TAX REFORM BILL 2022.

 

Mexico City, October 2021.

 

On September 8, 2021, the Executive Branch filed before the Chamber of Deputies the Economic Package for Fiscal Year 2022, which includes a bill to modify various tax provisions.

This bill must be discussed and approved in the Chamber of Deputies, to later advance to the Senate for the same purposes and, where appropriate, be passed and published by the Executive Branch.

Next, we will display the most relevant amendment proposals:

 

A)Federal Income Law

The Federal Income Law (“LIF”) projects a federal collection revenue of three billion, seven hundred and twenty-eight thousand, nine hundred and eighty-seven point seven million pesos, which represents an increase of more than three hundred and seventy-seven billion of pesos compared to what was established last year.

Within the macroeconomic framework, the following is forecasted:

• GDP Growth: 4.1%
• Inflation: 3.4%
• Average exchange rate: $20.3 a significant reduction compared to last year.
• Interest rate (28 days CETES): 5%
• Oil (USD/Barrel): $55.1

The current surcharges rates for extension are maintained, that is: 0.98% per month on unpaid balances; 1.26% per month for less than 12 month payments; 1.53% per month for installment payments between 12 to 24 months and; 1.82% per month for installment payments greater than 24 months.

A decrease was established in the income tax retention rate («ISR») for interest paid, going from 0.97% to 0.08% annualized.

 

B)Income Tax Law

1.Exchange gains parameter

To prevent taxpayers from being able to determine lower income than they would obtain considering the exchange rate established by the Bank of Mexico, it is proposed a parameter to determine exchange gain, which may not be less than that which would result from considering the exchange rate published in the Federal Official Gazette (“DOF”) by the Bank of Mexico corresponding to the day on which profit is earned.

 

2.Annual Income Tax Crediting Order

It is proposed that the provisional payments be credited against the Income Tax for the year, and subsequently the Income Tax paid abroad in accordance with the provisions of article 5 of the Income Tax Law (“LISR”). Unfortunately, the proposed amendment is contrary to normative criteria 5 / ISR / N, which, if the amendment is passed, would be without effect. However, it is also contrary to a judicial precedent.

 

3.Back-to-back loans additional scenarios

It is proposed to give tax treatment of back-to-back loans to financing operations which derive interest and that lack a business reason.

As the norm does not define what should be understood by business reasons, article 5-A of the Federal Fiscal Code (“Federal Fiscal Code”) should be used in order to make sense of this provision. However, Article 5-A of the Federal Fiscal Code does not define what should be understood by business reasons eighter, since it only establishes a presumption of when it can be determined that an act or series of legal acts lacks of a business reason. The prevailing provision will be the unwanted legal uncertainty.

 

4.Provisional payments

It is proposed to amend article 14, seventh paragraph, subsection b) of the LISR Law, in order to specify that the authorization provided for in the law refers to the income coefficient and not to the decrease per se of the provisional payments that derive from the variation of that coefficient.

 

5.Income accumulation from bare ownership and usufruct of an asset

The consolidation of bare ownership and the usufruct of an asset is proposed to be expressly considered cumulative income. The income will be the value of the usufruct right that is determined through an appraisal carried out by a person authorized by the tax authorities.

 

6.Alienation of bare ownership and usufruct of an asset

The tax authorities have detected that some taxpayers obtain “deductible” losses derived from the transfer of their bare ownership. Therefore, it is proposed to add a fourth paragraph to article 19 of the LISR, which provides, the determination of the transfer income of bare ownership of an asset, the original investment amount in price proportion must be deducted to the price that corresponds to the transferred asset.

 

7.Reason of the Business for corporate restructuring

It is proposed to add requirements to authorize the transfer of shares at tax cost in restructuring of companies residents in Mexico, among which the following stand out: (i) certify that the companies consolidate their financial statements; (ii) indicate all the relevant operations related to the restructuring in the previous five years and; (iii) inform, in terms of article 31-A, first paragraph, subsection d) of the Federal Fiscal Code, when relevant operations are carried out within the following five years.

In the event that the applicable tax authority detects the breach of any requirement or that the restructuring for which the authorization was requested lacks of a business reason, said authorization will not be valid and, where appropriate, the updated Income Tax shall be paid.

It is worth to mention that, in contrast with Article 5-A of the Federal Fiscal Code, it does not provide a presumption of authority nor 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 lead to arbitrary actions by the tax authority that violate taxpayers’ rights.

For the purposes of this provision, relevant operations shall be understood as any act, regardless of its legal form, by which:

a) The ownership, enjoyment or use of the shares or voting or veto rights is transferred in the decisions of the issuing company, the acquiring company or the transferring company, or the favorable vote necessary for decision making in said companies.

b) Granted rights over the assets or profits of the issuing company, the acquiring company or the transferring company, in the event of any type of capital reduction or liquidation, at any time.

c) The accounting value of the issuing company’s shares is decreased or increased by more than 30%, in relation to the accounting value determined on the date of the authorization request that was stated in the opinion.

d) The issuing company, the acquiring company and the transferring company stop consolidating their financial statements in accordance with the provisions that regulate them in accounting and financial matters, or that they are obliged to apply.

e) The share capital of the issuing company, the acquiring company or the transferring company is decreased or increased, taking as a basis the one stated in the opinion.

f) A partner or shareholder increases or decreases its percentage of direct or indirect participation in the share capital 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, based on the participation percentages in the capital stock of said partners or shareholders stated in the opinion.

g) The tax residence of the issuing company, the acquiring company or the transferring company is changed.

h) One or more business segments of the issuing company, or of the acquiring or transferring company related to one or more business segments of the issuing company, are transferred, as stated in the opinion.

In addition to the fact that the information that will be required in the annex of the informative tax return of relevant operations must be pending, in terms of article 31-A, paragraph d) of the Federal Fiscal Code, it should be considered that the company acquiring the shares does not have knowledge of the acts carried out by the issuer in the five subsequent years, which could prevent having the required information.

 

8.Fuel purchase deduction

In compliance with the Federal Fiscal Code amendment proposals in matters of the challenge against the illicit hydrocarbon and petroleum market, it is proposed to amend article 27, section III, second paragraph of the LISR, in order to add to the deductibility requirements, declaring the information from the permit issued by the Energy Regulatory Commission or the Ministry of Energy to the fuel supplier.

 

9.Expenses for technical assistance, technology transfer or royalties

It is proposed to amend section X of article 27 of the LISR to eliminate the exception that currently contemplates payments for technical assistance, technology transfer or royalties, when payments are made to residents in Mexico and in the applicable contract it has been agreed that the provision would be made by a third party.

With the proposed bill, taxpayers who intend to deduct expenses for technical assistance, technology transfer or royalties, must receive the service directly and not through third parties, except for the provision of specialized services or in the execution of specialized works referred to in article 15-D of the Federal Fiscal Code.

 

10.Collection procedures for uncollectible receivables

It is proposed to amend article 27, section XV, second paragraph, subsection b) of the LISR to establish that there is a notorious impossibility of credits collection until the moment in which the taxpayer obtains a final resolution issued by the competent authority, with which demonstrates that all legal means to obtain the collection where exhausted and that, even though entitled to it, recovery was not possible. If this amendment is approved, it will create greater difficulty for a company to recover financially after its debtor omits to pay what was agreed.

 

11.Thin Capitalization

It is proposed to amend article 28, section XXVII of the LISR, to establish that taxpayers can prove that the balance of stockholders’ equity is consistent with the balances of CUCA, CUFIN, CUFINRE and the tax losses pending reduction.

Likewise, it is intended to include in the concepts to calculate the stockholders’ equity for the year the tax losses pending reduction, which have not been considered in the determination of the tax result, in order to consider within that calculation all of the tax attributes.

Moreover, it is proposed to modify the exception contained in the sixth paragraph of article 28, section XXVII of the LISR, 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 applicable Law, with which it is demonstrated that it can carry out activities of construction, operation or productive infrastructure maintenance linked to strategic areas for the country or electric power generation.

According with the foregoing, it is proposed to add an eighth paragraph to article 28, section XXVII of the LISR, in order to establish that the exception indicated in the current sixth paragraph will not be applicable to ENR SOFOMES, which in order to achieve their corporate purpose, carry out activities predominantly with their national or foreign related parties.

 

12.Concepts integrating MOI

It is proposed to clarify the elements that are part of the original investment amount (MOI), to specify that this concept covers the expenses for physical location, installation, assembly, delivery, as well as those related to the contracted services.

 

13.Notice for assets no longer useful

When the assets that are investments are no longer useful to obtain income, the taxpayer must submit a notice to the tax authorities to make its deduction.

 

14.Acquisition of the usufruct right of real estate

It is proposed to establish in article 32 of the LISR, that the acquisition of the usufruct right over real estate will be considered a fixed asset.

