitration board shall be binding on both States and the taxpayer(s) with respect to that case. While the decision of the arbitration board shall not have precedential effect, it is expected that such decisions ordinarily will be taken into account in subsequent competent authority cases involving the same taxpayer(s), the same issue(s), and substantially similar facts, and may also be taken into account in other cases where appropriate. 　　(vi) Costs for the arbitration procedures will be borne in the following manner: 　　A. Each State shall bear remuneration for the member(s) as well as for its representation before the arbitration board; 　　B. The cost of remuneration for the other member(s) and all other costs of the arbitration board shall be shared equally between the States; and 　　C. The arbitration board may decide on a different allocation of costs. However, if it deems appropriate in a specific case, in view of the nature of the case and the roles of the parties, the competent authority of one of the States may require the taxpayer(s) to agree to bear that State's share of the costs as a prerequisite for arbitration. 　　(vii) The competent authorities may agree to modify or supplement these procedures; however, they shall continue to be bound by the general principles established herein. 　　19. With reference to paragraph 1 of Article 27 (Exchange of Information), If the Agreement between the United States of America and the United Mexican States for the Exchange of Tax Information should be terminated, the Contracting States shall promptly endeavor to conclude a protocol to this Convention to accomplish the purposes of this Article. 　　20. With reference to Article 30 (Termination),When the competent authority of one of the Contracting States considers that the law of the other Contracting State is or may be applied in a manner that eliminates or significantly limits a benefit provided by the Convention, that State shall inform the other Contracting State in a timely manner and may request consultations with a view to restoring the balance of benefits of the Convention. If so requested, the other State shall begin such consultations within three months of the date of such request.