On November 12th, 2021, a Decree reforming, adding and repealing various provisions of the Income Tax Law, the Value Added Tax Law, the Special Tax Law on Production and Services, the Federal Law on the Tax on New Cars and the Federal Fiscal Code and other regulations (the “Decree“) was published in the Federal Official Gazette, which entered into force last January 1st, 2022.

By means of the Decree, various amendments and additions were made to the Federal Fiscal Code (“CFF“, per its acronym in Spanish), the Income Tax Law (“LISR“, per its acronym in Spanish) and the Value Added Tax Law (“LIVA“, per its acronym in Spanish).  Among the main modifications are the following:

 

I. FEDERAL FISCAL CODE

 1) Business purpose and additional requirements in merger or spin-off of companies. Derived from the Decree, Article 14-B of the CFF establishes that when a spin-off or merger of companies is carried out and from such operations arise items in the stockholders’ equity of the companies involved that were not previously recorded in the financial statements that were approved to carry out the merger or spin-off, it cannot be considered that a tax disposal of the assets transferred in such acts was not carried out.  In this case, if a review by the tax authorities shows that the transaction lacked a business reason, it will be considered that there was a disposal of assets.

It is clarified that in a spin-off the transfer of capital is the transfer of capital stock and not the transfer of various items of stockholders’ equity.  Also, in accordance with the previous measures, a new obligation is established for a certified public accountant to issue an opinion on the financial statements that were used to carry out the merger or spin-off.

A new faculty is also implemented in favor of the tax authorities to consider the relevant transactions (specified in Article 14-B of the CFF) that have been carried out within the five (5) years prior to and the five (5) years after the merger or spin-off, to verify the business purpose for the merger or spin-off.  For such purposes, taxpayers are required to disclose the relevant transactions carried out within the five (5) years following the merger or spin-off.

2)Addition and modification of assumptions for temporary restriction of digital stamp certificates. A second paragraph was added to Section I of Article 17-H Bis of the CFF to allow the tax authority to temporarily restrict digital stamp certificates (“CSD“, per its acronym in Spanish), when taxpayers who pay taxes under the Simplified Trust Regime or Régimen Simplificado de Confianza (“RESICO”, per its acronym in Spanish) do not make three (3) or more monthly payments in a calendar year or fail to file the annual tax return.

A second paragraph was also added to section III of this Article, allowing the CSD to be temporarily restricted when taxpayers: (i) oppose the visit to their fiscal domicile, (ii) do not provide data and reports legally required by the tax authority, and (iii) do not provide their accounting or part of it, the content of their securities boxes and, in general, the elements required to verify their own or third parties’ tax obligations, as well as not providing the information required in the tax authorities reviews.

Such restriction will only be applicable once the authorities notify the taxpayer of the fine for recidivism.

Likewise, Section V of the above-mentioned Article was amended to contemplate that the tax authority may also restrict the CSD to the taxpayer that does not prove that it did not carry out transactions with the taxpayers included in the definitive list referred to in Article 69-B of the CFF.

Regarding Section VII of such provision, its content was modified to now allow the tax authorities to temporarily restrict the CSD based on the inconsistencies detected between the value of the taxable acts or activities declared in the provisional or definitive returns, or in the informative returns.  This section opens the door for the tax authority to restrict the taxpayer’s stamps without exercising a formal audit.

Finally, a section XI was added to Article 17-H Bis of the CFF.  This section contemplates that the CSD of a legal entity that has a partner or shareholder (with effective control) whose CSD has been rendered ineffective and who has not corrected its tax situation, may be temporarily restricted.  It is also possible to restrict the CSD of a legal entity that has a partner or shareholder who, as well, is a partner or shareholder of another legal entity whose CSD has been rendered ineffective and who has not corrected its tax situation.

3) Presumption of acquisition of business operations (going concern). For the purposes of determining joint liability in terms of Article 26 of the CFF, the Decree incorporated to Section IV of such Article a presumption to consider the different situations in which the acquisition of a business is presumed to exist.  With this, the tax authority will be able to use such presumption to determine, in a simpler manner, the joint liability of the acquirer of the negotiation with respect to the taxes caused by the transaction.