 

15.Investments in the mining sector and usufruct right of real estate

The bill indicates that it has been detected that mining sector taxpayers deduct expenses made for the acquisition of mining concession titles as expenses in the pre-operational period, which implies applying a depreciation of 10%. Therefore, it is proposed to amend article 32 of the LISR, to make it clear that these expenses are a deferred expense that are not made in the pre-operational period.

Likewise, the tax authority has detected that mining sector taxpayers classify expenses to build ramps, roads, tunnels and bridges as expenses for the year.

Therefore, 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, subsection b) of the LISR, in order to specify that the constructions to which this assumption refers also includes the permanent installations or improvements in a mining lot in accordance with the Mining Law, as well as the usufruct of a real estate.

 

16.Technical reserves deduction

It is proposed to specify in the first paragraph of article 50 of the LISR that deductible reserves for insurance institutions must be established in accordance with the general provisions issued by the National Insurance and Bonding Commission.

 

17.Informative tax return of the financial sector

It is proposed to modify the periodicity of the tax return by which the members of the financial system report on cash deposits that exceed 15 thousand pesos, as well as on all cash acquisitions of a cashier’s check, becoming monthly instead of annual.

 

18.Stock exchange

It is proposed to amend articles 56, 126 and 166 of the LISR, so that not only the Mexican Stock Exchange (“BMV”) is considered as a stock exchange, but also any public limited company that obtains the corresponding concession title granted by the SHCP.

 

19.Tax losses on split of companies

It is proposed to amend article 57 of the LISR to indicate that, in the case of split of companies, the tax losses pending reduction must be divided between the splitting companies and the spun-off companies that are engaged in the same business.

Although this requirement is not contemplated in the current LISR, the explanatory memorandum of the amendment indicates that it has always been the intention of the legislator that the distribution of tax losses in the division occurs between companies of the same line of business. However, this is false, since in the aforementioned submission, not a single argument is indicated to support such an assertion, on the contrary, current legislation clearly warns how losses should be distributed in the event of a split, and does not contemplate the same commercial purposes as an element to take into consideration.

 

20.Change of partners or shareholders in companies with losses

In order to the companies see limited their right to reduce tax losses generated only in the same line of business in which they occurred, it is proposed to expand the cases in which it is considered that there is a change in the partners or shareholders who have control of the companies.

Thus, it will be considered that there is a change of partners or shareholders (regardless of whether the act is subject to a suspensive condition or term) when within a period of three years from the merger taking place:

I.The holders change, directly or indirectly, of more than fifty percent of the shares or social shares with voting rights of the company in question.

II.The direct or indirect holders, of any of the following rights change:

a) Those that allow the imposition of decisions in the general shareholders meetings, partners or equivalent bodies, or appoint or dismiss the majority of the directors, administrators or their equivalents, of the company in question.

b) Those that allow managing the administration, the strategy or the main policies of the company in question, either through the ownership of securities, by contract or in any other way.

III. After the merger, the company in question and its partner or shareholder, who 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 is obliged to apply.

From the wording proposed to the third paragraph of article 58 of the LISR, it seems that the cases of change of partners or shareholders that are proposed to be added are only applicable in the case of merger, that is, for tax losses pending reduction of the merger, however, for example, the losses of a spin-off company that remains after the split are not considered.

 

21.Elimination of individuals from the regime of agricultural, livestock or fishing activities

It is proposed to eliminate the regime for individuals, as these taxpayers will migrate to the new Simplified Trust Regime.

 

22.Taxation of legal entities under agrarian law

It is proposed to derogate article 74-B of the LISR that currently provides a taxation scheme for legal entities of agrarian law that obtain income from the industrialization and commercialization of products derived from agricultural, livestock, forestry or fishing activities, when they are only constituted by individuals who are recognized as ejido members or community members or by ejidos or communities in terms of the Agrarian Law. The foregoing, since these individuals will migrate to a different tax regime.

 

23.Obligations regarding related parties

The proposed amendment contains various modifications in transfer pricing that can be grouped according to the following:

Transfer pricing obligations to foreign residents who obtain income from a source of wealth in Mexico

It is proposed to add a paragraph to article 153 of the LISR to establish that foreign residents who obtain income from a source of wealth in Mexico are obliged to determine their income, earnings, profits, and, where appropriate, deductions, derived from operations with related parties, considering the arm’s length principle.

We consider the modification in the proposed terms unfortunate, because in the event that the counterpart resides in Mexico and has the same obligation, the obligation for the counterpart should be considered fulfilled, especially that the first paragraph of article 153 of the LISR provides as income for the foreign resident those determined in terms of articles 179 and 180 of that regulation.

In the event that the intention is to include the obligation for those operations that, having a source in Mexico, are not carried out with related parties residing in the country, for example, an indirect sale of shares, we consider that there are cases that could arise in which under the legislation of State of a party, the assumptions to be considered as a related party could differ from those contained in the LISR and, consequently, generate economic double taxation.

Additionally, since it is proposed to incorporate in Title VI the obligation to comply with the arm’s length principle for the taxpayers of Title II and IV of the LISR, by excluding Title V it could lead to different methods being applied to those provided for in article 180 of that law.

According with the foregoing, it is proposed to modify the eighth paragraph of article 161 of the LISR to establish that in the event of the alienation of shares between related parties, with a source of wealth in Mexico, for which it is chosen to determine income over profit obtained, the public accountant who determines the tax cost of the shares must accompany  opinion with the study of transfer prices with which the principle of arm’s length is demonstrated with respect to the sale price of the transferred shares.

 

24.Notice of shares transfer

In order to have greater control over the possible profit 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 residents abroad. The new obligation will be the submission of an informative notice to the tax authority.

 

25.EPS and net tax profit determination

It is proposed to specify that the Employee Profit Sharing (“EPS”) is not a concept that has to be deducted to determine the net tax profit, since it is already considered in the tax result.

 

26.Assimilated to salaries

When individuals are obtaining income greater than seventy-five million pesos must pay taxes in the Business and Professional Activities Regime and, they will not be able to continue obtaining income that is assimilated to salaries.

 

27.Electronic accounting and informative tax returns

The exception of not keeping electronic accounting for certain individuals is eliminated, since now those who pay taxes in the new Simplified Trust Regime will not have this obligation.

 

28.Derogation of the Tax Incorporation Regime

The Tax Incorporation Regime is derogated in order to replace it with the new Simplified Trust Regime, in which it is proposed that taxpayers with business activities pay taxes.

Through a transitory article, it is established that taxpayers who, as of August 31, 2021, pay taxes in the Tax Incorporation Regime, as of January 1, 2022, they may choose to continue paying their taxes in accordance with the provisions of Section II of the Chapter II, of Title IV of the LISR, in article 5-E of the Value Added Tax Law (“VAT Law”) and article 5-D of the Special Tax on Production and Services Law (“LIEPS”), as well as continuing to apply the stimulus scheme in terms of VAT and IEPS, during the period of permanence established in the LISR valid until 2021, complying with the corresponding requirements.

 

29.Granting of the temporary use or enjoyment of real estate by individuals

Individuals who grant the temporary use or enjoyment of assets must now keep accounting for having transparency on the elements that serve as the basis for calculating tax, even if they choose to apply the «blind» deduction.

The obligation to attach to the annual return the tax receipt issued by the trustee for the returns obtained through trusts is eliminated, based on that no document is attached to the payment tax return.

 

30.Donations, personal retirement plans and complementary contributions

It is proposed that comprehensive investment fund shares companies can manage personal retirement plans, as well as establish various obligations related to that management of resources.

The concepts of donations and complementary retirement contributions are included within the limitation of the deductions of individuals.

 

31.Similar operations for residents abroad

It is proposed to apply the arm’s length or market value principle to operations involving residents abroad to determine their income, earnings, profits and, where appropriate, deductions derived from operations with related parties.

 

32.Income from goods acquisition by residents abroad

In order to validate the tax collection for the acquisition of real estate, it is established that when the authorities exercise verification powers and carry out an appraisal, if there is a difference greater than 10% between the value of that appraisal and the agreed consideration, the resident in Mexico or resident abroad with permanent establishment in the country that sold the property, will be the one obliged to withhold the tax, replacing the resident abroad in this obligation.

 

33.Transfer of shares with source of wealth in Mexico

Residents abroad who sell shares and obtain income subject to Income Tax in Mexico, must have a transfer price study that demonstrates the market value of the sale of shares or securities that represent the property of goods.

Likewise, it is intended to clarify when it will be understood that the shares are outside a group of companies for restructurings, so that the taxpayers pay the deferred tax in question.

Finally, it is provided for the tax authority the power to cancel the authorization if, as a result of the exercise of verification powers, it discovers that a reorganization or restructuring lacked a business reason or that the exchange of shares generated an income subject to a preferential tax regime.

