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Tax Reform 2021

On December 8, 2020, the Decree amending, adding and repealing several provisions of the Income Tax Law, the Value Added Tax Law and the Federal Tax Code (the “Decree”) was published in the Official Gazette of the Federation (“DOF”), which became effective on January 1, 2021.

By means of the Decree, several amendments and additions were made to the Federal Fiscal Code (“Código Fiscal de la Federación” or “CFF”), the Income Tax Law (“Ley del Impuesto sobre la Renta” or “LISR”) and the Value Added Tax Law (“Ley del Impuesto al Valor Agregado” or “LIVA”). The main changes include the following:

I. Digital Tax Receipts via Internet and Digital Stamp Certificates

1.- Requirements of the Digital Tax Receipts by Internet. The Decree provides for several amendments to the CFF regarding Digital Tax Receipts via Internet (“CFDI”) and Digital Seal Certificates (“CSD”).

Article 29-A of the CFF establishes that, if the Federal Taxpayer Registry (“R.F.C.”) code of the person in whose favor the CFDI is issued is not available, taxpayers may issue the CFDI using a generic code, as if the transaction had been entered into with the general public.

It is also established that the catalogs issued by the Tax Administration Service (“SAT” or the “tax authority”) must be used, in order to include in the CFDI the data corresponding to the quantity, unit of measurement and class of goods, merchandise or description of the service or use or enjoyment that they cover.

Finally, for payments made in one or several installments, but in a deferred manner, it is clarified that a CFDI must be issued for the total amount of the transaction at the time of the transaction and, subsequently, a CFDI must be issued for each payment received.

2.- Payments considered as deferred payments by simplified CFDI. For purposes of Article 14 of the CFF, it is established that when taxpayers issue a simplified CFDI, it will be understood that the transaction is being carried out in installments, with deferred payments or in partial payments. The above is applicable to those operations carried out with the general public and more than 35% of the total price is deferred for after the sixth (6th) month and the agreed term exceeds twelve (12) months.

3.- New cases of cancellation or blocking of the CSD. By means of the Decree, two (2) cases are added to Article 17-H of the CFF in which the CSD will be cancelled: (i) when it is detected that the person who issued the CFDI did not rebut the presumption of the non-existence of the transactions covered by such vouchers, being definitively listed in accordance with the provisions of Article 69-B of the CFF and, (ii) when it is detected that the taxpayer has not rebutted the presumption of unduly transferring tax losses, and is therefore listed in accordance with the provisions of the ninth paragraph of article 69-B of the CFF.

Article 17-H extends the term from three (3) to ten (10) days for the tax authority to respond to the request to obtain a new CSD, once the irregularities identified by the SAT have been corrected. Said period shall commence on the day following the day on which the corresponding request is received.

On the other hand, Article 17-H Bis of the CFF, which provides the grounds for blocking the CSD, eliminates sections IV and X, which correspond to the two (2) cases added to the grounds for cancellation of the CSD, previously mentioned. In this regard, a deadline of forty (40) business days is established for taxpayers whose CSD was blocked to request clarification and correct the irregularities detected or to disprove the reasons for the measure.

In the event that the forty (40) business days period is exceeded without having filed the corresponding request, SAT may cancel the corresponding CSD.

II. Refund of contributions

Regarding the tax refund request procedure provided for in Article 22 of the CFF, the refund procedure will be carried out in the same manner in which it has been operating, with the difference that the tax authorities may consider that the refund request has not been filed in the following cases: (i) when the taxpayer is found as not located in the R.F.C., or (ii) when the taxpayer’s domicile is not located before the R.F.C. (R.F.C.).

In such case, the Decree establishes that the five (5) year term to request the refund of the tax credit balance will continue to run, without the request that was deemed not to have been filed interrupting the statute of limitations of such right of the taxpayer.

Likewise, Article 22-D of the CFF clarifies that, if there are several refund requests by the same taxpayer, with respect to the same tax, the tax authority may exercise verification powers for each or all of the requests, enabling it to issue a single resolution for all the procedures.

For the issuance of the corresponding resolution, it is extended from ten (10) to twenty (20) business days, after the end of the term of the exercise of verification powers.

III. Notice of legal entities to inform the R.F.C. of their corporate structure

In relation to the notice to be given by legal entities of their shareholding/corporate structure, contemplated in article 27, paragraph B, section VI of the CFF, it was initially requested that the report must contain the name and R.F.C. of the partners or shareholders, in order for the SAT to have real time information of the shareholding structure of the legal entities.

