Mexico City, September 2021.<\/p>\n
<\/p>\n
On September 8, 2021, the Federal Executive presented before the Chamber of Deputies the Economic Package for Fiscal Year 2022, which includes an initiative to modify several tax provisions.<\/p>\n
This initiative must be discussed and approved in the Chamber of Deputies, to be subsequently passed to the Senate of the Republic for the same purposes and, as the case may be, sanctioned and published by the Federal Executive.<\/p>\n
The following are the most relevant proposed modifications:<\/p>\n
\u00a0<\/strong><\/p>\n A) Federal Revenue Law<\/strong><\/span><\/p>\n The Federal Revenue Law (\"Ley de Ingresos de la Federaci\u00f3n\" or \"LIF\") projects federal revenues of three trillion, seven hundred twenty-eight thousand, nine hundred eighty-seven point seven million pesos, which represents an increase of more than three hundred seventy-seven billion pesos compared to last year.<\/p>\n Within the macroeconomic framework, the following is forecast:<\/p>\n The current extension surcharge rates are maintained, i.e.: 0.98% per month on unpaid balances; 1.26% per month for installment payments of less than 12 months; 1.53% per month for installment payments of 12 to 24 months; and 1.82% per month for installment payments of more than 24 months.<\/p>\n A decrease in the income tax withholding rate (\"ISR\") for interest paid was established, from 0.97% to 0.08% annualized.<\/p>\n <\/p>\n B)Income Tax Law<\/strong><\/span><\/p>\n Exchange gain parameter<\/strong>\u00a0<\/strong><\/p>\n In order to prevent taxpayers from determining less income than they would obtain considering the exchange rate established by Banco de M\u00e9xico, it is proposed to establish a parameter for determining the foreign exchange gain, which may not be less than that which would result from considering the exchange rate published in the Official Journal of the Federation (\"DOF\") by Banco de M\u00e9xico corresponding to the day on which the gain is received.<\/p>\n <\/p>\n Order of credits<\/strong><\/p>\n It is proposed that first the provisional payments and subsequently the income tax paid abroad be credited against the income tax for the year in accordance with the provisions of Article 5 of the Income Tax Law (\"LISR\"). Unfortunately, the proposed amendment is contrary to regulatory criterion 5\/ISR\/N, which, if the amendment is approved, would be without effect.<\/p>\n <\/p>\n Backed loans, additional assumption<\/strong><\/p>\n It is proposed to treat financing transactions in which interest is derived and which do not have a business reason as loans.<\/p>\n Since the rule does not define what should be understood by business reason, Article 5-A of the Federal Tax Code (\"CFF\") should be consulted in order to make sense of this provision. However, Article 5-A of the CFF does not define what should be understood by business reason either, since it only establishes a presumption of when it can be determined that an act or series of legal acts lack a business reason. What prevails with this provision is the undesired legal uncertainty.<\/p>\n <\/p>\n Provisional payments<\/strong><\/p>\n It is proposed to amend Article 14, paragraph seven, subsection b) of the Income Tax Law, in order to specify that the authorization provided for in the law refers to the profit ratio and not to the decrease in income. per se<\/em> of the provisional payments derived from the variation of this coefficient.<\/p>\n \u00a0<\/strong><\/p>\n 5.Accumulation of income from the bare ownership and usufruct of an asset<\/strong><\/p>\n It is proposed that the consolidation of the bare ownership and the usufruct of an asset be expressly considered an accruable income. The income will be the value of the usufruct right determined by an appraisal performed by a person authorized by the tax authorities.<\/p>\n <\/p>\n Disposal of the bare ownership and usufruct of a property.<\/strong><\/p>\n The tax authorities have detected that some taxpayers obtain \"deductible\" losses derived from the sale of the bare property. Therefore, it is proposed to add a fourth paragraph to Article 19 of the Income Tax Law, which establishes that, in order to determine the gain on the sale of the bare ownership of an asset, the original amount of the investment must be subtracted from the price obtained in the proportion of the price corresponding to the transferred attribute.<\/p>\n <\/p>\n 7.Business ratios in corporate restructurings<\/strong><\/p>\n It is proposed to add requirements to authorize the sale of shares at fiscal cost in restructurings of Mexican resident companies, among which are: (i) certify that the companies consolidate their financial statements; (ii) indicate all relevant transactions related to the restructuring in the preceding five years and; (iii) inform, in terms of article 31-A, first paragraph, paragraph d) of the CFF, when within the following five years relevant transactions are carried out.