On December 8th, 2020, a Decree that reforms, adds and repeals provisions of the Income Tax Law, the Value Added Tax Law and de Federal Fiscal Code (the “Decree”) was published in the Federal Official Gazette, which came into effect on January 1st, 2021.
According to the Decree, several modifications 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. Tax invoices and digital stamp certificates for invoice issuance
1. Requirements of the tax invoices. According to the Decree, amendments to the CFF are considered regarding tax invoices or as known in Mexico “Comprobantes Fiscales Digitales por Internet” (“CFDI”, per its acronym in Spanish) and the digital stamp certificates for invoice issuance (“CSD”, per its acronym in Spanish).
Article 29-A of the CFF establishes that, in cases where the Taxpayer’s ID (“R.F.C.”, per its acronym in Spanish) is not known for invoicing purposes, the taxpayers issuing the CFDI can use a generic code, as if the operation were celebrated with the general public.
Also, it states that the catalogues provided by the Tax Administration Service (“SAT”, per its acronym in Spanish) must be used, in order to include in the CFDI the data corresponding to quantity, measure unite, type of goods or services, etc.
Finally, for payments at one or more exhibitions, but on a deferred basis, the mentioned provision clarifies that a CFDI must be issued for the whole operation, at the moment its being carried and, after, a CFDI will have to be issued for each payment received.
2. Payments considered as deferred for issuing a simplified tax invoice. For the purposes of Article 14 of the CFF, when taxpayers issue a simplified CFDI, it will be understood as if the transaction is carried in installments, with deferred payments. The above is also applicable to those operations carried with the general public, when more than the 35% of the total price is deferred until after the sixth (6º) month and the term agreed exceeds twelve (12) months.
3. New assumptions for canceling or blocking access to the digital stamp certificates. Through the Decree, two (2) new assumptions are added to Article 17-H of the CFF, establishing that the CSD will be cancelled: (i) when the tax authority detects that the person that issued the CFDI did not disproved the presumption of inexistence of the operations covered in the invoices, definitely locating itself in the list, according to Article 69-B of the CFF, and (ii) when it is detected that it is before a scenario where the taxpayer was not able to disprove the presumption of having, incorrectly transferred tax losses, locating itself in the list mentioned by the ninth paragraph of Article 69-B of the CFF.
For the same Article 17-H, the term of three (3) days increased to ten (10), for the tax authority to solve the request of the taxpayer to obtain a new CSD, once it has corrected all irregularity identified by the SAT. Such term will start to count from the immediately following day to such when the request was received by the authority.
On the other hand, Article 17-H Bis of the CFF, regulates the assumptions for the authority to be able to block the CSD, eliminating sections IV and X, corresponding to the two (2) assumptions added to the cancelation scenarios, previously mentioned. In this regard, a maximum term of forty (40) business days is contemplated for taxpayers who suffered a CSD block, in order to request a clarification and correction of the irregularities observed by the tax authority.
In case such term is exceeded without having presented the mentioned request, the SAT is able to cancel the corresponding CSD.
II. Contribution refund procedures
In the case of the procedure for requesting a refund of contributions provided in Article 22 of the CFF, the refund mechanic will proceed as it has been in the past, with the difference that the tax authorities are now able to consider the request was not filed in the following cases: (i) when the taxpayer is considered under the Taxpayer’s Registry as not located, or (ii) when the address of the taxpayer is not located under the Taxpayer’s Registry.
In such case, the Decree establishes that the five (5) years term that taxpayers have to request the refund of their credit balance will continue to run, not considering that the request that was considered as not filed interrupts the prescription of such right.
Also, Article 22-D of the CFF clarifies that, when there are several active refund requests by the same taxpayer, for the same contribution, the tax authority can audit the corresponding taxpayer for each or the whole amount of refund requests, allowing it to issue a single resolution for all the procedures.
For issuing the corresponding resolution, the term of ten (10) days is increased to twenty (20) business days, at the end of the term established for the audits.
III. Notice to the Taxpayer Registry by legal entities
Regarding the obligation for legal entities to file the notice at the Federal Taxpayer Registry, reporting their corporate structure, contemplated in Article 27, section B, subsection VI of the CFF, initially it was required that the notice contained the name and R.F.C. of the shareholders and partners, in order to provide SAT with real-time information of the corporate structure of legal entities.
