Mexican Tax Reform 2021

December, 2020

Income Tax

Elimination from the school program

The company school program (programa escuela empresa), incorporated into the Income Tax Law in 1991, allowed both legal entities and individuals to establish the program as part of their activities, so that they would be able to deduct donations.

Additionally, in 2001 they were authorized so that they could obtain the authorization to receive donations that are deductible for Income Tax purposes; however, given that over all this time only one authorization to receive donations has been obtained, this option was revoked in 2019 and the federal executive has accepted its elimination from the program.

New obligations so that non-profit legal entities can be authorized donees

The recently published decree includes the obligation for non-profit legal entities to be authorized donees so that they do not pay Income Tax. The decree refers to, among others, civil associations or societies that grant scholarships, those dedicated to scientific or technological research or those that are dedicated to the reproduction of species in danger of extinction.

It is also decreed that, as of 2021, expenses that are not covered by a digital tax receipt (CFDI) or which exceed $2,000 (two thousand pesos) and not paid from the taxpayer’s account, will be considered to be non-deductible expenses and, consequently, will form part of the non-distributable excess.

Similarly, the possibility is included of losing the authorization to be an authorized donee when non-profit legal entities obtain more than 50% of their income of the tax year from activities other than those for which they were authorized.

Non-profit legal entities that lose the authorization to be authorized donees

When a non-profit legal entity or a trust has had the authorization to be an authorized donee revoked or not renewed, it must transfer all of its equity, within the 12 months following the date on which the event occurs, to other entities that do possess such authorization. It is important to point out that whoever receives a donation must issue a digital tax receipt that will not be deductible for the calculation of Income Tax.

A new article is added to the Income Tax Law to replace what was previously published in the annual tax law amendments regarding the grounds for revocation of the authorizations granted by the Tax Administration Service (SAT), aimed at those who applied to be donees; in addition to providing information about the procedure followed by the SAT to revoke the authorization.

Facility so that individuals with business activities can pay tax in the wages and salaries chapter

As of 2021, the facility so that individuals who provide independent services or perform business activities in favor of legal entities or individuals have the possibility of requesting Income Tax withholding for these activities, in accordance with the wages and salaries chapter is limited; as long as they have not individually or jointly exceeded $75,000,000 (seventy-five million pesos) of accruable income in this chapter during the year.

If this is the case, the individual should inform the withholder in writing that as of the following month the limit will be exceeded and they will assume responsibility for the payment of the tax.

Modification of the Income Tax withholding rates for income of individuals by means of technological platforms

The decree modifies the Income Tax withholding tables published for the 2020 tax year related to the income received by individuals through technological platforms; for 2021, a single withholding rate is established according to the type of activity.

To this effect, the following withholding rates on the monthly income are defined:

• Rendering of ground passenger transport and goods delivery services: 2.1%
• Lodgings services: 4%
• Sale of goods and rendering of services: 1%

Sanctions for foreign technological platforms due to not withholding Income Tax from individuals who obtain income by means of these platforms

The possibility is included to temporarily block access to the digital service of the digital services provider who has not complied with the obligation to pay Income Tax withholdings. This blocking will be by means of the concessionaires of any public telecommunications network established in Mexico until the resident complies with its omitted obligations.

Maquiladoras

In the case of maquiladoras, for the purpose of transfer pricing compliance, only the application of the Safe Harbor method for calculating their taxable profit will be valid, or when an advanced pricing agreement, also known as an APA, is established.

Additionally, the statement of reasons mentions that the tax authorities identified taxpayers who operated as maquiladoras, and which only made transfer pricing studies for their operation, arguing that the text of the Income Tax Law also gives this option, despite the fact that it is not possible, as we have already said.

Value Added Tax Law

Digital services for the sale of secondhand goods

The aforementioned decree includes in the definition of digital services, intermediation that has the purpose of selling secondhand goods.

New obligations for digital service intermediaries

Derived from the analysis made by the authorities during this first stage for compliance with the new tax obligations for digital services, the decree explains that certain applications developers residing abroad without an establishment in Mexico and subject to the payment of Value Added Tax were identified who operated through intermediaries.