<\/p>\n In the event that the tax authority, in the exercise of its powers, detects noncompliance with any requirement or that the restructuring for which the authorization was requested lacks a business reason, such authorization will be null and void and, if applicable, the updated ISR will be paid.<\/p>\n It is noteworthy that, unlike Article 5-A of the CFF, it does not establish a presumption by the authority or a procedure for the taxpayer to be heard, since corporate restructurings often generate benefits that do not necessarily translate into greater economic benefits for taxpayers, which could result in arbitrary actions by the tax authority that violate the rights of taxpayers.<\/p>\n For the purposes of this provision, relevant operations shall be understood as any act, regardless of its legal form, by which:<\/p>\n a) The ownership, enjoyment or use of the shares or of the voting or veto rights in the decisions of the issuing company, of the acquiring company or of the transferring company, or of the favorable vote necessary to make decisions in such companies is transferred.<\/p>\n b) The right is granted over the assets or profits of the issuing company, of the acquiring company or of the transferring company, in the event of any type of capital reduction or liquidation, at any time.<\/p>\n c) The book value of the shares of the issuing company is decreased or increased by more than 30% in relation to the book value determined on the date of the application for authorization, as stated in the opinion.<\/p>\n d) The issuing company, the acquiring company and the transferring company cease to consolidate their financial statements in accordance with the provisions that regulate accounting and financial matters, or that they are required to apply.<\/p>\n e) The capital stock of the issuing company, the acquiring company or the transferring company is decreased or increased, based on the amount stated in the report.<\/p>\n f) A partner or shareholder increases or decreases its percentage of direct or indirect participation in the capital stock of the issuing company, the acquiring company or the transferring company, which intervened in the restructuring and, as a consequence, increases or decreases the percentage of participation of another partner or shareholder of the issuing company, taking as a basis the percentages of participation in the capital stock of such partners or shareholders stated in the opinion.<\/p>\n g) The tax residence of the issuing company, of the acquiring company or of the transferring company is changed.<\/p>\n h) One or more segments of the business of the issuing company are transferred, or of the acquiring or transferring company related to one or more segments of the business of the issuer, as set forth in the opinion.<\/p>\n In addition, the information that will be required in the annex to the informative declaration of relevant transactions, in terms of Article 31-A, paragraph d) of the CFF, should be kept in mind. It should be considered that it could be the case that the company acquiring the shares has no knowledge of the acts carried out by the issuer in the five subsequent years, which could prevent it from having the required information.<\/p>\n <\/p>\n Fuel purchase deduction<\/strong><\/p>\n In harmony with the proposed amendments to the CFF regarding the fight against the illicit market of hydrocarbons and petroleum products, it is proposed to amend article 27, section III, second paragraph of the LISR, in order to add to the deductibility requirements, the declaration of the information of the permit issued by the Energy Regulatory Commission or the Ministry of Energy to the fuel supplier.<\/p>\n <\/p>\n 9.Expenses for technical assistance, transfer of technology or royalties<\/strong><\/p>\n It is proposed to amend Section X of Article 27 of the Income Tax Law to eliminate the exception currently contemplated for payments for technical assistance, technology transfer or royalties, when the payments are made to residents in Mexico and the contract has agreed that the service would be provided by a third party.<\/p>\n With the proposed amendment, taxpayers wishing to deduct expenses for technical assistance, technology transfer or royalties must receive the service directly and not through third parties, except in the case of the rendering of specialized services or the execution of specialized works referred to in Article 15-D of the CFF.