By the Decree, it is stated that such notice must be filed every time a modification or incorporation of such structure is made, including not only partners or shareholders, but also associates or any other person forming part of the organic structure of the legal entity, and hold such character according to the bylaws or the applicable laws of the country of its incorporation.
IV. Infringement for concessionaries of public telecommunication networks and withholding for digital personal services
1. Fines for concessionaries of public telecommunication networks. Considering the provision of digital personal services by foreign residents who do not have a permanent establishment (“EP”, per its acronym in Spanish) in Mexico, several articles are added to the LIVA and LISR to allow the SAT to block their access to digital services, in case of not complying with their obligations, as well as for any omission in the payment of their corresponding taxes.
In line with the above, Articles 18-H QUÁTER and 18-H QUINTUS of the LIVA establish that the blocks or unblocks will be ordered by the tax authority and must be carried by the concessionaries of public telecommunication in Mexico, always according to a resolution legally based by the SAT. On the other hand, Article 113-D of the LISR establishes the same, when failing to comply with their withholding and payment of the corresponding income tax (“ISR”, per its acronym in Spanish).
For those purposes, a maximum term of five (5) business days is granted to the concessionaire to comply with the blocking or unblocking order. When exceeding such term, the CFF added an Article 90-A, which establishes fines, from $500,000.00 (Five hundred thousand Mexican pesos, 00/100) to $1,000,000.00 (One million Mexican pesos, 00/100). The corresponding fine will be applicable for each calendar month that passes without complying with the ordered actions.
2. Withholding for digital personal services. For goods or services provided by Internet, through technological platforms, apps or similar, several modifications to the LISR and LIVA were made, to establish the way to withhold and the corresponding rates.
Based on Article 113-A of the LISR regarding natural personas who pay taxes under the chapter of business activities and sell goods or provide services by Internet, through technological platforms, apps or similar, related to intermediation between offering third parties of such goods and services and its clients/consumers, the withholding rates were modified.
The withhold must be done over the gross income effectively perceived by the natural persons, by the previously mentioned ways, considering that such withholdings will have the nature of provisional payments of the tax:
a) For the provision of terrestrial passenger transport or deliver of goods services, a 2.1% rate will be applicable.
b) For the provision of accommodation services, a 4% rate will be applicable.
c) For the disposal of goods and provision of services in general, a 1% rate will be applicable.
Also, a relevant modification was made to the LIVA, eliminating a paragraph that did not considered real estate disposal services as digital intermediation services. In that sense, such services will now be levied according to the LIVA.
V. Modifications to non-profit entities
Among the main modifications by the Decree, cooperative integration and representation organisms (as established in the General Law of Cooperative Entities) such as Federations and Confederations, were included in Title III del Régimen de las Personas Morales con Fines no Lucrativos of the LISR.
Likewise, there is a modification foreseen, that will be valid until July 1st, 2021, which states that only the following legal entities will be considered as non-profit entities and, therefore, non-taxpayers, as long as they are incorporated as non-profit organizations and have a valid authorization to be a non-taxpayer.
a) Civil Society or Foundation (“S.C.” or “A.C.” respectively, per its acronym in Spanish) that are focused in technological or scientific research, registered under the National Registry of Technological and Scientifical Institutions.
b) S.C. or A.C. dedicated to the granting of scholarships.
c) S.C. or A.C. that has as exclusive object the performance of wild, aquatically or terrestrial, flora and fauna preservation activities, between the geographical areas established in Attachment 13 of the Resolución Miscelánea Fiscal, as well as those that exclusively promote the control of the water, air and soil contamination, as well as the protection of the environment and, preservation and restauration of the ecological balance, before the population.
d) S.C. or A.C. that exclusively perform the reproduction of protected and endangered species and the conservation of its natural habitat. For those types of entities, it is necessary to have a previous authorization by the Mexican Ministry of the Environment and Natural Resources.
If those entities fail to comply with such conditions before July 1st, 2021, it will be considered that they will tax under the Title II of the LISR, “De las Personas Morales”, which will be considered as taxpayers for ISR purposes. Nevertheless, based on the Second Transitory Article of the dispositions of the LISR of the Decree, it is an obligation for those entities to determine the construed distributable dividends that were generated until December 31st, 2020, according to Title III of the LISR, and its partners and members must accumulate such dividends that was delivered to them in cash and goods.
