Mexico City, November 25th, 2020.
On November 18th, 2020, the Ministry of Finance and the Tax Administration Service («SAT») published in the Official Gazette the Third Resolution of Amendments to the Omnibus Tax Rules for 2020 («RMF») through which Chapter 2.2 was introduced under the title of «Disclosure of reportable schemes», to regulate the way in which tax advisors or taxpayers (both Mexican and foreign residents with tax benefits in Mexico) must disclose the «reportable schemes» set forth in Article 199 of the Federal Tax Code («CFF»).
From the published rules it can be concluded that, through the reportable schemes introduced in the Mexican Tax Reform for 2020 (through Title Six on the CFF «Disclosure of reportable schemes»), the common elements that the SAT aims to be reported as of 2021, are the following:
- A diagram detailing all the transactions (legal acts or facts) that are part of the plan, project, proposal, advice, instruction and/or recommendation that makes up the reportable scheme.
- The country or jurisdiction where the entities involved within the reportable scheme are or will be located; as well as the jurisdiction where the transactions (legal acts or facts) which make up the reportable scheme will take place.
- The background and conclusions of the context of the reportable scheme, as well as the legal arguments and the premises on which the legal interpretation is based on.
In addition, in the case of customized schemes, the regulation requires that tax advisors or taxpayers provide the Mexican tax authority the following:
- The exact date or approximate date on which the transactions (legal acts or facts), which integrate the reportable scheme, will take place.
- The estimated value or amount of such transactions.
If the beneficiary taxpayers are assisted or will be assisted by individuals, entities or legal entities abroad or in Mexico, as well as their identification data including their tax residency or location.
- Indicate if the participants in the reportable scheme are considered as related parties in terms of the Mexican law.
Additionally, the rules establish additional particular requirements to each of the reportable schemes, which are the following:
- Reportable schemes for avoiding the application of the preferential tax regime (“REFIPRE”) or of transparent tax entities and foreign instruments.
It is required to indicate through which operation or operations, the application of the preferential tax regime or transparent tax entities and foreign instruments are or will be avoided.
Additionally, it must be indicated if as a result from the implementation of the scheme, the benefited taxpayers are assisted or will be assisted by individuals, entities or legal instruments abroad or in Mexico to avoid the application of the preferential tax regime or transparent tax entities and foreign instruments.
- Reportable scheme for allowing the transmission of tax losses pending to be deducted from tax profits, to different entities.
It must be informed by means of which operation or operations in particular, the tax losses pending to be deducted from tax profits are or will be transmitted to persons other than those who generated them.
Additionally, in the case of customized reporting schemes, the year in which the tax loss was generated, the amount, the causes or reasons for which it was generated, whether if it is a gross tax loss, operating, foreign exchange, net tax loss from equity in the results of unconsolidated subsidiaries and associated companies, before income taxes, before the discontinued operations, after discontinued operations or net.
It must also be indicated whether, as a result of the transfer of tax losses, the entity is or will be left out as part of a business group, as well as whether the transfer of losses is or will be carried out through a spin-off or a merger.
- Reportable scheme for interconnected payments or transactions that return the whole or part of the amount of the first payment that is part of such series, to the entity which made it or any of its partners, shareholders or related parties.
It must be indicated on the reportable scheme, through which series of payments or interconnected operations all or part of the amount of the first payment forming part of such series is or will be returned to the entity who made the first payment or any of its partners, shareholders or related parties.
Furthermore, it must be indicated the sequence in which the operations that build the scheme, is or will be carried out through.
- Reportable scheme for the implementation by a tax resident abroad of an agreement to avoid double taxation entered by Mexico, in relation to the income not taxed in Mexico or in its country of residency, or benefiting from a reduced tax rate under such agreement.
In such case, it must be noted which operations give place to the income with source of wealth in Mexico.
In cases of customized reportable schemes, it must be stated, under oath, whether the foreign tax resident as the recipient of the income is the actual beneficiary, as well as the provision of the agreement that was applied for the case at hand, the business reason for carrying out the operation that originated the income and the type of income received.
- Reportable scheme for the transfer of intangible assets that are complex to value according to the OECD Transfer Pricing Guidelines.
The business justification for the transfer of intangible assets that are difficult to value, the data of the person who will transfer them and of the person who will receive them, as well as certain specific data related to their type, value and the corresponding consideration, as well as the methodology used to assign a value to them and the calculations used for such purposes, must be indicated.