<\/p>\n <\/p>\n 10.Collection efforts for bad debts<\/strong><\/p>\n It is proposed to amend Article 27, Section XV, second paragraph, subsection b) of the Income Tax Law to establish that it is notoriously impossible to collect the credits until the taxpayer obtains a final resolution issued by the competent authority, which demonstrates that it has exhausted the legal means to obtain collection and that, even though it is entitled to such collection, it was not possible to recover it. If this reform is approved, it will make it more difficult for a company to recover financially after its debtor fails to pay what was agreed.<\/p>\n <\/p>\n 11.Thin capitalization<\/strong><\/p>\n It is proposed to amend Article 28, Section XXVII of the Income Tax Law, to establish that taxpayers may prove that the balance of stockholders' equity is consistent with the balances of the CUCA, CUFIN, CUFINRE and tax losses pending to be reduced.<\/p>\n Likewise, it is intended to include in the items to be included in the calculation of stockholders' equity for the year the tax losses pending to be reduced, which have not been considered in the determination of the tax result, in order to consider all tax attributes within such calculation.<\/p>\n It is also proposed to modify the exception contained in the sixth paragraph of article 28, section XXVII of the Income Tax Law, in order to clarify that it will only apply to taxpayers who hold the ownership of the document issued by the competent authority in accordance with the Law of the matter, with which it is demonstrated that they can carry out activities of construction, operation or maintenance of productive infrastructure related to strategic areas for the country or generation of electric energy.<\/p>\n In line with the above, it is proposed to add an eighth paragraph to Article 28, Section XXVII of the Income Tax Law, in order to establish that the exception indicated in the current sixth paragraph will not be applicable to SOFOMES ENR that for the pursuit of their corporate purpose carry out activities mainly with their domestic or foreign related parties.<\/p>\n <\/p>\n 12.Concepts that make up the MOI<\/strong><\/p>\n It is proposed to clarify the elements that are part of the original amount of the investment (MOI), in order to specify that this concept includes expenses for physical location, installation, assembly, delivery, as well as those related to contracted services.<\/p>\n <\/p>\n 13.Notice for assets that are no longer useful<\/strong><\/p>\n When the assets that are investments cease to be useful to obtain income, the taxpayer must file a notice with the tax authorities in order to make the deduction.<\/p>\n <\/p>\n 14.Acquisition of the right of usufruct of real property<\/strong><\/p>\n It is proposed to establish in Article 32 of the Income Tax Law that the acquisition of the right of usufruct over real estate will be considered a fixed asset.<\/p>\n <\/p>\n 15.Investments in the mining sector and right of usufruct on real estate<\/strong><\/p>\n The initiative states that it has been detected that taxpayers in the mining sector deduct expenditures made for the acquisition of mining concession titles as expenses in the pre-operating period, which implies applying a depreciation of 10%. Therefore, it is proposed to amend Article 32 of the Income Tax Law, to make it clear that these expenditures are deferred expenses that are not made in the pre-operating period.<\/p>\n In addition, the tax authority has detected that taxpayers in the mining sector classify expenditures for the construction of ramps, roads, tunnels and bridges as expenses for the year.<\/p>\n By virtue of the foregoing, in order to prevent taxpayers from classifying constructions and the usufruct of real estate as expenses for the year, it is proposed to amend Article 34, section I, paragraph b) of the Income Tax Law, in order to specify that the constructions referred to in this assumption also include permanent installations or improvements in a mining lot in accordance with the Mining Law, as well as the usufruct of real estate.<\/p>\n <\/p>\n Deduction of technical reserves<\/strong><\/p>\n It is proposed to specify in the first paragraph of Article 50 of the Income Tax Law that deductible reserves for insurance companies must be established in accordance with the general provisions issued by the National Insurance and Bonding Commission.<\/p>\n <\/p>\n 17.Financial sector information statement<\/strong><\/p>\n It is proposed to modify the periodicity of the declaration by which members of the financial system report cash deposits in excess of 15 thousand pesos, as well as all cash purchases of cashier's checks, to monthly instead of annually.