1. Income of the non-profit non-taxpayer entities not related with their activities. Article 80 of the LISR was modified to establish a limit of 50% to the income that can be received by the non-profit, non-taxpayer entities, not related to their object or authorized activities to receive donations. In case such percentage is exceeded, the consequence will be to lose the authorization to be a non-taxpayer, non-profit entity.
In case the entity lost its non-taxpayer authorization for allegedly violating what it is established in the previous paragraph, the LISR contemplates a twelve (12) month term, after the notification of the revocation of the authorization, to obtain a new one and, in case of failing to obtain it, the corresponding entity will be forced to donate the 100% of its heritage to any other non-taxpayer organization, between the following six (6) following months. It is established that the CFDI issued by the non-taxpayer entity receiving such heritage, will not be deductible for ISR purposes.
The above will also be applicable to those legal entities who voluntarily cancel its authorization.
Finally, it is established that those non-taxpayer entities that did not renewed its authorization to receive donations, for failing to comply with the obligation to provide the general public with the information related to the destiny of its resources, will have one (1) month to comply with such obligation, after the revocation was duly notified. If they comply with that obligation, they will have the faculty to request for a new authorization.
VI. Salary income
According to the Decree, an addition to Article 94 of the LISR was made in order to establish a limit of $75,000,000.00 (Seventy-five million Mexican pesos, 00/100) for income obtained by individuals for the following concepts: (i) fees for services performed mainly to a service provider, as long as those services were not performed in the provider’s premises, (ii) fees received by individuals of legal entities or of individuals with commercial activities to whom they provide independent personal services, and (iii) income received by individuals of legal entities or of individuals with commercial activities, for whose commercial activities performed.
In case the mentioned amount is exceeded in the fiscal year, the regulations of Chapter I “De los Ingresos por Salarios y en General por la Prestación de un Servicio Personal Subordinado”, of Title IV “Individuals” of the LISR will not be applicable, as they must pay their taxes under the corresponding chapter, according to their incomes, starting from the immediately following month to the date when the income exceeded the mentioned amount.
VII. Other relevant regulations
1. Medical services for the purposes of the value added tax. Regarding the text of the Decree, it is established that no value added tax will be charged for the provision of professional medical services, as long as for those services, a valid medical certificate is required, and they are provided by assistance or private charity institutions.
2. Modifications to the general anti-avoidance rule. The mentioned rule, contemplated in Article 5-A of the CFF, was modified to establish that all effect given by the SAT to the legal acts of the taxpayers, in accordance with such rule, must be limited to the determination of the corresponding taxes, fines and legal accessories without prejudice to the liability or criminal investigations that occur by virtue of the conducts and the CFF.
3. Disposal in case of corporate spin-offs. When performing corporate spin-offs, Article 14-B of the CFF is modified to establish that, if as result of such transaction an item or concept arises in the stockholder’s equity of any of the involved companies, not previously registered in the statement of financial position of the general assembly of partners or shareholders who agreed to the spin-off, it will be considered as a sale for tax purposes.
4. New assumptions of joint liability. A new assumption is added to Article 26 of the CFF regarding joint liability, which will apply to Mexican tax resident companies or foreign residents with an EP in Mexico, who perform transactions with related parties resident abroad, over which there is considered to have effective control. In case they fail to comply with their obligations, the liability will be limited to the taxes that the foreign resident caused for the effectively performed operations with the Mexican entity or the EP.
5. Term to request the adoption of a tax ombudsman agreement. In case the taxpayers are willing to set up a tax ombudsman agreement (“Acuerdo Conclusivo”, per its full name in Spanish) before the Mexican Tax Ombudsman (“PRODECON”, per its acronym in Spanish) for acts of the tax authorities, Article 69-C of the CFF establishes that the request for the adoption of the agreement can be filed at any time, from the start of the audits by the SAT and until the twenty (20) business days following the notification of the final official letter, the observations official letter or provisional resolution.
Before the reform, the term of twenty (20) days did not exist, as the taxpayers had the possibility to file the request for the Acuerdo Conclusivo before the issuance of the final resolution that determines tax assessments.
We expect this will be helpful. The complete publication of the Decree can be found in the following link: http://www.dof.gob.mx/nota_detalle.php?codigo=5606951&fecha=08/12/2020
We look forward on commenting any doubt regarding the content of this document in the following emails: