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Possible reforms related to streaming services

On September 12, 2019, Senator Ricardo Monreal Ávila, a member of the MORENA parliamentary group, filed before the Senate an initiative to reform the Law on Value Added Tax and the Federal Telecommunications and Broadcasting Law.

Regarding the Law on Value Added Tax, the initiative aims to tax users of streaming platforms with Value Added Tax.

Regarding the Federal Telecommunications Law, the initiative has two purposes: i) include as a requirement for the provision of restricted television and audio services over the Internet, from the national territory or from abroad, authorization by of the Federal Telecommunications Institute; and ii) that the streaming services guarantee that at least 30% of its catalog is made up of national production.

On March 18th, 2020, the initiative was approved by the Senate Finance and Public Credit and Legislative Studies commissions, and yesterday was listed for approval in plenary of the Senate. However, the Senators decided not to vote the initiative during this session, so it will be passed for discussion and approval in September, with the beginning of a new ordinary period of sessions.

We will continue to monitor the progress of this initiative and we will keep you informed. At Acedo Santamarina we have a consolidated telecommunications practice, and we are ready to provide our clients with solutions adapted to their needs.

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Implications of the economic crisis of 2020 for the factoring market

As recognized by México’s President, Andrés Manuel López Obrador, the country will have to face an inevitable economic crisis that will take place this year due, mainly, to the Covid-19, as well as the collapse in the price of oil, the stock market crash, among other factors. This crisis, like any other, generates uncertainty about the consequences it will have on credit negotiations, including factoring operations.

Factoring is a way to obtain financing; it allows the transformation of illiquid assets into resources with immediate availability by transferring credit rights of accounts receivable.  At the same time, it is beneficial for corporations, since this type of operation reflect credit health because it is not expressed as a liability in the financial statements of the company that opts for this type of financing scheme. In this sense, factoring has two options: a) the “recourse factoring, and b) non- recourse factoring. Unlike non-recourse factoring, resource factoring guarantees, in benefit of the factor, the joint responsibility of the factored party in the payment of the credit right. This represents a lower risk and, therefore, is generally preferred to non-recourse factoring.

Because of the nature of the transaction, factoring implies uncertainty of payment, and in an economic crisis, uncertainty tends to increase. The nature of the receivables being conveyed in a factoring transaction makes it possible to identify, to some extent, what might be expected in respect of one or other factoring transaction, precisely depending on the nature of the receivables. The uncertainty factor is compounded by the increase of risk of non-payment generated by an economic crisis.

Likewise, those institutions that resort to factoring, not to obtain liquidity, but to obtain a profit from the transaction, measure the risk of non-payment and reflect it in the decrease of the price they are willing to pay for the credit rights, so if the risk increases, the cost assumed by those who seek to finance themselves through the advance payment of their portfolio will increase. However, it is possible that the credit rights include, for the same reason, a very high interest, so that, if they are successfully collected, there would be a high profit for those who obtained the credit rights through factoring. The question is, in a crisis scenario, how sustainable will the collection of receivables be, and furthermore, what will be the cost of the lack of investors’ confidence in the payment of their receivables, it is also prudent to question whether high profitability will be able to overcome such risks.

As it is reasonable, the quality of the credit rights is directly proportional to the credit rating of those who issue them, and this rating is a factor that will naturally be important to take into account, and it is also likely to undergo certain changes during this year in which a financial crisis will take place.

As for the international market, it has been decided to make monetary policy more flexible. For the time being, in the United States, the Federal Reserve (Fed) resorted to a rate reduction to stimulate economic growth, as did the European Central Bank, the People’s Bank of China and the Bank of England, among others, including the Mexico’s Central Bank (Banco de México). However, border closures and mandatory quarantine in some countries will be a determining factor in the precariousness of the world economy.

In sum, it is true that investors will choose to carry out factoring operations, in part, depending on traditional factors, such as the nature of the receivable, the rating of those who issue them, etc., but it is also true that this new crisis has affected and will continue to affect financial markets, increasing risk and its corresponding aversion, so it is highly likely that factoring operations will be part of the collateral damage, coupled with the increased cost that will be assumed by those who seek to finance themselves through these means.

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Suspension of jurisdictional activities

THE SUPREME COURT SUSPENDS JURISDICTIONAL ACTIVITIES

Based on the provisions of Articles I, third paragraph, and IV, fourth paragraph, of the Political Constitution of the United Mexican States, which bind the Supreme Court of Justice of the Nation (SCJN) to take the necessary measures to protect the health of all people, and taking into account the risk implied by the health contingency derived from the COVID-19 virus, the Plenary of the SCJN, through General Agreement 3/2020, dated  March 17, 2020, ordered the suspension of all jurisdictional activities, in accordance with the following: (i) declared the days from March 18 to April 19, 2020, as inoperative on the understanding that during this period procedural deadlines will not apply, and (ii) enable the days and hours for admission of urgent constitutional controversies were suspension measures have been requested, in accordance with the provisions of article 282 of the Federal Code of Civil Procedures.