4) Registration in the Federal Taxpayers Registry of individuals of legal age. As of January 1st, 2022, it is mandatory for individuals of legal age to register in the Federal Taxpayers Registry (“R.F.C.“, per its acronym in Spanish).  Individuals of legal age who do not carry out economic activities will not have tax obligations if they do not carry out economic activities.  For such purposes, the possibility of registering in the R.F.C. under the heading “Registration of individuals without economic activity” is foreseen.

5) Notice of partners and shareholders. Although there was already an obligation for legal entities to file a notice in which they provide diverse information of their partners, shareholders, associates and others that are part of the organizational structure of the company each time there is a modification, the Decree establishes that such information must also be provided regarding the percentage of participation of each of the partners, shareholders, associates, etc., in the capital stock, as well as the corporate purpose and who exercises effective control.

In the case of companies that have shares placed in the stock market, information must be provided regarding the persons who have control, significant influence, or commanding power within the company, as well as the names of the common representatives, their R.F.C. and shareholding percentage.

6) Requirements and cancellation of tax invoices. Section I of Article 29-A of the CFF was amended to make it mandatory for taxpayers that have more than one place of business or establishment to indicate in the tax invoices, or as known in Mexico Comprobantes Fiscales Digitales por Internet (“CFDI”, per its acronym in Spanish), the address of the place of the business or establishment where they were issued.  Section IV was also amended to now contemplate that the name, company name or corporate name and the zip code of the taxpayer receiving the CFDI must be added in the CFDI.

Regarding the cancellation of the CFDI, several paragraphs were added to Article 29-A of the CFF to regulate the terms and requirements that taxpayers must comply with, when issuing a CFDI.

a) Deadline. Generally, CFDI may only be cancelled in the fiscal year in which they were issued, unless another tax provision provides for a shorter term.

b) Requirements. That the receiver has accepted its cancellation through the means and forms established by the Tax Administration Service.  When the cancelled CFDI covers income, the reason for the cancellation must be justified and supported with evidence.

7) Obligation to audit financial statements. Article 32-A of the CFF was amended to expressly contemplate the obligation of legal entities to have their financial statements audited by a registered public accountant, no later than May 15th, of the immediately following year, when in the immediately preceding fiscal year, they declare income equal to or greater than $1’650,490,600.00 (One billion six hundred and fifty million four hundred and ninety-thousand six hundred Mexican pesos, 00/100). 

Regardless of whether they declare such amount of income, legal entities that at the close of the immediately preceding fiscal year have shares placed in the stock market, must have their financial statements assessed by a registered public accountant.

Article 32-H of the CFF was also amended to require taxpayers that are related parties of parties required to audit their financial statements to submit information of their tax situation.

8) Exceptions to tax secrecy by the tax authorities. An exception to the tax secrecy to be kept by the tax authorities is established, consisting in the fact that the tax secrecy will not be applicable to the following taxpayers: (i) taxpayers whose CSD have been rendered ineffective by the tax authorities for not having rectified the irregularities on the basis of which they were temporarily restricted, (ii) taxpayers who issued CFDI covering allegedly non-existent transactions and who have not rebutted such presumption, and (iii) taxpayers who have not rebutted the presumption of having improperly transferred tax losses.

9) Obligation of registered public accountants to inform to the Tax Administration Service of non-compliance situations. A third paragraph was added to Section III of Article 52 of the CFF to contemplate the obligation of registered public accountants to inform the tax authority of non-compliance with tax and customs provisions by legal entities, as well as of the possible commission of a tax offense by virtue of the preparation of the financial statement report.

The registered public accountant who fails to comply with such obligation, may be fined due to the infraction contained in Article 91-A of the CFF and may be held responsible for the commission of the crime of concealment of tax crimes, in terms of section III of Article 96 of the CFF.

10) Seizure via Buzón Tributario (“Tax Mailbox”). Article 151 Bis was added to the CFF to allow the Tax Administration Service to carry out the procedure of seizure of assets through the Tax Mailbox.  The above may be carried out as long as the tax credits are enforceable and the assets to be seized fall under any of the following categories:

a) Bank deposits, savings or investment components associated with life insurance that are not part of the premium to be paid for the payment of such insurance, or any other deposit in national or foreign currency made in any type of account held in taxpayers name in any of the financial entities or savings and loan cooperative societies.

b) Stocks, bonds, matured coupons, marketable securities and, in general, credits of immediate and easy collection in charge of entities or dependencies of the Federation, States and Municipalities and of institutions or companies of recognized solvency.

c) Real estate.

d) Intangible assets.