The Decree clarifies that such notice must be given each time a modification or incorporation is made, and must include not only partners or shareholders, but also associates or any other person that is part of the organizational structure of the legal entity and has such status in accordance with the bylaws or applicable legislation in the place of its incorporation.

IV. Penalties and fines for concessionaires of public telecommunication networks and withholdings for the provision of digital services

1.- Penalties and fines for concessionaires of public telecommunication networks. Regarding the provision of digital services by foreign residents who do not have a permanent establishment (“PE”) in Mexico, several articles are added to the LIVA and the LISR to empower the SAT to block access to digital services providers in the event of non-compliance with the obligations set forth in the laws, as well as for their failure to pay the corresponding tax or taxes.

In congruence with the above, Articles 18-H QUÁTER and 18-H QUINTUS of the LIVA establish that the blocking or unblocking will be ordered by the tax authority and must be carried out by the concessionaires of a public telecommunications network in Mexico, always through a resolution duly grounded and motivated by the SAT. Article 113-D of the Income Tax Law establishes the same with respect to the failure to withhold and report the income tax (“ISR”) that corresponds to them.

For this purpose, a maximum term of five (5) working days is granted for the concessionaire to carry out the respective blocking or unblocking. In case of exceeding such term, the CFF added an article 90-A, which establishes fines to the concessionaires, ranging from $500,000.00 (Five hundred thousand pesos, 00/100 M.N.) to $1,000,000.00 (One million pesos, 00/100 M.N.). The corresponding fine will be applicable for each calendar month that elapses without complying with the ordered actions.

2.- Withholdings for the rendering of digital services. In the case of services or goods provided through the Internet, by means of technological platforms, computer applications and similar, several amendments are made to the Income Tax Law and Value Added Tax Law to establish the form and percentages of withholdings to be made.

Based on Article 113-A of the Income Tax Law, in the case of individuals who are taxed under the chapter on business activities and sell goods or provide services through the Internet by means of technological platforms, computer applications and similar, related to the intermediation between third party suppliers of goods or services and their clients/consumers, the corresponding withholding rates are modified.

The withholding is made on the total income effectively received by individuals through the aforementioned means, taking into account that they will be considered as provisional tax payments:

a) For the rendering of land transportation services of passengers and delivery of goods, a withholding of 2.1% will be applied.

b) For the rendering of lodging services, a 4% withholding will be applied.

c) For the sale of goods and rendering of services in general, the withholding shall be 1%.

On the other hand, an important modification was made to the LIVA, which eliminates a paragraph that did not consider the sale of real estate as part of the taxable digital intermediation services. Therefore, such services will now be taxed in accordance with the LIVA.

V. Modifications for non-profit entities authorized to receive ISR-deductible donations.

Among the main amendments made by the Decree, Title III of the Non-Profit Entities Regime of the Income Tax Law includes the cooperative organizations of integration and representation such as Federations and Confederations, referred to in the General Law of Cooperative Societies.

A modification is also foreseen that will be effective until July 1, 2021, consisting in the fact that only the following legal entities will be considered as non-profit entities (“donatarias autorizadas”) and, therefore, not taxpayers of ISR, provided that they are incorporated as non-profit entities and are authorized to act as donatarias autorizadas:

a) Corporations or civil associations (“S.C.” or “A.C.”, respectively) whose purpose is scientific or technological research and which are registered in the National Registry of Scientific and Technological Institutions.

b) Associations or civil societies that grant scholarships.

c) S.C. or A.C. whose exclusive purpose is to carry out activities for the preservation of wild flora or fauna, terrestrial or aquatic, within the geographic areas defined in Annex 13 of the Miscellaneous Tax Resolution, as well as those whose exclusive purpose is to promote among the population the prevention and control of water, air and soil pollution, environmental protection and preservation and restoration of the ecological balance.

d) S.C. or A.C. whose exclusive purpose is the reproduction of protected and endangered species and the conservation of their habitat. Para este tipo de personas morales, es necesario que exista autorización previa por parte de la Secretaría de Medio Ambiente y Recursos Naturales.

If such conditions are not met before July 1, 2021, the aforementioned legal entities will be considered as taxpayers for income tax purposes under Title II of the Income Tax Law, “De las Personas Morales” (Legal Entities), which will be considered as taxpayers for income tax purposes. However, based on the second transitory article of the provisions of the Income Tax Law of the Decree, it is established that such legal entities must determine the distributable surplus that they have generated as of December 31, 2020, in accordance with Title III of the Income Tax Law, in force until that date, and their partners and members must accumulate such surplus that is delivered to them in cash or in goods.