SUSPENSION OF JURISDICTIONAL FUNCTIONS AT LOCAL AND FEDERAL LEVEL

For preventing the spread of the COVID-19 virus, and following the World Health Organization recommendations, the Plenary of the Council of Federal Judiciary, through Agreement 4/2020, dated March 17, 2020, decided to suspend jurisdictional functions in the organs related to Federal Judicial Power (FJP), from March 18 to April 19, 2020. The latter implies in essence that: (i) the activities of the jurisdictional bodies of the FJP are suspended, (ii) procedural deadlines will not apply, (iii) no oral hearings or sessions will be held by the Circuits Plenaries, and (iv) only the jurisdictional bodies in guard for attending urgent matters will be exempt from this measure, working on a schedule from 9:00 to15:00 hours, always seeking to take preventive actions such as remote work and use of the technological tools that may be necessary.

As for the Federal Criminal Justice Centers, the FJP agreed to suspend the procedural deadlines distinct to constitutional ones, in the understanding that the non-urgent oral hearings will be rescheduled starting April 30, 2020. Urgent determinations are:

  1. a) Qualification of arrests.
  2. b) Relation to criminal process.
  3. c) Implementation and modification of precautionary measures related to preventive detentions.
  4. d) Extradition determinations.

In the same sense, during its ordinary session dated March 17, 2020, the Plenary of Mexico City Judicial Council, established in Agreement 39-142020, authorized the “Contingency Plan for the Judiciary of Mexico City”, which entails suspending the work and procedural deadlines from March 18 to April 20, 2020. Only the jurisdictional bodies in criminal matters and judges of the Accusatory Criminal Procedure System, including Justice for Adolescents, as well as the Unit for the Supervision of Precautionary Measures, Conditional Suspension of the Process, Judicial Management Units and Specialized Judicial Management Units will be exempt from the Agreement herein mentioned.

FEDERAL COURT OF ADMINISTRATIVE JUSTICE SUSPENDS JURISDICTIONAL ACTIVITIES

In compliance with provisions of the Agreement 3/2020 of the General Plenary of the SCJN and in accordance with the provisions of Article 65, second paragraph, of the Organic Law of the Federal Court of Administrative Justice, the General Plenary of the Superior Chamber of such jurisdictional body, also determined to suspend jurisdictional activities from March 18 to April 19, 2020, on the understanding that during these days may not apply  procedural deadlines.

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The General Health Council is Formally Installed

As a result of the ongoing pandemic caused by COVID-19, as noted by the World Health Organization on March 11, in Mexico there was not a formal declaration of a health emergency, until yesterday, despite the fact that the Mexican Constitution expressly states that in the event of serious epidemics the General Health Council (the “Council”), as the health authority, will have the obligation to dictate immediately the indispensable preventive measures for epidemics. The foregoing has led to a lack of coordination in recent weeks between the three levels of government and natural or legal persons in the social and private sectors, that provide health services and, therefore, the purpose of the National Health System results ineffective and it is not possible to act congruently with respect to COVID-19.

The Council is a collegiate body under the Mexican President in terms of Article 73, section XVI, base 1st. of the Mexican Constitution, and has the character of a health authority, with regulatory, consultative and executive functions. The provisions issued by the Council shall be of a general nature and obligatory in the whole country.

The Constituent Assembly, when incorporating the bases that created the Council and to the then called Health Department, took into consideration, among other issues: (i) the need to have bodies capable of reacting promptly and effectively to various health contingencies; (ii) that these bodies have the necessary means to react; and (iii) have the faculties to issue provisions of a binding nature for the whole nation without the intervention of any administrative authorities.

Yesterday, March 19th, the Council met in an extraordinary session, with the aim of adopting measures and plans for the protection of health against COVID-19, and with the purpose of ensuring that the objectives of the creation of the Council are met, since it must be understood that it has the constitutional power to regulate, within the scope of its constitutional faculties, the areas defined by the General Health Law as matters of general health so that the Mexican State, in a coordinated manner, can effectively and promptly meet the needs of the population through a highly specialized technical and scientific body.

Among the resolutions adopted yesterday in the extraordinary session of the Council, the following stand out: (i) The plenary session of the Council recognized the epidemic caused by COVID-19 in Mexico as a serious disease of priority attention; (ii) the Ministry of Health will establish the necessary measures for the prevention and control of the COVID-19 epidemic, in consensus with the members of the National Health System; and (ii) it was urged to define hospital reconversion plans and immediate expansion of capacity to guarantee timely attention to the cases of COVID-19.

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