 

11) Deadline for concluding a tax ombudsman agreement.  The content of Article 69-G of the CFF was modified to specify that the procedure to obtain a tax ombudsman agreement (“Acuerdo Conclusivo”, per its full name in Spanish) may not exceed a period of twelve (12) months, counted from the date the taxpayer submits the request before the Mexican Tax Ombudsman (“PRODECON”, per its acronym in Spanish).

In accordance with Article Eight, section III of the Transitional Provisions of the CFF, the tax ombudsman agreements that have been requested before January 1st, 2022, and that are in process, must be concluded within a period not exceeding twelve (12) months, counted from the entry into force of the Decree.

 

 II. INCOME TAX LAW

1) Back-to-back loans. A new paragraph was added to Article 11 of the LISR to establish that financing transactions from which interest is derived, by legal entities or permanent establishments in the country of foreign residents, other than the transactions contemplated in Article 11, will be considered as back-to-back loans when they lack a business reason.

2) Informative declaration of institutions of the financial system. In order for the tax authorities to have opportune information for the exercise of its verification faculties, Article 55, Section IV of the LISR was amended to establish that the institutions that are part of the financial system must report the receipt of cash deposits that, on a monthly basis, exceed $15,000.00 (Fifteen thousand Mexican pesos, 00/100).

Although such obligation already existed, the financial system institutions were required to submit an annual report, so the amendment is that the reports must be submitted on a monthly basis, no later than the 17th day of the immediately following month.

3) Tax deduction of losses resulting from bad debts. The requirements for the tax deduction of losses resulting from bad debts are modified by amending Article 27, Section XV, second paragraph, subsection b) of the LISR, to establish that there is a notorious impossibility to collect the credits until all legal means have been exhausted to obtain their collection and that, having the right to collect them, it was not possible to recover them. 

Based on the reform, it will not be enough to require the compliance with the payment through filling a lawsuit or to initiate arbitration proceedings, but all possible steps must be taken to obtain a favorable result for the taxpayer’s interests.

4) Transfer pricing obligations for transactions with domestic related parties. Regarding transactions between related parties, Article 76, Sections IX and X of the LISR were amended to establish that the obligation to keep the supporting documentation evidencing that the transactions were carried out at market value also extends to transactions carried out between related parties residing in Mexican territory.

Articles 76 and 76-A of the LISR were amended to establish that the master and country-by-country information returns of related parties must be filed no later than December 31st of the year immediately following the respective fiscal year.  In addition, it is stated that the local information return of related parties must be filed no later than May 15th of the year immediately following the respective fiscal year.

5) Notice of disposal of shares. In the case of corporations, a new obligation is added to Article 76, Section XX of the LISR, consisting of informing the tax authorities of the transfer of shares or securities representing the ownership of assets owned by the taxpayer, carried out between foreign residents without a permanent establishment in Mexico.  The notice will be made by means of a form to be published by the Tax Administration Service and must be filed within a month following the month in which the transaction is carried out.

If such obligation is ignored, it will be considered that the companies issuing the shares are jointly liable for the payment of the tax derived from the transaction.

6) Donations, personal retirement plans and complementary retirement contributions. Article 151 of the LISR was amended to include in the general limit for personal deductions, the deductions consisting of donations that are not onerous or remunerative, or complementary retirement contributions made by individuals.  Such limit is maintained at the lesser of five (5) times the annual value of the Unidad de Medida y Actualización (“UMA”, per its acronym in Spanish) or fifteen percent (15%) of the total income of the taxpayer.

Prior to the reform, individual taxpayers were allowed to make additional deductions for such concepts, granting them a different limitation to the one already mentioned.  However, with the reform, all deductions are subject to the same limitation.

7) Comparable transactions for foreign residents. Article 153 of the LISR, was modified, by adding a second paragraph which establishes that taxpayers residing abroad, who obtain income from a Mexican wealth source, shall determine its income, gains, profit and deductions arising from transactions carried with related parties, considering the prices or profit margins that otherwise would have been used with an independent party.

8) Income for the acquisition of goods by foreign residents. Before the reform, fifth paragraph of Article 160 of the LISR, established the possibility to determine income to the acquirer (non-Mexican resident) of real estate located in Mexican soil, if as a result of an audit and an authority appraisal, it discovered that the agreed price was at least ten percent (10%) below the appraisal value.  The difference of the price and the appraisal value is determined as income for the acquirer and will be levied under a twenty five percent (25%) tax rate, with no possible deduction.