<\/p>\n <\/p>\n 18.Stock exchange<\/strong><\/p>\n It is proposed to amend Articles 56, 126 and 166 of the Income Tax Law, in order to consider not only the Mexican Stock Exchange (\"BMV\") as a stock exchange, but also any corporation that obtains the corresponding concession title granted by the SHCP.<\/p>\n <\/p>\n 19.Tax losses in spin-offs of companies<\/strong><\/p>\n It is proposed to amend Article 57 of the Income Tax Law to indicate that, in the case of spin-off of companies, the tax losses pending to be reduced must be divided between the spin-off companies and the spun-off companies engaged in the same line of business.<\/p>\n Although this requirement is not contemplated in the current Income Tax Law, the explanatory memorandum of the reform indicates that it has always been the legislator's intention that the distribution of tax losses in the spin-off should be between companies of the same line of business. However, this is false, since the aforementioned statement does not indicate a single argument to support such statement; on the contrary, the current legislation clearly states how losses must be distributed in the event of a spin-off, and does not contemplate the same lines of business as an element to be taken into consideration.<\/p>\n <\/p>\n 20.Change of partners or shareholders in companies with losses<\/strong><\/p>\n In order to limit the right of companies to reduce tax losses generated only in the same line of business in which they were generated, it is proposed to broaden the cases in which it is considered that there is a change in the partners or shareholders who have control of the companies.<\/p>\n Thus, a change of partners or shareholders will be deemed to exist (regardless of whether the act is subject to a condition precedent or term) when within a period of three years after the merger takes place:<\/p>\n I.<\/strong> Change the holders, directly or indirectly, of more than fifty percent of the voting shares or partnership interests of the company in question.<\/p>\n II. <\/strong>The direct or indirect holders of any of the following rights change:<\/p>\n a) Those that allow the imposition of decisions in the general meetings of shareholders, partners or equivalent bodies, or the appointment or dismissal of the majority of the directors, administrators or their equivalents, of the company in question.<\/p>\n b) Those that make it possible to direct the management, strategy or main policies of the company in question, whether through the ownership of securities, by contract or in any other way.<\/p>\n III. <\/strong>After the merger, the company in question and its partner or shareholder, which is a legal entity, cease to consolidate their financial statements in accordance with the provisions that regulate the taxpayer in accounting and financial matters, or that it is required to apply.<\/p>\n From the proposed wording of the third paragraph of Article 58 of the Income Tax Law, it would appear that the proposed changes of partners or shareholders are only applicable in the case of a merger, i.e., for the pending tax losses of the merging company, however, losses of a spin-off company that remains after the spin-off, for example, are not considered.<\/p>\n <\/p>\n Elimination of individuals from the regime of agricultural, livestock or fishing activities.<\/strong><\/p>\n It is proposed to eliminate the regime for individuals, as these taxpayers will migrate to the new Simplified Trust Regime.<\/p>\n <\/p>\n 22. Taxation of legal entities under agrarian law<\/strong><\/p>\n It is proposed to repeal Article 74-B of the LISR, which currently provides for a taxation scheme for legal entities under agrarian law that obtain income from the industrialization and commercialization of products derived from agricultural, livestock, forestry or fishing activities, when they are constituted solely by individuals who are recognized as ejidatarios or communal farmers or by ejidos or communities under the terms of the Agrarian Law. The aforementioned, since these individuals will migrate to a different tax regime.<\/p>\n <\/p>\n Related party obligations<\/strong><\/p>\n The proposed reform contains several amendments in the area of transfer pricing that can be grouped according to the following:<\/p>\n Transfer pricing obligations for foreign residents who obtain income from a source of wealth in Mexico<\/em><\/p>\n It is proposed to add a paragraph to Article 153 of the Income Tax Law to establish that foreign residents who obtain income from a source of wealth in Mexico are required to determine their income, earnings, profits, and, if applicable, deductions, derived from transactions with related parties, considering the arm's length principle.<\/p>\n We consider the modification in the proposed terms to be unfortunate, since in the event that the counterparty is a resident of Mexico and has the same obligation, the obligation for the counterparty should be deemed to be fulfilled, especially since the first paragraph of article 153 of the Income Tax Law provides that the income for the foreign resident is determined in terms of articles 179 and 180 of that law.<\/p>\n In the event that the intention is to include the obligation for those transactions that, having a source in Mexico, are not carried out with related parties resident in the country, for example, an indirect disposal of shares, we consider that there could be cases in which under the legislation of the State of a party, the assumptions to be considered as a related party could differ from those contained in the Income Tax Law and, consequently, generate a double economic taxation.<\/p>\n In addition, since it is proposed to incorporate in Title VI the obligation to comply with the arm's length principle for taxpayers under Titles II and IV of the Income Tax Law, the exclusion of Title V could result in the application of methods other than those provided for in Article 180 of the Income Tax Law.<\/p>\n In line with the foregoing, it is proposed to amend the eighth paragraph of Article 161 of the Income Tax Law to establish that in the case of disposal of shares between related parties, with a source of wealth in Mexico, for which it is decided to determine the income on the profit obtained, the public accountant who determines the tax cost of the shares must attach to his report the transfer pricing study with which the arm's length principle is demonstrated with respect to the sale price of the shares disposed of.<\/p>\n <\/p>\n 24.Notice of disposition of shares<\/strong><\/p>\n In order to have greater control over the possible gain and its consequent payment of tax in Mexico, it is proposed to incorporate an additional obligation applicable to a Mexican company with respect to which a transfer of its shares is carried out between two foreign residents. The new obligation will be the presentation of an informative notice to the tax authority.<\/p>\n <\/p>\n 25.PTU and determination of net tax profit<\/strong><\/p>\n It is proposed to clarify that the Employees' Statutory Profit Sharing (\"PTU\") is not a concept that must be subtracted for the determination of the net tax profit, since it is already considered in the tax result.<\/p>\n <\/p>\n 26.Assimilated to salaries<\/strong><\/p>\n Individuals earning more than seventy-five million pesos must be taxed under the Business and Professional Activities Regime and may not continue to earn income that is assimilated to salaries.<\/p>\n \u00a0<\/strong><\/p>\n 27.Electronic accounting and informative declarations<\/strong><\/p>\n The exception of not keeping electronic accounting for certain individuals is eliminated, since now those who pay taxes under the new Simplified Trust Regime will not have this obligation.<\/p>\n <\/p>\n 28.Repeal of the Tax Incorporation Regime.<\/strong><\/p>\n The Tax Incorporation Regime is repealed in order to replace it with the new Simplified Trust Regime, in which it is proposed that taxpayers with business activities pay taxes.<\/p>\n A transitory article establishes that taxpayers that as of August 31, 2021, pay taxes under the Tax Incorporation Regime, as of January 1, 2022, may choose to continue paying their taxes in accordance with the provisions of Section II of Chapter II, Title IV of the Income Tax Law (\"LISR\"), Article 5-E of the Value Added Tax Law (\"LIVA\") and Article 5-D of the Special Tax on Production and Services Law (\"LIEPS\"), as well as to continue applying the VAT and IEPS incentive scheme, during the permanence term established in the LISR in force until 2021, complying with the corresponding requirements.<\/p>\n <\/p>\n 29.Granting of the temporary use or enjoyment of real estate property by individuals<\/strong><\/p>\n Individuals who grant the temporary use or enjoyment of goods must now keep accounting records so that there is transparency on the elements that serve as the basis for calculating the tax, even in the event that they choose to apply the \"blind\" deduction.<\/p>\n The obligation to attach to the annual tax return the tax receipt issued by the trustee for the income obtained through trusts is eliminated, since no document is attached to the payment declarations.<\/p>\n <\/p>\n 30.Donations, personal retirement plans and supplementary contributions<\/strong><\/p>\n It is proposed that mutual fund stock companies may manage personal retirement plans, as well as establish various obligations related to the management of such resources.