Decrease in provisional income tax payments for legal persons

Obligation to calculate provisional income tax payments

The Income Tax Law establishes that legal entities are obliged to calculate and declare the provisional payments. The payments are determined by applying the profit coefficient for the last twelve-month period expressed in the annual income tax return. If there is no profit coefficient, they must apply the last one determined in any of the previous 5 years.

If the taxpayers estimate that the profit ratio they applied to determine the provisional payments for the first half of the year will result in declarations in excess of the annual income tax at the end of the year, or if they estimate that they will obtain a tax loss, they have the option of requesting a reduction in the profit ratio, which would be reflected in a decrease or non-payment of the tax during the period from July to December that year.

Filing of the request for reduction of income tax payments

The request must be filed with the tax authority one month before the date on which the tax for which the reduction is being requested must be paid. When there are more than one provisional payment whose reduction is requested, said request must be submitted one month before the date on which the first of them must be declared.

The procedure can be submitted electronically or in person, as indicated below:

• On the SAT website, at:

https://wwwmatnp.sat.gob.mx/tramites/47785/solicita-autorizacion-para-aplicar-un-coeficiente-de-utilidad-menor-para-determinar-tus-pagos-provisionales

• At the SAT Collection Offices in the Filing Office of the Collection department (Oficialía de Partes de Recaudación).

The requirements for the submission of the procedure are indicated in 29/ISR Annex 1-A of the RMF 2023, and they include:

• Letter to request the reduction of the profit coefficient.
• Form 34 "Request to Decrease Provisional Income Tax Payments," duly filled.

Tax Form 34, which is the "Request for Authorization to Decrease the Amount of Provisional Income Tax Payments," indicates the tax estimates that are part of the procedure, particularly:

• The calculation of the estimated tax profit or loss for the year.

• Determination of tax profit or loss (difference between authorized deductions and cumulative income) for the period from January to June of the year for which the decrease is requested (actual data and data proportional to the period).

When the reduction of provisional payments is requested for a month after July of the year, the tax amounts (income and deductions) would correspond to the month immediately prior to that for which the reduction of the provisional payment is requested, which leads to determining the reconciliation between the accounting result and the tax result as if it were an irregular year.

Recalculation of provisional payments

Taxpayers who have obtained authorization to reduce the profit coefficient for the determination of the provisional income tax payments at the end of the year must compare the amount paid by applying the authorized (decreased) coefficient, with respect to the amounts that would correspond to them if they had applied the profit coefficient for the year to which the payments correspond.

If as a result of comparing the calculated tax with the decreased (authorized) coefficient; with respect to the one that should have been declared, differences are determined at the taxpayer's expense, the corresponding surcharges must be paid, using the annual tax return. That is, they would not have the obligation to pay said surcharges by submitting supplementary provisional payment returns.

Our suggestion is to analyze the cost-benefit of requesting the reduction of the profit ratio if the taxpayer is obliged to pay surcharges for the differences between the calculation of the tax actually declared and the amount of income tax that corresponded to them.

In conclusion, the reduction or the non-declaration of provisional income tax payments would imply improving the taxpayer's cash flows, avoiding excess payments, whose recovery would be through repayment or compensation, which entails an investment of time and resources in the administrative procedures before the SAT.

At Mazars' tax team we have subject matter professionals that are ready to advise you regarding the procedure and the review or preparation of the tax calculations that are inherent to the decrease or non-declaration of provisional income tax payments.