In the sense of the above, the fifth paragraph of Article 160 of the LISR was modified to establish that in case the tax authorities determine a tax duty, due to the mentioned ten percent (10%) difference, the seller (Mexican resident or non-Mexican resident with permanent establishment in Mexico) will have the obligation to pay the corresponding income tax, replacing the acquirer in such obligation.

9) Sale of shares and securities from a Mexican wealth source. When selling shares and securities which represent the property of goods and such transactions are made between related parties, the Decree establishes a new obligation to the public accountant responsible for preparing the accounting opinion of the transaction, to not only manifest the accounting value of the shares, but also to include all the corresponding support documentation, which proves that the sale price is consistent with the price that would have been used with an independent party.

10) Legal representation of foreign residents. The first paragraph of Article 174 of the LISR was modified, in order to establish that all legal representative of a non-Mexican resident must assume voluntarily, a joint liability for the payment of the taxes that the foreign resident could cause.

To ensure the above, the Decree forces the legal representative to prove its solvency, with all sufficient goods required to ensure compliance with the tax obligations.

11) Maquiladoras. Before the reform, maquila companies were forced to file a document before the tax authorities, in order to certify that its tax profit of the fiscal year represented at least the greater of the following amounts: the one resulting from applying to the value of the assets a six point nine percent (6.9%), or the one resulting from the application of a six point five percent (6.5%) to the total amount of expenses and costs incurred for the regular maquila operation (commonly known as “Safe Harbor” method).

Nevertheless, such obligation was eliminated as an administrative simplification measure and, therefore, a modification to Article 182, second paragraph of the LISR was made, in order to explain that maquila companies will comply with its transfer pricing obligations, once they file their informative returns, including the calculation of the tax profit, and the data considered for such calculation, sticking to the Safe Harbor method previously mentioned.

Also, the administrative simplification for the maquila companies to obtain an individualized resolution by the tax authorities is revoked by the Decree, considering that such measure has caused mostly uncertainty on the correct way to comply with maquila companies tax obligations.

12) Régimen Simplificado de Confianza (Simplified Trust Regime). Such regime constitutes a new model to integrate to the Mexican fiscal system, both individuals and legal persons, with the main purpose to reactivate the economy, by simplifying the ways to comply with tax obligations.

a) Application of the regime to legal persons. Mexican resident legal persons may be taxed under the RESICO, as long as its income on the immediately previous fiscal year does not exceed $35’000,000.00 (Thirty-five million Mexican pesos, 00/100 M.N.) and its shareholders or members are only individuals.

The following legal persons cannot access to the RESICO: (i) legal persons who have at least one or several shareholders or members that are part on any other legal entity and have its corporate control or administration, or if they are related parties, (ii) taxpayers who carry activities through trusts or joint ventures, (iii) financial, insurance and bail bonds institutions, as well as general bonded warehouses, financial leasing company, credit unions, integrated entities, legal entities engaged with livestock, forestry and fishing activities, non-profit organizations, and (iv) production cooperative societies.

The RESICO foreseen the possibility for taxpayers to consider only the effectively perceived income, as well as effectively paid deductions.

To comply with the tax obligations of the RESICO, the taxpayers will have to file monthly provisional returns, determining its tax profit by decreasing to its income, the authorized deductions, the participation of the employees on the entity’s profit and previous tax losses.  To the corresponding result, a thirty percent (30%) tax rate will apply, and the taxpayers are able to credit towards the payable income tax, withholdings, as well as previous payments on account of such tax.

On the other hand, it is established that the taxpayers registered under the RESICO must operate under the rules applicable to the Title II of the LISR, “De las Personas Morales” (Of the Legal Persons).

Finally, the transitory provisions of the Decree point out that taxpayers registered under the RESICO will not accumulate the income effectively perceived in 2022, as long as such income was accumulated in 2021 and, regarding the investments made until December 31st, 2021, they will continue to apply the maximum deduction percentages, valid for 2021.

b) Application of the regime to individuals. Individuals that perform business and professional activities, or grant the temporary use of assets, whose income does not exceed $3’500,000.00 (Three million and five hundred thousand Mexican pesos, 00/100) could be taxed under the RESICO.