 

34.Interest withholding rate

To challenge an improper interpretation made by some transnational groups, the limitation is extended to apply the reduced rates to the interests obtained by a resident abroad, regardless of their origin, if a resident abroad is the effective beneficiary of the 5% and the assumptions of related parties established in article 166 of the LISR are updated.

 

35.Compensation for liquidated damages

Due to the fact that in several cases in arbitration awards a payment is condemned in favor of the claimants, regularly residents abroad, without specifying the concept for which it is made, the payer must withhold the tax on the total income, transferring the burden of proof to the recipient foreign resident to prove to the tax authorities the nature of the payment received and determine the appropriate tax treatment.

Thus, the resident abroad may request the tax withholding refund if he/she/it proves that this payment was not related to compensation for liquidated damages.

 

36.Legal representation of residents abroad

With the purpose that the figure of the legal representative of residents abroad is not merely instrumental, but rather a tool for the Federal Tax Authority to collect contributions from them, it is established that the legal representative must voluntarily assume joint liability in the tax payment caused by the resident abroad and be solvent in order to ensure compliance with the substantive tax obligation.

 

37.REFIPRES. Elimination of the treatment distinction for operations between related parties residing in Mexico and abroad

As the obligation to obtain and keep the supporting documentation (transfer pricing study) is expressly stated, with which the arm’s length principle is demonstrated in the income and deductions derived from operations with related parties residing abroad, this particular rule it is not considered applicable to operations with related parties residing in national territory, so in that case the obligation to determine income and deductions under the aforementioned principle was applicable, through the application of the methods provided in article 180 of the LISR.

Although in practice it is common to include transactions with domestic and foreign related parties in the study of transfer prices, the amendment to the first paragraph of section IX of article 76 of the LISR implies that the income and deductions derived from transactions with national or abroad related parties must be included in the transfer pricing study, with the data indicated in paragraphs a) to d) of that precept, avoiding that in operations with national related parties the arm’s length principle is demonstrated with a lower standard of information.

Likewise, it is proposed to add the term «profit margins»[1] in section IX of article 76 of the LISR, recognizing that the application of the transfer pricing methodology with which the taxpayer shows that its operations were agreed under the arm’s length principle, prices, amounts of consideration or gross or operating profit margins are valued.

Additionally, it is proposed to clarify that prices, amounts of considerations or profit margins may have been used or obtained with or between independent parties in comparable operations.

We consider appropriate to include the term «obtained», as this clarifies that the price, amount of consideration or profit margin, should not necessarily have been used in non-controlled operations, but could have been obtained. This modification gives security to the taxpayer in the application, for example, of the uncontrolled comparable price method when interest rates are built or valuation methods are used in which prices or amounts of consideration are estimated that, although not used, are those obtained by independent third parties in comparable operations.

Likewise, we consider it appropriate that the text of this provision be homologated with article 180 to recognize that the prices, amounts of consideration or profit margins can be obtained with independent parties, thus recognizing the use of internal comparable operations.

On the other hand, regarding the data that the transfer pricing study must contain, it is proposed to modify sections b), c) and d) of section IX of article 76 of the LISR to indicate that it must include the following: (i) the functions, assets and risks of the related parties with which the operations are carried out; (ii) the comparability elements considered and; (iii) detail of the comparability adjustments applied.

 

38.REFIPRES. Concepts that are not considered subject to the regime and determination of the tax result of the foreign entity

It is proposed to modify the third paragraph of article 176 of the LISR to indicate that in the determination of the income tax that would have been paid in Mexico for foreign income, in order to determine if it is less than 75% of what would be caused and paid in Mexico, the annual adjustment for inflation and exchange rate fluctuation should not be considered.

In the same direction, it is proposed to modify the second paragraph of article 177 of the LISR to establish that in determining the result of the foreign entity these concepts should not be considered either.

 

39.Multinational companies and transactions between related parties. And comparable transactions with multinational companies

It is proposed to modify the third paragraph of article 179 of the LISR to establish that the information of the comparable transactions used for the application of the transfer pricing methodology must correspond to the year subject to analysis.

Although comparable companies are not expressly included, we consider that this measure is inadequate in practice, since taking into consideration that it is intended to modify the deadline for submitting the informative tax return of operations with related parties and the local information on prices of transfer, in practice it can be complicated that comparable companies have not yet published the information for the last fiscal year, which may lead to discarding reliable comparable.

Therefore, it would be desirable to allow the use of the information available at the date of preparation of the transfer pricing studies, in consistency with the provisions of the OECD Transfer Pricing Guidelines.

 

40.Interquartile method to obtain the price range of the consideration amount or profit margins in comparable operations

It is proposed to incorporate that in the event that there are two or more comparable transactions or companies, a rank will be obtained by applying the interquartile method described in the LISR Regulations or, where appropriate, the one agreed by Mexico in a friendly procedure or authorized by general rules.

Raising the application of the interquartile method to the rank of law, it is clarified that other statistical methods may not be used to determine the arm’s length range, for example, minimums and maximums.

Informative tax return of operations with related parties

In compliance with the modifications by which the reference to related parties residing abroad is eliminated, it is proposed to modify section X of article 76 of the LISR to establish the obligation to submit the informative tax return of operations with related parties (currently Annex 9 of the DIM), without limiting it to those entered into with related parties residing abroad.

In relation to the above, articles 81, section XVII and 83, section XV of the Federal Fiscal Code are adapted to establish that the infractions for not filing the informative return and not identifying the operations with related parties in the accounting, will be updated regardless of their residence.

Submission date of informative tax returns

Likewise, to homologate the submission of the informative tax declarations of operations with related parties and the local related parties, provided for in articles 76, section X and 76-A of the LISR, respectively, with the filing of the tax opinion, it is proposed to establish its submission deadline to May 15 of the following year they correspond to.

Although this may generate consistency in the information presented, we consider that the measure is not adequate with the proposed modification to the use of comparable corresponding to the year subject to analysis, since in the case of the application of methods that assess profit margins, the foreign company fiscal years do not match with the calendar year and the date of preparation of the transfer pricing study may not yet be public, so it would be appropriate that, consistent with what is indicated by the OECD Transfer Pricing Guidelines, the use of the information available at the date of preparation of the study is allowed.

Tax return on the taxpayers situation who are related parties of those subject to opinion

In addition to establishing the obligation to audit for certain taxpayers, as explained below, it is proposed that taxpayers who are related parties of those required to submit information on their tax situation, in terms of article 32-H of the Federal Fiscal Code, also be audited, regardless of the amount of their cumulative income.

 

41.Maquila APA

It is proposed to eliminate the administrative ease for maquiladora companies, consisting of the option of obtaining a particular resolution in the terms of article 34-A of the Federal Fiscal Code (APA) in which the tax authority confirms that they comply with their obligations regarding transfer prices and, therefore, the residents abroad for whom they act do not constitute a permanent establishment in Mexico.

In this sense, by partially repealing the third paragraph of article 182 and modifying article 183-Bis of the LISR, the possibility that the maquiladora companies request an APA is eliminated and, consequently, they would determine their tax result as the greater amount that results from apply 6.0% on the total value of the assets used in the maquila operation or 6.5% on the total amount of operating costs and expenses incurred in that operation (safe harbor).

Unlike the statement in the explanatory memorandum, rather than an administrative simplification measure, we consider that the measure is only for collection purposes, since generally, the Income Tax determined according to the safe harbor is higher than that requested and, where appropriate, authorized in APA.

 

42.Registry for institutions that administer the tax incentives referred to in article 185 of the LISR

The creation of a credit institutions registry is proposed, for insurance institutions and financial intermediaries that receive deposits, payments for insurance premiums or for the acquisition of shares of investment funds on which the stimulus provided for in article 185 of the LISR is applied for individuals.

The foregoing will facilitate the identification of deposits, payments and acquisitions for the pre-filling of the annual tax return of individuals.

 

43.Tax Incentive Credits

In relation to the proposed modification to article 9 of the LISR regarding the tax credit order, it is proposed to modify various articles that provide tax incentive credits[2] to establish that the resulting difference when the credit is greater than the Income Tax of the fiscal year may be credited against the Income Tax incurred for the next 10 fiscal years until it is exhausted, after crediting the provisional payments and creditable tax in the terms of the law.

 

44.Simplified trust regime for individuals

A new regime called «Simplified trust regime for individuals» is proposed, with the following new attributions:

• Applies to individuals who only carry out business or professional activities or grant the temporary use or enjoyment of goods, provided that the income obtained from the immediately preceding fiscal year has not exceeded MXN $3,500,000.00.
• Monthly payments will be determined on the total income protected with Electronic Digital Signature Certificate (CFDI for its acronym in Spanish) effectively collected, without applying any deduction.
• The Income Tax rate goes from 1% if income up to MXN $25,000.00, up to the rate of 2.5% if obtained income is up to MXN $3,500,000.00.
• The completion date and tax return submission will continue to be on a monthly basis no later than the 17th of the month immediately after the payment.
• The following persons may not participate in this regime, among others: i) persons who fail to comply with the aforementioned obligations; ii) those who exceed their income of MXN $3,500,000.00; iii) partners or shareholders of legal entities; iv) foreign residents with one or more establishments in the country; v) those who have income from preferential regimes.

