Tax Articles

Mexico Enacts Important Tax Law Changes Eliminating Universal Tax Credit Offsets

By Miriam Name and Edgar González

Mexico’s federal Congress recently enacted the 2019 Federal Revenue Law (the “Revenue Law”). An important change in Article 25, paragraph VI of the Revenue Law sets forth numerous limitations on tax credits, including an elimination of taxpayers’ ability to credit or offset all types of federal taxes against each other on a universal basis. The purpose of such new limitations is supposedly to combat tax evasion in Mexico. The Revenue Law now provides that taxpayers may “net out” positive balances against amounts owed only if both balances or amounts are for the same type of tax (e.g. Mexican income tax). The Revenue Law further provides that taxpayers with positive Value Added Tax balances may only credit or offset such tax … read more

Mexico Implements New Deductibility Rules for Tax Losses

By Miriam Name and Edgar González

The presumption may be made by the tax authority when it detects that a taxpayer has claimed deductions based on tax losses in any of the following scenarios: The taxpayer declared tax losses in any of the three fiscal years subsequent to its formation, in an amount greater than the value of its assets, and more than half of its deductions are related to transactions with related parties. The taxpayer declared losses after the three fiscal years following its formation, with more than half of its deductions relating to transactions with related parties, and such deductions would have increased by more than fifty percent (50%) with respect to those tax losses incurred in the immediately preceding fiscal year. The taxpayer … read more

Constitutionality of Lists Detailing Taxpayers Who Conduct False or Non-Existent Transactions

By Miriam Name and Fernando Juarez

In proceedings on February 7, 2018, Mexico’s Supreme Court held that lists of taxpayers detailing those who carried out false or non-existent transactions, as published in conformity with Article 69-B of the Mexican Federal Tax Code, are constitutional. This ruling is important because it means that all taxpayers must pay special attention and confirm that their suppliers and service providers are not found to be on such lists. Article 69-B of the Federal Tax Code establishes that when a supplier or service provider issues formal tax invoices without actually possessing the assets, personnel, infrastructure or capacity to provide the services or produce the goods being sold, the authorities will presume that such transaction did not occur, and, therefore, is “non-existent.”  … read more

Tax Incentives and New Customs Regime in Special Economic Zones

Tax Incentives and New Customs Regime in Special Economic Zones

By Fernando Juárez and Miriam Name

On September 29, 2017, the Declaration of the Special Economic Zones of Puerto Chiapas (Chiapas), Coatzacoalcos (Veracruz) and Lázaro Cárdenas-La Unión (Michoacán) (the “Zones”) was officially published. In the new Decree, various tax benefits were granted to investors who participate in these areas. Among the most notable benefits is the reduction of Income Tax (ISR) payments. Such benefit will reduce payments up to 100% for the first 10 years, and a reduction up to 50% of the tax incurred for an additional five years. In addition to the above, there is a 50% reduction in employer/employee quotas during the first 10 years and 25% in the subsequent five years. As a general rule, transactions carried out within the Zones are … read more

General Import and Export Tax and Tariff Modifications

General Import and Export Tax and Tariff Modifications

By Edmundo Elías and Marisol de León

As part of the structural reform process of the General Import and Export Tariff and Tax Modifications (TIGIE) currently underway, which was discussed in issue 139 of this publication, Mexico’s President recently published a Decree that modifies Chapter 60 of the TIGIE, including the following decrees, in order to be consistent with such modifications: Decree Establishing the General Import Tax for the Border Region. Decree for the Promotion of the Manufacturing, Maquiladora and Export Services Industries (IMMEX Decree). The main changes that affect the textile industry are as follows: 120 tariff classifications were included, identifying in greater detail various goods from the textile industry, which result from the breaking down of 61 prior tariff classifications. The new 120 tariff classifications … read more

BEPS Modifications to Determine Permanent Establishment

By Miriam Name and Fernando Juárez

On June 7, 2017, Mexican tax representatives participated in the execution of the “Multilateral Convention for the Implementation of Measures Related to Tax Treaties to Prevent the Erosion of Taxable Amounts and the Transfer of Benefits” (also known as “Multilateral Instrument” or “MLI”) of the Economic Cooperation and Development Organization (OECD). After such execution, Mexico and more than 70 countries (excluding the United States) have joined forces with the objective of implementing the anti-erosion measures established by the BEPS (Base Erosion and Profit Shifting) report. Among the most important changes is the concept of “permanent establishment” on income and estate taxes as established in the OECD Model Tax Convention. In this sense, through the proposed modifications, it is determined whether … read more

Outsourcing and Money Laundering. New Interpretation by the Fiscal Authorities, by Miriam Name and Fernando Juárez

In recent days, the Unit of Financial Intelligence (UFI) of the Department of the Treasury and Public Credit issued new criteria identifying outsourcing as a vulnerable activity for purposes of the Federal Law for the Prevention and Identification of Transactions with Resources from Illicit Sources (LFPIORRC, for its Spanish acronym or Anti-Money Laundering Law).   By means of such criteria, the UFI determined that providing independent professional services (outsourcing) is a vulnerable activity pursuant to the terms of the Anti-Money Laundering Law.  Consequently, all Companies that provide personnel services, whether to related parties or to third parties, are subject to the regulations of the Anti-Money Laundering Law, and, therefore, must identify such transactions and provide required notices and reports contained … read more

Decree for the Promotion of the Strategic Duty-Free Area

On February 4, the Decree for the promotion of strategic duty-free areas was published, in addition to the regime for strategic duty-free areas (Decree), by means of which various benefits are established for Mexican strategic duty-free areas in order to promote their creation and operation. Currently, only 12 strategic duty-free areas exist. The Decree came into effect on February 5, 2016, and it establishes the following benefits for taxpayers who obtain authorization to place merchandise in strategic duty-free areas: (i) tax incentives for such taxpayers; (ii) reduced customs duty rates; and (iii) administrative facilitation, including among others, importation by means of any customs office, special time frames for importation of machinery and equipment, correction of the country of origin in … read more

New Rule on the Accelerated Refund of the Value Added Tax (VAT)

Mexico’s Treasury Department, acting through its Tax Service Administration (SAT), recently decided to add a new miscellaneous tax rule regarding refunds of the Value Added Tax (VAT) incurred in Investment Projects in Fixed Assets (Published in the Official Journal of the Federation on October 16, 2014. Rule I.4.1.9.). As such, as of October 17, 2014, taxpayers that undertake investment projects on fixed assets may be able to obtain approvals of their refund requests within a maximum time period of 20 business days (with respect to the acquisition or manufacturing of assets, including the rendering of services or granting the temporary use or enjoyment of assets relating to the acquisition or manufacturing of the assets). It is important to note that … read more

The Importance of Designating Successor Trust Beneficiaries in Real Estate Management Trusts

By Marimar Perez-Cacheaux and Ramón Concha

There exist many trusts in Mexico that were created in order for foreigners to acquire and own real estate in the restricted zone (a strip of 50 kilometers – approximately 31 miles – along the coast, or 100 kilometers – approximately 62 miles – from the border). In any of these situations, a foreigner contracts a Mexican bank (the “Trustee”), so that real estate is transferred to the trust and the foreigner, in his/her capacity as trust beneficiary, has the right to use and enjoy the real property. If the trust was duly structured and formalized, the foreigner, as trust beneficiary, shall designate successor trust beneficiaries, meaning that he/she will name the person or persons who will replace him or … read more