In case of exceeding such income limit or failing to comply with the tax obligations of RESICO, such as missing the filing of three (3) or more monthly tax returns in one (1) calendar year, or the annual tax return, the right to tax under such regime will be lost.

When exceeding the income limit, the taxpayers will be taxed under the Régimen de Actividades Empresariales y Profesionales, or the Régimen de Arrendamiento, according to each one activity, starting from the immediately following month, to the one in which the limitation was exceeded.  If the limit is not passed in any other following month, the taxpayers are allowed to tax under the RESICO again.

All individuals can apply to the RESICO, except from those who: (i) are shareholders or members of legal persons, or when they are related parties, (ii) are foreign residents, with one or more permanent establishments in Mexico, (iii) receive income subject to tax havens, and (iv) receive fees assimilated to salaries, when those are paid to member of a board of directors, corporate managers, member of the supervisory committee, or for performing personal independent services.

If income is perceived under the Régimen de Asalariados by an individual, they are allowed to be taxed under the RESICO, considering that the limitation of the $3’500,000.00 (Three million and five hundred thousand Mexican pesos, 00/100 M.N.) for all its income cannot exceed.

The income tax payment is made by filing monthly provisional payments, on the seventeenth (17th) of the immediately following month, considering only the effectively perceived income, without including Value Added Tax (“VAT”) or deductions.

Provisional payments are determined, considering the total amount of the effectively perceived income, according to the rates and limits established in the following chart:

Monthly chart
Amount of effectively perceived income, without VAT (Mexican pesos per month) Rate
Up to 25,000.00 1.00%
Up to 50,000.00 1.10%
Up to 83,333.33 1.50%
Up to 208,333.33 2.00%
Up to 3,500,000.00 2.50%

On the other hand, the annual tax return is to be filed on April of the immediately following year, considering the total amount of effectively perceived income, without VAT, or applying any deduction, according to the following chart:

Annual chart
Amount of effectively perceived income, without VAT (Mexican pesos per year) Rate
Up to 300,000.00 1.00%
Up to 600,000.00 1.10%
Up to 1,000,000.00 1.50%
Up to 2,500,000.00 2.00%
Up to 3,500,000.00 2.50%

 

III. VALUE ADDES TAX LAW

 1) Cero percent (0%) VAT rate to products intended for animal feed. Content of Article 2-A, section I, item b) of the LIVA was modified, to specify that a cero percent (0%) VAT rate is also applicable to the disposal of products intended for animal feed, and not only for humans.

2) Cero percent (0%) VAT rate to menstrual management products. An item j) was added to section I of Article 2-A of the LIVA, to consider that a cero percent (0%) VAT rate is applicable to the disposal of sanitary pads, tampons and menstrual cups.

3) Importation VAT crediting. Article 5, section II, first paragraph of the LIVA was modified and specifies that, in order to credit the VAT paid when importing goods, the official import document must be registered under the name of the taxpayer intending to make the VAT crediting.  

4) Acts or activities not subject to VAT. Article 4-A of the LIVA was added to establish as acts or activities not subject to VAT, those that the taxpayer: (i) do not perform in Mexican territory, in terms of Articles 10, 16 and 21 of the LIVA, and (ii) perform different from the ones established in Article 1t of the LIVA, carried in Mexican territory. 

Also, Article 5, section V, items b), c) and d), first paragraph, numbers 2 and 3, to clarify that, in case the taxpayers perform the activities foreseen in the previous paragraph, obtaining income or payments, and for the obtention of such income is forced to make some expenses or investments in which VAT was included or charged, such VAT shall not be creditable to the taxpayer.

5) Digital services by foreign residents. Article 18-F, section III of the LIVA was modified, to determine that non-Mexican residents who provide digital services in Mexico, must file a monthly report of its services and transactions, carried with recipients located in Mexico.

Also, Article 18-H Bis of the LIVA was modified to establish that the corresponding sanction for failing to comply with such obligation, will apply when the non-Mexican residents fails to file each monthly (and not quarterly) report.

We hope this will be helpful.  The full publication of the Decree can be found in the following link: https://www.dof.gob.mx/nota_detalle.php?codigo=5635286&fecha=12/11/2021

We look forward on commenting any doubt regarding the content of this document.

Rafael Tena Castro             rtena@acsan.mx

Luis Kanchi Gómez             lkanchi@acsan.mx