However, these digital service providers not only have a very low demand in the Mexican market but also have a low economic capacity; consequently, as of 2021 the obligation to withhold Income Tax for these digital services should correspond to the intermediaries who offer and charge for the services. Additionally, the obligation to be registered in Mexico as Value Added Taxpayers is eliminated.

Blocking of access in Mexico to foreign digital service providers

When the platforms of foreign digital service providers are not registered as taxpayers in Mexico, and they do not pay Mexican taxes or pay their withholdings to the tax authorities, as of 2021 the rendering of their services may be blocked by means of temporary or final suspension through the concessionaires of the public telecommunications networks in Mexico.

Similarly, a sanction is stipulated for concessionaires if they do not block access to these digital service providers residing abroad.

Federal Tax Code

Legal acts without business reasons

Since the reform of the Federal Tax Code, now in 2020, the hypothesis has been incorporated that the tax authorities may disregard these acts if they lack a business reason. This reform clarified that the fiscal effects generated by the aforementioned acts would, under no circumstance, generate consequences of a criminal nature; unlike now, wherein as of 2021, consequences of a criminal nature are stipulated.

Tax inbox

The decree also clarifies that the time zone by which the tax inbox will be governed will be the Mexican central zone.

Balance in favor requirements

In addition, different guidelines are established that will directly affect the processes for requesting rebates of balances in favor from the authority. To this regard, the main guidelines are:

• The authority may reject the rebate request if the taxpayer cannot be located (unlocated).
• Instead of filing an independent requirement for each of the months for which a rebate is requested for the same tax, the authority can issue a sole requirement for information that covers all the periods under review.
• In the case that powers of verification have been initiated, the term is extended from 10 to 20 days following the completion of the procedures so that the authority may issue a decision.

Jointly and severally liable parties for the transmission of undue tax losses

As of this decree, the partners or shareholders of the company that unduly acquired and deducted tax loses will be considered to be jointly and severally liable; as long as the company has ceased to form part of the group to which it belonged.

Notice of cancellation of registration in the Federal Taxpayers’ Registry (RFC) due to merger or liquidation, new obligations

The reform includes obligations so that in order to be able to file the notice of cancellation to the Federal Taxpayers’ Registry derived from a liquidation or merger of companies:

• They must not be in a review process by the Tax Administration Service;
• They must not be on the lists published by the Tax Administration Service related to Companies that Invoice Simulated Transactions (EFOS), Companies that Deduct Simulated Transactions (EDOS) or taxpayers who deduct undue losses;
• That their income declared in provisional payments and taxes withheld by the taxpayer must coincide with the issued Digital Tax Receipts or the databases of the tax authorities.

Additional obligations with the Tax Administration Service

The decree includes, as an obligation of taxpayers, the constant updating of their contact information; as a minimum, they must provide an e-mail address and a mobile telephone number and in the case of failing to do so, they will be sanctioned by means of fines.

Keeping of capital movement accounts

The decree also considers the documentation that should be kept as account supports in the cases of capital increases or reductions; such as, for example, the account statements issued by the financial institutions in which these movements are shown.

In the case of the capitalization of liabilities, contributions in kind or capitalization of reserves or dividends, the appraisals, minutes and all other supporting documentation that certifies their existence must be kept.

Similarly, in the case of company mergers or spin-offs, the statements of financial position, the statements of changes in shareholders’ equity and the working papers of the calculation of the net after-tax profits accounts, as well as the capital contributions account corresponding to the year immediately before and after the legal act must be kept.

Review of tax opinions with the auditor

In addition to the obligation to exhibit the working papers that formed part of the practiced audit, the decree establishes that the auditor must appear before the tax authorities with the purpose of clarifying the questions asked thereof at such time with regards to the aforementioned documents.

Transfer pricing fines

Furthermore, the decree includes considering noncompliance with obligations on matters of transfer pricing as an aggravating circumstance.

Fines for telecommunications service providers

Finally, the decree establishes sanctioning telecommunications service providers with a fine ranging from $500,000 (five hundred thousand pesos) to $1,000,000 (one million pesos) when they do not block the foreign technological platforms that have not complied with their tax obligations; to this effect, the authorities will report those platforms that should be blocked within a maximum term of five business days counted from the notification.

This brings you up-to-date with the reforms, provisions and repeals published in the Federal Official Gazette. If you have any doubts or are interested in finding out more about any of the main changes, please contact us.