1.- Income not related to the activities of the authorized grantees. Article 80 of the Income Tax Law is amended to establish a limit of 50% of the income that may be received by authorized donees, not related to their purpose or activities authorized to receive donations. If such percentage is exceeded, the consequence will be the loss of the authorization to act as an authorized donee.

In the event that the authorization as an authorized donee is lost due to a violation of the provisions of the preceding paragraph, the Income Tax Law provides for a period of twelve (12) months following its loss to obtain it again and, otherwise, the corresponding entity must allocate 100% of its assets to any other authorized donee, within the following six (6) months. It is established that the CFDI issued by the donee that receives such patrimony will not be deductible for income tax purposes.

The provisions of the preceding paragraph shall also apply to those legal entities that voluntarily cancel their authorization.

Finally, it is established that those donatarias whose authorization to receive donations has not been renewed due to non-compliance with the obligation to make available to the general public the information on the destination of their resources, will have one (1) month to comply with such obligation, after they have been notified of the revocation. Compliance with this obligation will entitle them to reapply for a new authorization.

VI. Income similar to salaries

By means of the Decree, an addition was made to Article 94 of the Income Tax Law to establish a limit of $75,000,000.00 (Seventy-five million pesos, 00/100 M.N.) to the amounts of income received by individuals in the fiscal year for the following concepts: (i) fees for services rendered predominantly to a borrower, provided they are not performed on the latter’s premises, (ii) fees received by individuals from corporations or individuals engaged in business activities to whom they render independent personal services, and (iii) income received by individuals from corporations or individuals with entrepreneurial activities for the entrepreneurial activities they perform.

In the event that such amount is exceeded during the year, the provisions of Chapter I “Income from Salaries and in General for the Rendering of Subordinate Personal Services” of Title IV “Individuals” of the Income Tax Law will not apply, but the taxpayer must pay taxes in accordance with the corresponding chapter as of the month following the date on which the income exceeds the aforementioned amount.

VII. Other relevant provisions

1.- Medical services for value added tax purposes. According to the text of the Decree, it is established that no value added tax shall be paid for the rendering of professional medical services, provided that a medical degree is required for their practice and they are rendered through private welfare or charitable institutions.

2.- Modification of the anti-abuse rule. The aforementioned rule, contemplated in Article 5-A of the CFF, was modified to establish that any effect given by the SAT to the legal acts of taxpayers, due to the anti-abuse rule, must be limited to the determination of taxes, accessories and fines that correspond, without prejudice to the liability or criminal investigations that are given by virtue of the CFF.

3.- Disposal by spin-off of companies and liability. In cases in which a company is spun-off, Article 14-B of the CFF is amended to establish that, in the event that as a result of such operation, an item or item, however denominated, appears in the stockholders’ equity of the spun-off company, spun-off or spun-off, that has not been previously recorded or recognized in any of the stockholders’ equity accounts of the statement of financial position presented to the general meeting of partners or shareholders, it will be considered that there was a disposal for tax purposes.

4.- New cases of joint and several liability. Article 26 of the CFF adds a new situation of joint and several liability applicable to companies resident in Mexico or resident abroad with a PE in Mexico, which carry out transactions with related parties resident abroad and with which they have effective control or which are effectively controlled by such related parties. In the event of noncompliance, the liability may not exceed the taxes that would have been incurred by the resident abroad, for the transactions actually carried out with the Mexican company or said PE.

5.- Deadline for requesting the adoption of a Conclusive Agreement. In the event that taxpayers intend to adopt a Conclusive Agreement before the Procuraduría de la Defensa del Contribuyente (Taxpayer’s Defense Office) due to actions of the tax authorities, Article 69-C of the CFF establishes that the request for adoption must be made at any time, from the beginning of the exercise of the SAT’s verification powers and up to twenty (20) days following the notification of the final assessment, the official report of observations or provisional resolution.

Prior to the reform, the twenty (20) day term did not exist, but the possibility of filing the Conclusive Agreement was given until before the issuance of the tax assessment resolution.

We hope you find this information useful. The complete publication can be found through the following link: http://www.dof.gob.mx/nota_detalle.php?codigo=5606951&fecha=08/12/2020

If you have any questions or comments, please contact us at the following e-mail addresses:

Rafael Tena Castro rtena@acsan.mx
Luis Kanchi Gómez lkanchi@acsan.mx

Rafael Tena Castro

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