 

45.Simplified trust regime for legal entities

To promote economic reactivation through a simplification scheme that encourages investment, it is proposed to create a tax regime for legal entities residing in Mexico, whose total income does not exceed 35 million pesos in the fiscal year.

The following may not be taxed under this regime, among others: i) legal entities that any of their partners or shareholders have control or participate in another company or when they are related parties, ii) those who carry out activities through trusts or joint ventures.

Income will be cumulative until they are actually received in cash, goods or services, even when they correspond to advances, deposits, to name a few. Among other income, fully paid interest is considered, the difference corresponding to the total updated debt minus the amount of debt condoned, forgiveness of debt or remittance with institutions of the financial system, otherwise, the total amount of debt condoned will be accumulated and, finally, the income from exports actually received.

The regime includes some specific deductions and certain rates other than the investment deduction if those deductions do not exceed 3 million pesos.

Briefly, the regime is based on the flow of the company’s real operations, the profit coefficient determined with the data of the previous year is not used and there is a benefit in the deduction of investments.

 

C)Value Added Tax Law

46.Animal food

It is expressly established that the 0% VAT rate is applicable to the sale of products intended for human consumption, as well as for animals, with the exceptions established by the VAT Law.

 

47.Female hygiene products

It is proposed to apply the 0% VAT rate to the sale of pads, tampons and sanitary cups for menstrual use, since taxing these products at the general rate means an economic impact related to the biological condition of the female gender.

 

48.VAT credit requirements

It is expressly established that, in the case of VAT paid on importation, it is a requirement for its accreditation that the request be in the name of the taxpayer who intends to carry it out.

 

49.Non-crediting of VAT when carrying out activities that are not considered carried out in national territory

Considering that the VAT transferred to the taxpayer for expenses incurred to carry out activities that are not subject to the tax is not creditable, it is proposed to establish the concept of «non-subject activities», indicating that they are those that the taxpayer does not carry out in national territory in accordance with to what is established in articles 10, 16 and 21, as well as those different from those indicated in article 1 of the VAT Law carried out in national territory, when the taxpayer obtains income, for which makes expenses and investments in which was transferred the tax or the one that would have paid for the importation.

 

50.Pre-operational period obligations

It is proposed to establish the obligation of taxpayers to inform the tax authority the month in which they start their activities in the pre-operational period for VAT purposes, in order to determine, correctly, the adjustment of the credit of the VAT transferred for expenses and investments made in the referred period.

 

51.RIF elimination

In accordance with the proposed partial repeal of the Tax Incorporation Regime, it is proposed to eliminate from the VAT Law all the provisions that refer to said regime.

 

52.Obligations of residents abroad who provide digital services to receivers located in national territory

Residents abroad without an establishment in Mexico are obliged to provide information on the number of services performed with receivers located in the national territory, on a monthly and not quarterly basis as currently indicated, in order to equalize the frequency of the tax return payment in which said information is also provided.

 

53.Temporary use or enjoyment of tangible assets

It is clarified that the temporary use or enjoyment of goods in national territory is subject to the payment of VAT, regardless of the place where the material delivery of the goods takes place or the celebration of the legal act that originates it.

 

D)Special Tax on Production and Services Law

54.Import of automotive fuels and applicable fees regarding their omission

It is proposed to establish that when, in the exercise of its verification powers, the customs or fiscal authority detects the omission of the total or partial payment of the tax on the importation of automotive fuels into national territory, the corresponding quota according to the type of fuel is applied, without prejudice to applicable administrative and criminal sanctions.

For the purpose of determining the omitted tax, the corresponding fees will be applied without any decrease.

 

55.Definitions related to alcoholic beverages

It is proposed to include the definition of electronic label to give legal certainty about its application and establish its material and operational difference with respect to the physical label, which is maintained.

Likewise, an indicative, but not limiting list of what should be understood as an establishment of final consumption is included, in the case of the sale of alcoholic beverages.

 

56.Elimination of the Tax Incorporation Regime

In accordance with the proposed partial repeal of the Tax Incorporation Regime, it is proposed to eliminate from the LIEPS all the provisions that refer to said regime.

 

57.Alcoholic beverages for consumption in the same place or establishment where they are sold

Power is granted to the Tax Administration Service (SAT for its acronym in Spanish)  to establish, by means of general rules, the cases in which the obligation to destroy the containers of alcoholic beverages will not be applicable when they are consumed in the same place or establishment in which they are disposed of.

The obligation of the final consumption establishments and of all those in which the opening of alcoholic beverages for sale and consumption is carried out, to perform, in the presence of the consumer, the reading through a mobile device of the QR code of the label attached to the containers.

 

58.Denatured alcohol, un-crystallizable honeys, cigars and other carved tobaccos

It is proposed to eliminate the obligation of manufacturers, producers, packers and importers of denatured alcohol and un-crystallizable honeys to register in the Taxpayers of Alcoholic Beverages Registry

The figure of security code printing service provider is eliminated and it is established that the SAT will be in charge of generating and providing the aforementioned codes.

Producers, manufacturers and importers of cigars and other carved tobaccos are obliged to print a security code on any means of presentation in which the products are sold and not only for cigarette packs.

The Tax Incorporation Regime is derogated in order to replace it with the new Simplified Trust Regime, in which it is proposed that taxpayers with business activities pay taxes.

Through a transitory article, it is established that taxpayers who, as of August 31, 2021, pay taxes in 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, of Title IV of the LISR, in article 5-E of the VAT Law and in article 5-D of the LIEPS, as well as continuing to apply the incentive scheme in terms of VAT and IEPS, during the term of permanence established in the LISR in force until 2021, complying with the corresponding requirements.

 

59.Update of quotas applicable to automotive fuels

In order not to reflect the considerable inflation of 2021 in the IEPS quotas on automotive fuels for 2022 (which would result from the application of the update factor provided for in Article 17-A of the Federal Fiscal Code), it is proposed to add through a transitory article, the fixed fees that will be applicable for 2022.

 

E)New Cars Federal Tax Law

60.Armored vehicles

The basis on which the payment of ISAN in armored cars should be calculated is modified, noting that this will be on the sale value of the car including the value of the armor. These arguments are deficient and reckless since the constitutional principle on which our contributions rest is proportionality and not progressivity. Likewise, the argument of differential treatment for the rest of the population is a fallacy since it is a general provision and anyone who accessed an armored car would enjoy the same benefits.

 

F)Federal Fiscal Code

61.Mexican tax residence

It is proposed to modify article 9 of the Federal Fiscal Code in order to indicate that Mexican tax residence will not be lost if the individual or entity does not prove the new residence, and fails to submit the notice of change of tax residence.

Likewise, it is proposed to establish that the condition of tax residence in Mexico be maintained for a period of 5 years instead of three[3], for those who acquire a new tax residence in a country or territory with a preferential tax regime. However, this period will not be applicable when Mexico has a broad information exchange agreement with that country, and has a treaty in force that allows mutual assistance for collection of taxes.

 

62.Tax return reception

The amendment proposal propose modifying Article 12 of the Federal Fiscal Code in order to eliminate the reference to the receipt of tax returns by banking institutions, since the latter only receive payments of taxes, but not tax returns.

 

63.Suspension of terms due to force majeure or Acts of God circumstances

It is proposed to modify article 12 of the Federal Fiscal Code to empower the tax authorities to suspend deadlines, including those corresponding to the fulfillment of obligations and exercise of verification powers, when there is force majeure or Acts of God circumstances.

 

64.CFDI in operations with the public in general  

The amendment proposes to modify article 14 of the Federal Fiscal Code in order to eliminate the reference of simplified vouchers.

 

65.Merger or split of companies lacking business reason

It is proposed to modify Article 14-B of the Federal Fiscal Code in order to specify that the transfer that must be carried out due to a spin-off is of share capital, since previously “capital” was generically indicated, which allowed interpretations that could lead to tax avoidance.

Additionally, when the tax authorities exercise their verification powers and detect that the merger or division lacks a business reason, or fails to comply with any of the legal requirements, a transfer will be configured with the respective tax consequences.

 

66.Transfer of share capital in a spin off

In accordance with the preceding paragraph, it is proposed to modify article 15-A of the Federal Fiscal Code in order to specify that the transfer that occurs in a spin off is that of the capital stock.

