Mexican Tax Reform initiative 2022

Income tax law

Back-to-back loans

The bill pretends to treat financing transactions that lack a business reason as back-to-back loans.

Authorization to sell shares at fiscal cost in group-wide corporate restructures

Among the requirements for authorizing restructures, it aims to increase the burden on the Public Accountant responsible for auditing the operation by adding the obligation to include an organization chart of the group with the direct and indirect shareholdings of the companies that form part of the group before and after the restructure, and in the case of consolidating financial statements, these must be consolidated in accordance with accounting standards. Similarly, the decree incorporates the obligation for taxpayers to indicate any relevant transactions performed in the last 5 years, in addition to including the obligation that such restructure must have a business reason.

Additional requirement in the deduction of fuel purchases

The bill intends to include the requirement of adding the information about the current permit, issued in the terms of the Hydrocarbons Law to the fuel supplier, in the tax receipt and, if applicable, indication that such permit has not been suspended at the time of issue of the tax receipt.

Thin capitalization; new mechanism and limitation

The reform aims to include tax losses in the alternative calculation of the shareholders’ equity (capital contribution account [CUCA], net taxable income account [CUFIN], reinvested net taxable income account [CUFINRE]).

Similarly, it intends to limit this option when the result of the aforementioned operation is greater than 20% of the shareholders’ equity of the respective year; unless, during the exercise of powers of verification, the taxpayer proves to the tax authorities that the situations that cause the difference between such amounts have a business reason.

Original Amount of Investment; adaptation of the item / filing of notices with the Tax Administration Service (SAT)

This precept is amended to establish that the original amount of investment will include expenditures for the preparation of the physical site, installation, mounting, handling, delivery, customs agent or agency fees, as well as those related to the services contracted so that the investment is able to function.

On the other hand, it establishes the obligation to file notices with the tax authorities when the taxpayer deducts during the year the part not deducted by the taxpayer when it sold the assets or when they ceased to be useful to obtain revenue.

Treatment of tax losses in company spinoffs and mergers

In the case of company spinoffs, tax losses pending amortization must be divided between the divesting company and the spun-off company, as long as these have the same line of business. In the case of mergers, the bill adds cases in which a change of partners or shareholders would be considered to exist and, consequently, in which such losses cannot be used.

Change to the terms for the filing of the informative tax return on related parties

The related parties informative tax return, annex 9, must be filed at the latest by May 15 of the year following the end of the tax year, instead of filing it together with the tax return. In the case of local related parties tax returns, these will be filed at the latest by May 15 the following year.

New informative tax return on the sale of shares in Mexican companies between foreign residents

An informative tax return is added for the sale of shares or securities that represent the property of assets issued by the taxpayer, between foreign residents without a permanent establishment in Mexico, which will be filed at the latest in the month following the date in which the transaction is performed.

Transfer pricing obligation for foreign residents with source of wealth in Mexico for transactions with related parties

In the case of transactions with related parties performed by foreign residents, the pretension is that they calculate their revenue, income, profits and, if applicable, deductions, taking into account the prices, considerations or profit margins that would have been used with independent parties in comparable transactions.

Legal representation for foreign residents with source of wealth in Mexico

Legal representatives must voluntarily assume joint and several liability for the taxes that have to be paid by the foreign resident, and they must have sufficient assets to assume such liability as joint and several obligors. This only applies in the case of the representation of foreign residents who have a source of wealth in Mexico.

Comparable transactions with multinational companies

The bill establishes that only comparable transactions of the year may be taken as the benchmark for transactions with related parties and not an average over the years, as this could alter the result of the comparability of transactions.

Transfer pricing in Maquiladoras

The proposal is made to eliminate the obligation to file the document stating the Safe Harbor option, as in the end it is also reported in the informative tax return of manufacturing, maquiladora and export services companies (DIEMSE).

In addition, the bill proposes to eliminate the obtention of a specific ruling (APA) for maquiladoras, as the decision-making times this entails creates uncertainty in the sector.

Value Added Tax Law

0% Rate on Hygiene products

This pretends to establish a 0% tax rate in Mexican territory on sanitary towels, tampons and menstrual cups.

Crediting of VAT on importations

The decree states that, for the purpose of crediting VAT paid on imports, the requirement must be met that the customs declaration is in the name of the taxpayer who wishes to perform the importation, otherwise the tax will not be creditable.

Definition of activities or acts not subject to VAT

The bill pretends to include in this definition those acts that are not deemed to be carried out in Mexican territory, as well as those performed in such territory that are not included in the cases of sale of goods, rendering of services, temporary use or enjoyment of assets and importation of goods and services, for which income is obtained or considerations are charged and for the performance of which expenditure and investment are used, indistinctly, in which the corresponding VAT is transferred.

Digital Information Platforms

As a simplification measure, for information on digital platforms, which today is filed on a quarterly basis, it is proposed that the information should be filed at the latest by the 17^th day of the month following the month to which the information corresponds and not quarterly.

Federal Tax Code

Transfer of shares in case of merger or spinoff

The bill considers that the tax authority, in the exercise of its powers of verification, in the case of detecting mergers or spinoffs without a business reason or which do not meet the requirements established in the article, will determine the tax corresponding to the transfer.

Lastly, it adds that the financial statements used for the aforementioned transactions, as well as those prepared for such acts, must be audited by a public accountant registered according to the provisions issued by the SAT.

Refusal to grant the Advanced Electronic Signature

The SAT will refuse to grant the advanced electronic signature, as well as the digital seal certificates when it detects that the applicant legal entity has a partner or shareholder who holds the effective control of the applicant and who has a negative opinion, or that such partner or shareholder has the effective control of another legal entity, which also has a negative opinion.

Compensation by Operation of Law

The intention is to incorporate the possibility of compensating balances in favor of taxes against omitted taxes and the accessories determined by the authority with the aim of correcting the tax position of taxpayers when the authority is exercising powers of verification under certain circumstances, as long as the amounts to be applied have been previously generated and declared; similarly, it is important to take into account that the taxpayer must file a request. Effective as of 2023.

Notice of partners and shareholders

The share percentage, the corporate purpose and the person exercising effective control over the taxpayer is to be included in the existing obligation.

Changes to Digital Tax Receipts

The obligation is added to include the name or trade name of the person issuing the receipt, in addition to the Federal Taxpayers’ Registration code (RFC), and the name or trade name, as well as the zip code and use of the Online Digital Tax Receipt (CFDI) of the person in favor of whom it is issued.

The bill adds the obligation to issue a CFDI on taxpayers who export goods free of charge.

The term for canceling CFDIs is also changed, up until now it has been as long as the recipient accepted it, now it will be only before the filing of the annual tax return of the year in which they are issued and as long as the recipient accepts it.

Return of the obligation of a Tax Audit

The obligation of legal entities with revenue exceeding MXN $876,171,996.50 to audit is added and amended. Such audit must be filed at the latest by May 15 of the following year.

Information about Tax Position (ISSIF)

According to the changes related to the proposal to reinstate the obligation to audit the financial statements, a new case of filing ISSIF is added, consisting of those taxpayers who are considered related parties of those who are bound to audit their financial statements, must submit information about their tax position.

At Mazars, we will be keeping track of the possible changes that may be made to this bill, and once it has been passed we will be issuing the update of the most important changes related to the 2022 tax reform. Do not hesitate to contact us in case you need further assistance