<\/p>\n Donations and complementary retirement contributions are included within the limitation of deductions for individuals.<\/p>\n <\/p>\n 31.Comparable transactions for residents abroad<\/strong><\/p>\n It is proposed to apply the arm's length or market value principle to transactions involving foreign residents for the determination of their income, earnings, profits and, as the case may be, deductions derived from related party transactions.<\/p>\n <\/p>\n 32.Income from acquisition of goods by residents abroad<\/strong><\/p>\n In order to effectively collect the tax on the acquisition of real estate, it is established that when the authorities exercise verification powers and perform an appraisal, if there is a difference greater than 10% between the value of such appraisal and the agreed consideration, the resident in Mexico or resident abroad with a permanent establishment in the country that sold the property, will be obligated to withhold the tax, substituting the resident abroad in this obligation.<\/p>\n \u00a0<\/strong><\/p>\n 33.Disposal of shares with source of wealth in Mexico<\/strong><\/p>\n Foreign residents who dispose of shares and obtain income subject to income tax in Mexico must have a transfer pricing study to demonstrate the market value of the disposal of shares or securities representing ownership of assets.<\/p>\n It is also intended to clarify when shares are understood to be outside a group of companies in the case of restructurings, in order for taxpayers to pay the deferred tax in question.<\/p>\n Finally, the tax authority may \"cancel\" the authorization if it \"discovers\" that a reorganization or restructuring lacked a business reason or that the exchange of shares generated income subject to a preferential tax regime.<\/p>\n <\/p>\n 34.Interest withholding rate<\/strong><\/p>\n In order to combat an undue interpretation made by some transnational groups, the limitation to apply the reduced rates is extended to the interest obtained by a foreign resident, regardless of its origin, if a foreign resident is the beneficial owner of the 5% and the assumptions of \"related persons\" established in article 166 of the Income Tax Law are updated.<\/p>\n <\/p>\n 35.Compensation for damage or loss<\/strong><\/p>\n Due to the fact that in several cases in the arbitration awards a payment in favor of the claimants, usually residents abroad, is sentenced without specifying the concept for which it is made, the payer must withhold tax on the total income, shifting the burden of proof to the foreign resident recipient to prove to the tax authorities the nature of the payment received and determine the appropriate tax treatment.<\/p>\n In this way, the foreign resident will be able to request the refund of the withholding tax if he proves that such payment was not related to a compensation for damages.<\/p>\n \u00a0<\/strong><\/p>\n 36.Legal representation of residents abroad<\/strong><\/p>\n In order that the figure of the legal representative of residents abroad is not merely instrumental, but a tool for the Federal Tax Authorities to collect the taxes payable by them, it is established that the legal representative must voluntarily assume joint and several liability for the payment of the tax caused by the resident abroad and be solvent in order to ensure compliance with the substantive tax obligation.<\/p>\n <\/p>\n 37.REFIPRES. Elimination of the distinction between the treatment of transactions between related parties resident in Mexico and abroad.<\/strong><\/p>\n Since the obligation to obtain and keep the supporting documentation (transfer pricing study) proving the principle of transfer pricing is expressly stated, it is necessary to arm's length<\/em> In the case of income and deductions derived from transactions with related parties resident abroad, this particular rule was not considered applicable to transactions with related parties resident in Mexican territory; therefore, in such case, the obligation to determine income and deductions under the referred principle was applicable, through the application of the methods set forth in Article 180 of the Income Tax Law.<\/p>\n Although in practice it is common to include in the transfer pricing study transactions with domestic and foreign related parties, the amendment to the first paragraph of section IX of Article 76 of the Income Tax Law implies that income and deductions derived from transactions with domestic related parties must be included in the transfer pricing study, with the data indicated in paragraphs a) to d) of that provision, avoiding that in the case of transactions with domestic related parties the arm's length principle be demonstrated with a lower standard of information.<\/p>\n\n