 

67.Homologation of the right to image with the tax treatment of royalties

It is proposed to add a third paragraph to article 15-B of the Federal Fiscal Code to consider within the concept of the use or concession of a copyright on a literary, artistic or scientific work, to the right of image, which will also grant them the tax treatment of taxable royalties as a result of the exploitation of the copyright inherent to the image.

 

68.Inflation updating published in the Federal Official Gazette

It is proposed to modify article 16-C of the Federal Fiscal Code in order to indicate that the price index will be published in the Federal Official Gazette in its electronic version, since the reference index were suppressed in the printed version.

 

69.Advanced electronic signature or Certification of Digital Signature (CSD for its acronym in Spanish) in the case of legal entities with partners or shareholders in an irregular tax situation

It is proposed to modify the content of articles 17-D and 17-H Bis, section XI of the Federal Fiscal Code to provide for the possibility of denying the granting of an advanced electronic signature as well as the Digital Seal Certificate or temporarily restricting its use, when the tax authority detects that a partner or shareholder who has effective control of the requesting legal entity had not corrected his tax situation, placing itself in one of the cases contained in articles 17-H, sections X, XI and XII and 69, twelfth paragraph, sections I to V of the Federal Fiscal Code.

This is an extremely dissuasive measure to prevent taxpayers who are in any of the aforementioned cases from operating through third parties. However, there are two principles that go beyond this measure and they are: a) the prohibition to establish significant penalties; and b) the disappearance of the so-called “corporate veil” or recognition of the personality of a legal person other than that of its shareholders.

 

70.CSD cancellation

In line with a more restrictive and sanctioning policy, the summary procedures contained in articles 17-H, 60-B and 69-B Bis of the Federal Fiscal Code are strengthened, which limits the possibility of taxpayers to obtain a new CSD only when the taxpayer has previously corrected its tax situation. It is even proposed to eliminate the regulatory portion that allowed taxpayers to request a new certificate when the conduct that led to its cancellation is materially impossible to correct or undermine.

These extreme and aggressive measures have two effects: the first is that it leaves as the only alternative for taxpayers who place themselves in one of the cases indicated in the Federal Fiscal Code, to correct their tax situation and the second, places the taxpayers in a situation of permanent stagnation in the event that it is materially impossible to correct or undermine a tax situation.

 

71.CSD restrictions. New LISR regime

One way to sanction taxpayer behavior is through the temporary restriction of the use of CSD. These are practical measures but they affect the operations of taxpayers because they do not allow them to operate. In line with these measures, it is proposed to incorporate a new assumption of temporary CSD restriction in accordance with the new Simplified Trust Regime contained in the Income Tax Law, which consists of the omission of three or more monthly payments, consecutive or not, of the tax or of the yearly tax return.

 

72.CSD Restriction. Resistance of taxpayers to the verification of their tax obligations

Article 17-H Bis section III of the Federal Fiscal Code is added in order to clarify and complement the indirect sanctions that will be imposed on taxpayers who repeat behaviors that hinder or do not cooperate with the tax authorities during the exercise of their powers of tax verification. The sanction consists of CSD restriction.

 

73.CSD Restriction. Accreditation of the materiality of the operations covered by the CFDI

It is proposed to add section V of article 17-H Bis of the Federal Fiscal Code in order to update the case of restriction of the CSD, when taxpayers do not go to the tax authorities to prove that they carried out operations contemplated in article 69-B of the Federal Fiscal Code. This is intended to encourage taxpayers to, motu proprio and early, remedy alleged irregularities of operations carried out with taxpayers that are in the case of article 69-B of the Federal Fiscal Code.

 

74.CSD Restriction. Inconsistency motivating CSD restriction

It is proposed to modify article 17-H Bis, section VII of the Federal Fiscal Code, in order to specify that the authorities may consider inconsistencies with respect to the values of the taxed acts or activities manifested in the provisional or definitive declarations or payments for the year, for CSD restriction.

 

75.CSD Restriction. Partner or shareholders who have effective control of the legal entity with an irregular tax situation

As we anticipated in paragraph 69 of this analysis, it is proposed to modify the content of article 17-H Bis, section XI of the Federal Fiscal Code, to temporarily restrict the use of the CSD, when the tax authority detects that a partner or shareholder who has control cash of the requesting legal entity would not have corrected its tax situation, falling into one of the assumptions contained in articles 17-H, sections X, XI and XII and 69, twelfth paragraph, sections I to V of the Federal Fiscal Code.

 

76.CSD Restriction. Term calculation

It is also proposed to modify the last paragraph of Article 17-H Bis of the Federal Fiscal Code in order to clarify that, when the taxpayer does not answer a request from the authority or stops attending it within the corresponding extension period, the period of 40 days referred to in the second paragraph of the aforementioned article will continue to run, as if the explanation had not been presented in order to avoid the resumption or suspension of the term when the request is omitted or an extension is left unattended.

 

77.CSD Restriction. Clarification procedure when a resolution has been issued that resolves the merits of the matter

Without respecting the hierarchy of resolutions, it is proposed to add Article 17-H Bis of the Federal Fiscal Code to specify that, when a final ruling has been issued in which the merits of the taxpayer’s fiscal situation derived from another procedure are resolved (v.gr. verification powers), he may only carry out the corresponding explanation, provided that he has corrected his tax situation in relation to the procedure to clarify or disprove the reasons that the authority had to temporarily restrict the CSD.

In other words, it disregards the effects that rulings may have, since they determine that, regardless of the effects of the judgment or ruling, the taxpayer must correct their tax situation to lift the temporary restriction to issue CFDI.

 

78.Electronic methods

Currently taxpayers can only verify the integrity and authorship of a document issued by the SAT through the method of referring to the original document with the author’s public key. However, technological advances allow new forms of verification, which is why it is proposed to modify article 17-I of the Federal Fiscal Code to indicate that the SAT, through general rules, may disclose any means or mechanisms to carry out the verification and authorship of documents.

 

79.Explanation on the calculation of deadlines in matters of returns

In a way to benefit the authorities regarding the calculation for deadlines in case of refunds and to the detriment of the taxpayers, it is proposed to modify article 22, seventh paragraph of the Federal Fiscal Code to «clarify» that the 40-day period, with which it has the authority to make the requested refund will be suspended from the date the notice of the first requirement takes effect until the taxpayer fully complies, even up to the second requirement.

 

80.Electronic refund

Currently, Article 22-C of the Federal Fiscal Code provides that taxpayers who have balances in favor of more than MXN$15,790.00 (fifteen thousand seven hundred ninety pesos 00/100 M.N.) must submit their refund request in electronic format with advanced electronic signature. It is proposed to eliminate the reference of the amount so that all returns are made in electronic format with Electronic Signature (FIEL).

 

81.Verification powers in refunds

Regarding verification powers on the occasion of a refund request, it is proposed to modify Article 22-D of the Federal Fiscal Code to incorporate a period of 20 days, once said powers have concluded, so that the taxpayer can submit documents, books or records for distort the facts and alleged omissions identified by the authority.

Therefore, the term of 20 days with which the authority has to issue its conclusions, once its powers have concluded, will begin to count on the day following the end of the previous term.

 

82.Self-correction by applying credit balances

Currently, only the authority can ex officio offset credit balances against amounts that taxpayers are obliged to pay for their own debts or for withholding. It is proposed to add to Article 23 of the Federal Fiscal Code the possibility for taxpayers who are subject to the exercise of verification powers to correct their tax situation by offsetting credit balances.

For this, it is expected that the credit balances that are intended to be offset have been previously declared and not denied by the tax authority. Additionally, an enabling clause is provided for the SAT to regulate the compensation procedure in verification powers.

 

83.Incentive application

It is proposed to modify the first paragraph of article 25 and the third and fourth paragraphs of article 25-A of the Federal Fiscal Code, to adjust the wording so that it is consistent with the current application of the incentives, since some are creditable against the tax caused and others against the tax charged.

 

84.Joint liability

In terms of joint liability for the acquirers of negotiations, it is proposed to add various hypotheses in which the authority may presume that this assumption is updated and basically, they are the identity of several aspects such as: assets or liabilities, of people who make up the body of management, legal representatives, suppliers, tax address, workers registered to the Social Security Institute, for intellectual property, industrial property rights and assets, facilities or infrastructure.

In the same way, it is proposed to include within the joint liability of representatives, those who are designated in compliance with tax provisions and those designated for tax purposes by residents abroad.

Finally, regarding the sale of shares, it is proposed to add the assumption of joint liability for those taxpayers residing in Mexico who do not submit the information referred to in article 76, section XX of the LISR (tax return of sale of shares or securities that represent the ownership of goods issued by the taxpayer, carried out among residents abroad without permanent establishment in Mexico).

 

85.Federal Taxpayer Registry

The bill contemplates incorporating the obligation to register in the Federal Taxpayers Registry (“RFC”) for individuals of legal age for that sole fact, arguing that it provides certainty and clarity to taxpayers.

On the other hand, for those companies that are listed on the stock exchange, the obligation to submit to the RFC the information of those people who have control, significant influence or command power (for example people or group of people who have the ability to directly or indirectly impose decisions in general shareholders’ meetings or equivalent bodies; persons who have the ownership of rights that allow them to vote or who instruct the directors or managers of the legal entity in question).

The SAT is expected to have the power to cancel or suspend the RFC when it detects that in the five previous years the taxpayer has not carried out any activity, has not issued tax receipts, has no pending obligations to comply or there is evidence of the individual’s death.

Additionally, the bill establishes the power of the tax authorities to make use of any technological tool that provides georeferencing and, based on the information obtained, update the information related to the taxpayers’ tax address.

Finally, in the case of liquidations of entities and total ceasing of operations, in addition to the requirements set forth in article 26, section D, section IX of the Federal Fiscal Code, the obligation to have a positive opinion on social security matters is added.

 

86.CFDI. Explanation regarding the export of goods that are not subject to sale

Regarding the issuance of CFDI, the explanation is made that in the case of exports of goods that are not subject to sale or whose sale is free of charge, the one obliged to issue the voucher is the exporter.

 

87.CFDI. Complement publication

Due to the various complements published in the SAT Portal and considering that the obligation to incorporate them in the CFDI was provided for in general rules, it is contemplated to raise the obligation of their incorporation and publication in the SAT Portal to the rank of the Federal Fiscal Code.

 

88.CFDI. Certification providers

The bill proposes to incorporate Article 29 Bis of the Federal Fiscal Code, through which the SAT’s power is contemplated to authorize certification providers (PAC) that carry out the following obligations, which were properly of the fiscal authority: a) validate the requirements Article 29-A of the Federal Fiscal Code and the various supplements in the terms that the SAT establishes through general rules; b) assign the folio to the CFDI and; c) incorporate the digital seal of the SAT.

 

89.CFDI. Delimitation in the issuance of CFDI for Expenditures

Regarding the issuance of CFDI for Expenditures, the bill provides the obligation of taxpayers to have the documentary support that protects the returns, discounts or bonuses referred to in article 25 of the LISR; otherwise, the reduction of the income CFDI cannot be carried out.

 

90.CFDI. Update of the activities and obligations stated in the CFDI

The bill adds the power of the tax authority to update the economic activity of taxpayers based on the CFDI issued if there is inconsistency between the activities registered in the RFC and the operations manifested in the CFDI.

 

91.CFDI. Additional information

It is proposed to modify section IV of article 29-A of the Federal Fiscal Code, to establish that when a CFDI is issued, in addition to the obligation to indicate the RFC, the name or company name of the recipient, its postal code and the use of the voucher as it was done previously. It is argued that this requirement is incorporated by virtue of the various complaints filed by taxpayers for the issuance of CFDI who are unaware of the operation covered by it.

 

92.CFDI. Cancelation delimitation

Currently, article 29-A, fifth paragraph of the Federal Fiscal Code establishes that the CFDI can only be canceled when the person to whom it is issued accepts its cancellation.

However, the reform adds as requirements for its cancellation: a) that it be carried out in the year in which the CFDI was issued and; b) that the taxpayer has the documentary support that supports its motive.

 

93.CFDI. Characteristics

The SAT may, through general rules, establish the characteristics of the CFDI or digital documents referred to in article 29, first and last paragraph of the Federal Fiscal Code, in the case of operations carried out with residents abroad without permanent establishment in Mexico.

 

94.Information exchange

It is proposed to add a ninth paragraph to article 30 of the Federal Fiscal Code so that the information and documentation referred to in articles 32-B section V and 32 Bis of the same Code, be kept for a period of 6 years from the date on which the respective information or documentation was generated or should have been generated, or, from the date on which the tax returns related to it were presented or should have been presented, as it may apply.

 

95.Tax obligations

It is proposed to modify the twelfth paragraph of Article 31 of the Federal Fiscal Code to standardize the deadline for filing the return with the deadline to make the payment of contributions, this in cases in which the deadline to do so is not indicated in the tax provisions to the provisions of article 6 of the same Code.

On the other hand, it is proposed to repeal the penultimate and last paragraph of the aforementioned article (relative to digital document certification providers) so that they now have to incorporate the digital seal of the SAT.

 

96.Relevant operations

It is proposed to amend subsection d) of the first paragraph of article 31-A of the Federal Fiscal Code, in order to include in the information that taxpayers must submit, the information related to the relevant operations referred to in articles 14-B of the Code itself and 24 and 161 of the LISR.

 

97.Auditor’s certificate for tax purposes

They propose to reform article 32-A of the Federal Fiscal Code, in order to establish the obligation to audit the financial statements by a registered public accountant to the legal entities that pay taxes in terms of Title II of the LISR, which in the last immediately preceding fiscal year declared, have entered in their normal returns accumulated income for ISR purposes equal to or greater than an amount equivalent to MXN$876,171,996.50, as well as those that at the close of the immediately preceding fiscal year have shares placed among the general investing public in the stock market.

In accordance with the foregoing, it is proposed to amend articles 47, first paragraph and 83, section X of the same Code in order to adjust the wording to contemplate the obligation to audit the financial statements.

Finally, it is proposed to modify the submission date of the opinion to May 15 of each fiscal year.

On the other hand, and in accordance with the amendment to the aforementioned article 32-A, it is proposed to amend article 32-H of the Federal Fiscal Code, in order to establish that taxpayers who are related parties of those who are obliged to audit their financial statements, file information about their tax situation.

 

98.Tax return reception

It is proposed to amend sections III and IV of article 32-B of the Federal Fiscal Code to eliminate the power of financial institutions and savings and loan cooperative corporations to receive tax returns, since that power is exclusive to the SAT.

 

99.Standard for Financial Account Information Automatic Exchange

It is proposed that for the purposes of Article 32-Bis of the Federal Fiscal Code, the SAT may enter into collaboration agreements with other agencies or entities of the Federal Public Office so that it is in a position to coordinate its actions for the effective implementation of information exchange.

 

100.Regulation on controlling beneficiary

It is proposed to add articles 32-B Ter, 32-B Quater and 32-B Quinquies to the Federal Fiscal Code to establish the obligation with respect to legal entities, fiduciaries, trustors, or trustees, in the case of trusts, as well as the contracting parties or members, in the case of any other legal entity, to obtain and maintain, as part of their accounting and to provide the SAT, the information related to their controlling beneficiaries in a complete and up-to-date reliable manner.

 

101.Opinion on compliance with tax obligations

It is proposed that, consistent with the proposals to incorporate the controlling beneficiary regulation, section IX to article 32-D to the Federal Fiscal Code added, where obtaining the positive opinion of compliance is conditioned to observing all the obligations that were added for the controlling beneficiary.

On the other hand, it is also proposed to reform the tenth paragraph of article 32-D, in order to clarify that the providers of public entities, political parties, trusts, funds, unions or individuals or legal entities, referred to in said precept, are obliged to authorize the federal tax authorities in matters of social security, to make public the result of the compliance opinion through the procedure established for that purpose.

 

102.Powers of the tax authority in connection with tax returns and voluntary compliance

It is proposed to add a subsection j) to section I of article 33 of the Federal Fiscal Code, to empower the SAT to implement the International Program of Certainty in Compliance, as well as to, in general, establish tax certainty and dispute prevention programs.

The International Compliance Certainty Program is a multilateral project in which tax administrations participate in order to conduct a risk analysis on the financial and tax information of multinational groups.

 

103.Obligation to submit tax returns, notices and other documents

It is proposed to specify in article 41, first paragraph of the Federal Fiscal Code, that the authorities may require the filing of the reports of information on volumetric controls referred to in article 28, section I, section B of the same Code, when they are not timely submitted and apply the corresponding fines.

 

104.Obligation and penalties to the registered public accountant

It is proposed to add a third paragraph to section III, of article 52 of the Federal Fiscal Code, to establish as an obligation of the external auditor, to inform the tax authority, when as a result of the preparation of the tax report, knowledge that the taxpayer did not comply with the tax and / or customs provisions or has carried out any conduct that may constitute the commission of a tax crime.

Likewise, it is proposed to establish the external auditors who have had knowledge of possible criminal conduct in which criminal action has been exercised and have not informed the tax authority in a timely manner, as personally liable for concealment in tax crimes.

 

105.Appraisals

It is proposed to reform the first paragraph of article 42 of the Federal Fiscal Code and add a second paragraph to section VI, to empower the tax authorities to carry out appraisals of intangible assets; likewise, add the assumption of income from the appraisal of services, established in article 17 of the same Code.

 

106.Audit powers to financial institutions, legal entities, trustees, settlors or beneficiaries

It is proposed to add to article 42, a section XII of the Federal Fiscal Code to establish that tax authorities can perform field audits to financial institutions, trustees, settlors, beneficiaries, contracting parties or members of any other legal entity, as well as to require said institutions and to third parties related to them, to provide the information necessary to verify compliance with the OECD Standard for Automatic Exchange of Information on Financial Accounts in Tax Matters (Common Reporting Standard – “CRS”).

Likewise, it is proposed to add a section XIII to the aforementioned article 42, in order to establish a new power of controlling beneficiary and automatic exchange of financial information.

Finally, it is proposed to add article 48-A of the aforementioned Code, to regulate the procedure with which said review will be carried out.

 

107.Simulation for tax purposes

It is proposed to add article 42-B to the Federal Fiscal Code to grant the tax authorities, as a result of the exercise of their audits, a new power to determine the simulation of legal acts, exclusively for tax purposes, in terms very similar to those provided, currently, in article 177 of the Income Tax Law.

 

108.Alignment of references contained in the Income Tax Law

It is proposed to set forth in article 48, section VII of the Federal Fiscal Code, that the term to disprove the facts and circumstances established in the findings letter will be two months, when the review is related to the content of articles 76, sections IX and XII, 90, penultimate paragraph or 110, fraction XI of the Income Tax Law.

It is also proposed to include such provisions in section B of article 46-A of the aforementioned Code, to specify that the duration of the audit powers exercise will be two years.

 

109.Confidentiality document in cabinet reviews

It is proposed to amend article 46, section IV and include a section VII to article 48 of the Federal Fiscal Code, to inform to the taxpayer and their representatives confidential information obtained from independent third parties regarding comparable operations that affects the competitive position of said third parties, subscribing for that purpose a confidentiality document in the terms that the SAT establishes for this purpose through general rules.

 

110.Field visits

It is proposed to include within Article 49 of the Federal Fiscal Code to financial institutions, trustees, settlors, beneficiaries in the case of trusts and the contracting parties or members, in the case of any other legal entity, as subjects of a field visit.

It is proposed to add the fact that the field visits may be performed where the activities are performed, executed, effective, documented, registered or enrolled the legal acts that may comply the obligations provided by articles 32-B, section V, 32-B Bis, 32-B Ter, 32-B Quarter and 32-B Quinquies of the Federal Fiscal Code.

 

111.Exceptions to the sequential review order

In order to expedite the inspection procedures, it is proposed to add a subsection m) within the fifth paragraph of section III of Article 52-A of the Federal Fiscal Code, in order to establish as an exception to observe the order of sequential review, the taxpayers indicated in article 32-A of the same Code obliged to get an audit opinion to their financial statements by registered public accountant.

 

112.Filing of the statement for installment or deferred estimate payments

It is specified that for estimate payments in installments or deferred payments, 20% of the total amount of the tax credit must be paid at the time of the authorization request.

 

113.Statute of limitations for audits

It is proposed to establish as a case of suspension of the statute of limitations for audits, the request for a ruling on transfer pricing (Advance Pricing Agreement). The suspension will operate from the moment the request was submitted, until the notification of the process completion takes effect.

It is also added that in the event that the statute of limitations is suspended for two years or more, the expiration period may not exceed the term of seven years, seven years with six months or eight years, as it may apply.

It is mentioned that the statute of limitation will not affect the implementation of the agreements reached as a result of the mutual agreement procedures or those reached based on the inter-institutional agreements signed based on broad exchange of information agreements.

 

114.Update to the legal framework of tax secrecy

It is proposed to add as exception to the reservation of tax information and taxpayer data, those individuals and legal entities to whom the SAT has cancelled the CSD as a result of being in one of the assumptions set forth in sections X, XI and XII of Article 17-H of the Federal Fiscal Code, unless they remedy the irregularities detected by the tax authorities, or correct their tax situation.

 

115.Procedure against EDOS and EFOS update

It is proposed to establish that the non-existence of the operations covered by the tax receipts will also be presumed, when the tax authority detects that a taxpayer has been issuing invoiced that support operations carried out by another taxpayer, during the period in which the latter has been cancelled the CSD or has been temporarily restricted in terms of articles 17-H and 17-H Bis of the Federal Fiscal Code, without having corrected the irregularities detected by the tax authority.

 

116.Maximum period for the application of the settlement procedure (conclusive agreement)

It is proposed to establish that the maximum duration of the settlement procedure will be twelve months, counted from the date the taxpayer submits the corresponding request to the Taxpayer Ombudsman Office (“PRODECON”).

For these purposes, the introduction of a transitory provision will be issued in order to establish that settlement procedures for agreements that have been requested before January 1, 2022 and that on the Decree’s effective date are being processed before PRODECON, must be concluded within a period that will not exceed twelve months from the enforceability of the amendment.

 

117.Fine reduction

It is proposed to add as an assumption for fines reduction, that a Mutual Agreement Procedure – “MAP” has not been filed in accordance with the provisions of the treaties to avoid double taxation to which Mexico is a party, as well as regarding fines determined by the taxpayer itself.

Likewise, various articles of the Code are amended in order to standardize the terminology of the statute, replacing the term condonation with that of reduction (articles 21, tenth and eleventh paragraphs, 69-G and 74, first, second and fourth paragraphs of the Federal Fiscal Code).

It is proposed to derogate the assumptions of condonation of tax assessments in cases of commercial bankruptcy, in order to be in accordance with the amendment to article 28 of the Mexican Constitution that prohibits tax condonation.

 

118.Fine applicable to the optional regime for corporate groups

It is proposed to establish a specific fine for companies that apply the Optional Regime for Corporate Groups provided for in the Income Tax Law, when they declare tax losses greater than those actually suffered. The fine will be 60% to 80% of the difference that results between the declared loss and the one that really corresponds, regardless of whether the company in question had totally or partially reduced its tax profit.

 

119.Fines related to provisions of the Income Tax Law

It is proposed to increase the fines for non-compliance with the provisions of articles 76, sections IX and XII, 76-A, 90, penultimate paragraph, 110, section XI, 179, 180, 181 and 182 of the Income Tax Law.

 

120.Clarification of the resident expression in transfer prices matters.

It is proposed to modify articles 81, section XVII and 83, section XV of the Code in order to delete the reference of residence abroad of related parties, thereby expanding the tax offenses provided therein and the consequent fines, for failure to comply of obligations with respect to operations with domestic related parties.

 

121.Fines related to the cancellation of CFDI

It is proposed to add as an infringement to the tax provisions, the cancellation of tax invoices after the legal timeframe established for it has expired. It is proposed that the fine for the commission of this offense will be 5% to 10% of the amount of each tax invoice.

 

122.Financial institutions infractions

It is proposed to include a system of specific sanctions that can be committed by financial institutions related to the obligations regarding the automatic exchange of financial information in tax matters established in articles 32-B, section V and 32-B Bis of the Federal Fiscal Code.

 

123.Infractions related to authorized certification providers

A series of infractions that CFDI certification providers may commit are added, due to non-compliance with the validation of the requirements set forth in article 29-A of the Federal Fiscal Code for CFDI, as well as the technical documentation indicated in the rules of general character issued by the SAT for this purpose.

 

124.Infractions related to accounting obligations

It is proposed to amend section XVII of article 83 of the Federal Fiscal Code, in accordance with the reform of articles 32-A and 32-H in connection with the auditor’s tax opinion and the tax return of fiscal situation, adding as an infringement the submission of the information with errors.

Likewise, it is proposed to add as an infraction, to use CFDI issued by a third party, when the tax authorities determine that said tax invoices were issued with respect to non-existent or simulated operations, because the taxpayer who uses them did not demonstrate the materiality of said operations during the relevant audit, unless the tax situation has been corrected. In these cases, the fine will be 55% to 75% of the amount of each tax receipt.

 

125.CFDI sanctions

It is proposed to establish a penalty for the issuance of tax invoices that do not have the relevant addendums issued by the SAT for this purpose. The fine ranges from MXN$400.00 to MXN$600.00 for each CFDI that is issued and does not have the corresponding addendums.

 

126.Infractions and fines related to controlling beneficiaries

Infractions and fines cases related to the breach of the obligation to obtain, keep and submit before the tax authority the information and documentation related to the controlling beneficiaries that are part of the legal entity, trust or legal vehicle in question are established. The proposed infractions are as follows:

1. Failure to obtain, keep or submit the information in accordance with the means and forms established by the SAT. The fine would range between MXN$1,500,000.00 and MXN$2,000,000.00, for each controlling beneficiary.
2. Not maintaining the corresponding information updated. The fine would be MXN$800,000.00 to MXN$1,000,000.00, for each controlling beneficiary.
3. File information that is incomplete, inaccurate or with errors. The fine would be MXN$500,000.00 to MXN$800,000.00, for each controlling beneficiary.

 

127.Fines related to labels, seals and containers of alcoholic beverages

Section IV of article 86-A of the Federal Fiscal Code is amended to establish an exception to the infraction for not destroying empty containers of alcoholic beverages provided that the facilities determined by the SAT are applied.

Likewise, it is proposed to add sections VI to IX to article 86-A and sections VI and VII of article 86-B of the Federal Fiscal Code, to establish the following infractions and fines:

1. Failure to comply with health measures in connection with alcoholic beverages,
2. The incorrect use of labels or seals, according to the general rules issued by the SAT,
3. Failure to read the QR code on the label in establishments that open alcoholic beverages for final consumption. The fine would be MXN$20,000.00 to MXN$50,000.00 for each occurrence,
4. Produce more than once of the electronic folios authorized for the digital printing of tags. The fine would be MXN$50,000.00 to MXN$100,000.00 for each occurrence.

 

128.Violations of producers, manufacturers and importers of cigars and processed tobaccos

Infringement cases include non-compliance with the sanitary measures for tobacco production, as well as the incorrect use of the security codes printed on the packs.

It is proposed to exempt from the infringement producers, manufacturers and importers of cigars and tobacco that are made entirely by hand.

On the other hand, for the purposes of the infractions applicable to cigarette packs that do not have the security code printed, it is proposed to include the power that the tax authority can cancel the security codes delivered.

 

129.Offenses committed by public officials or employees

It is proposed to add a section VI to article 87 of the Federal Fiscal Code, to establish an infraction to public officials who do not issue the resolution determining a taxpayer the presumption of non-existent operations related to article 69-B, within the statute timeframe by the same ordering. In these cases, the fine provided for in article 88 of the Code would be applied, which is from MXN$132,790.00 to MXN$177,050.00.

 

130.Penalty for the simulation of labor relations

It is proposed to include a subparagraph j) to article 108 of the Federal Fiscal Code, in order to consider as a qualified crime of tax fraud the simulation of a provision of independent professional services in accordance with the new Simplified Regime of Trust of the LISR.

 

131.International anti-corruption conventions

It is proposed the inclusion of an assumption of qualified tax fraud and qualified comparable tax fraud to the deduction, credit or application of any tax benefit with respect to expenditures that are made in violation of anti-corruption legislation, including expenditures consisting of giving, by itself or through an intermediary, money, goods or services, to public officers or third parties, either nationals or foreigners.

 

132.Term suspension for filing an administrative tax appeal

It is proposed to modify the wording of article 121 of the Federal Fiscal Code to provide greater clarity on the suspension of the term for the submission of the administrative tax appeal and, specifically for filing a Mutual Agreement Procedure (MAP), where the term suspension will start from the date on which the competent authority of the foreign country notifies the SAT of the receipt of said request or, if it begins in Mexico, from the date the request has been received by the competent authority of Mexico. The term suspension to promote the administrative tax appeal will cease when the conclusion of the procedure is notified, even if it is terminated at the request of the interested party or was declared inadmissible.

 

133.Notice by bulletin board

It is proposed to extend from 6 to 10 days the period that will last the publication of notices by bulletin boards on the tax authority website.

 

134.Assumptions to guarantee tax deficiency

The obligation to guarantee the tax deficiency is established for those taxpayers who request a dispute resolution procedure under a treaty to avoid double taxation (MAP), without having previously filed the administrative tax appeal.

 

135.Seizure and auction procedure

It is proposed to add article 151 BIS and amend article 152 of the Federal Fiscal Code, to allow the tax authority to carry out the seizure of assets through the tax mailbox and specify the requirements for the seizure diligence when it is carried out personally. Additionally, the amendment of article 176 of the Federal Fiscal Code is proposed to allow the participation of taxpayers who pay taxes in the new simplified regime of trust in the auctions of assets organized by the tax authority.

 

136.Administrative Enforcement Procedure (“PAE”) suspension

It is considered the elimination of reference to the dispute resolution procedure established in a treaty to avoid double taxation (MAP) with respect to the suspension rules of the administrative enforcement procedure, to indicate that it is not applicable.

 

137.Combating the illicit hydrocarbon and petroleum market. Electronic accounting

It is proposed to eliminate the authorizations to act as equipment and volumetric controls supplier, so that taxpayers obliged to have such controls can freely access a suppliers market that is not so regulated, which makes it possible to make more efficient the fulfillment of their tax obligations more agile and efficient, without requiring the intervention of the tax authority (authorizations). Likewise, it is proposed to include in the accounting, the documents that certify the correct functioning of the equipment used to carry the volumetric control, for which the parameters that must be taken into consideration are established.

 

138.Combating the illicit hydrocarbon and petroleum market. Presumptive determination for the hydrocarbon sector

The power of the tax authority to carry out the presumptive determination of income is established in case the taxpayers of the hydrocarbon sector present inconsistencies in their accounting, for which, the assumptions and formulas to determine said presumption are included.

 

139.Combating the illicit hydrocarbon and petroleum market. Violations and fines related to volumetric controls

The behaviors that constitute infractions in the matter of volumetric controls are established, as well as the corresponding sanctions.

 

140.Combating the illicit hydrocarbon and petroleum market. Criminal penalty for not carrying volumetric controls

The catalog of tax crimes is expanded to include the omission of carrying volumetric fuel controls, alter, disable or destroy them, do not have the certificates for their correct operation, have computer programs whose purpose is to alter the records of volumetric controls and the acquisition of illicit fuel in accordance with certain defined parameters is added as a crime with a prison sentence of 6 to 12 years, as well as giving effect to the CFDI issued by companies that carry out simulated fuel acquisition operations, the existence of differences between the measured and calculated stocks and finally, the turnover higher than what can be sold.

 

141.Measures to challenge smuggling by omission of the Excise Tax (“IEPS”) applicable to hydrocarbons and petroleum products. Contraband

It is proposed to amend the second paragraph of Article 102 of the Federal Fiscal Code, to refer to the fringe areas or border region, taking into account that currently reference is made to free zones.

Likewise, in order to eradicate the omission of the IEPS due to fuel smuggling, it is proposed to establish an exception regarding the non-formulation of the tax return referred to in article 92, section II of the Federal Fiscal Code, that is, in the cases of IEPS omission, it will be necessary to make said tax return even when the assumptions established concur in the third paragraph of article 102 of the same Code.

 

142.Measures to combat smuggling by omission of the IEPS applicable to hydrocarbons and petroleum products. Contraband presumption

It is proposed to amend article 103, section XX of the Federal Fiscal Code to establish that, in the case of the goods referred to in article 2, section I, subsection D) of the LIEPS (automotive fuels), contraband will be presumed due to an inaccurate tax return of merchandise tariff classification, when the tax payment and countervailing duties is thereby omitted, even when the customs agent or representative had complied with all the obligations imposed by the customs and foreign trade regulations, that is, in the case of automotive fuels. The liability exemption established in said section for customs agents will not apply.

It is also proposed to add two sections to the aforementioned provision, in which it will be established that smuggling is presumed: (i) when goods are transferred by any means of transport in the country, without the income or transfer type CFDI, as appropriate, that the Carta Porte Complement be incorporated and; (ii) when the transfer involves hydrocarbons, petroleum products or petrochemicals and they do not have said documentation, or with the complements of the CFDI of said goods.

 

143.Measures to combat smuggling by omission of the IEPS applicable to hydrocarbons and petroleum products. Contraband sanctions

It is proposed to add a last paragraph to article 104 of the Federal Fiscal Code to establish as a sanction for the commission of the crime of smuggling, the definitive cancellation of the registry of specific sector importers and the cancellation of the customs agent’s patent, in the case of hydrocarbons and petroleum products.

 

144.Measures to combat smuggling by omission of the IEPS applicable to hydrocarbons and petroleum products. Customs agents and agencies responsibilities

It is proposed to derogate the second paragraph of sections XII and XIII of article 105 of the Federal Fiscal Code, which establishes the exemption of the responsibility of the customs agent if the inaccuracy or falsity of the data is provided by the taxpayer, provided that the customs agent complies with all its obligations in customs and foreign trade matters.

 

Our Tax team is at your service to answer any questions regarding this document.

 

S I N C E R E L Y,

 

Gerardo Nieto

nieto@basham.com.mx

 

Gil Zenteno

zenteno@basham.com.mx

 

Alejandro Barrera

barrera@basham.com.mx

 

Sergio Barajas

barajas@basham.com.mx

 

Víctor Barajas

mbarajas@basham.com.mx

 

Francisco J. Matus

fmatus@basham.com.mx

 

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[1] The same amendment is proposed in articles 76, section XII, 90 and 179 of the Income Tax Law, including the name of Title VI of that ordinance.

[2] Articles 189, second paragraph; 190, second paragraph; 202, third paragraph; 203, second paragraph, and 204, of the Income Tax Law

[3] Plus the year when the notice is submitted.