Additionally, in case the acquirer is considered as a Mexican tax resident or a resident abroad with a permanent establishment in this country, it must provide the data of the entities or individuals involved in the operation, the records and the accounting standards applied.
- Reportable scheme for corporate restructures without consideration.
It must be detailed the sequence through which the corporate restructure will be carried out and whether it will involve the conversion of the distribution model, the conversion of the manufacturing model, the transfer of intangible property to another entity of the corporate group, the transfer of intangible assets or the assignment of risks to one or more other entities of the corporate group, the rationalization, specialization or de-specialization of operations, including the reduction of the size of the business or economic activity, change or closure of operations in Mexico.
Additionally, in the case of customized reportable schemes, it must be detailed the approximate date on which the corporate restructuring was or will be carried out, the identification data of all the entities of the corporate group, whether the restructuring was due to a merger, spin-off or exchange of shares, as well as whether Article 13 of the Conventions will be applied and the business purpose, among other information.
- Reportable scheme for granting the temporary use or enjoyment of goods and rights without payment or the provision of unpaid services.
In the present case, it must be indicated through which operations the temporary use or enjoyment of the goods is transmitted and who will be the beneficiaries will be, as well as the sequence foreseen to carry out such transaction.
Moreover, in cases of customized reportable schemes, in the case of the temporary assignment of the use or enjoyment of assets, it will be necessary to provide general and tax information of the grantors and beneficiaries and to indicate which assets or rights are involved, the place where the asset is located, its estimated value, date of transfer and the business purpose for such act. In the case of services provided without remuneration, it will be required to indicate the type of services, the estimated value and the business purpose as well for such operation.
- Reportable scheme in cases where there are no reliable comparatives, due to operations involving unique and valuable functions or assets.
Operations for which there are no reliable comparatives should be indicated as well as the related parties involved in the scheme.
Additionally, in the case of customized reportable schemes, it will be necessary to indicate the business purpose for the operations, indicate which are the functions or unique and valuable assets involved in the operation, their value and if there is any payment for them, the methodology used to determine their market value, as well as the records and accounting standards applied.
- Reportable scheme for avoiding creating a permanent establishment in Mexico in terms of the Mexican Income Tax Law («MITL») or the treaties to avoid double taxation («Treaties»).
It must be indicated through which specific operation or operations the incorporation of a permanent establishment («PE») in Mexico is avoided, either through the application of the Income Tax Law or the Treaties.
Also, the business reason and the motives by which the benefited taxpayer avoids or will avoid constituting a PE in Mexico must be stated.
If the business activities carried out or to be carried out by a tax resident abroad involve the manufacture of goods or distribution, it must be indicated the business model used and in the case of other business activities, such as transportation, storage, manufacture, commission or any other activity that is necessary for its operations, it as well be needed to indicate whether it is carried out with related or independent parties.
Also, it is necessary to indicate whether the resident abroad who avoids creating a PE, performs activities of a preparatory or auxiliary nature for itself or for a related party.
- Reportable scheme for the transfer of a totally or partially depreciated asset that allows its depreciation by another related party.
It must be indicated through which operation or operations in particular, a depreciated asset is or will be totally or partially transferred, which allows or will allow its depreciation by another related party, as well as the characteristics of the depreciated asset or that will be totally or partially depreciated such as its value, original amount of the investment, if it is imported or exported, type of asset, percentage of depreciation, description, years in which it will be depreciated, if it is partially deductible, as well as indicating the form and criteria in which the operation was recorded.
- Reportable scheme for involving a hybrid mechanism in accordance with section XXIII of Article 28 of the MITL.
Indicate by which operation or operations are part of the reportable scheme and whether they involve a hybrid mechanism defined in accordance with Article 28, Section XXIII of the MITL.
For such purposes, it must be indicated the reason why the hybrid mechanism is generated, i.e., why domestic or foreign tax legislation characterizes a legal entity, legal figure, income or the owner of the assets or a payment differently. Indicate if within the reportable scheme a structured agreement was entered into or is expected to be entered.
Furthermore, in the case of customized reportable schemes, it should be disclosed whether the income obtained is considered subject to a preferential tax regime (REFIPRE) if it results from the performance of an operation involving a hybrid mechanism or structured agreement.
If this is the case, the concept for which the payments are or will be made subject to a REFIPRE must be indicated; the amount of such payments and if the payments are taxed indirectly by reason of the application of Article 4-B or Title VI, Chapter I of the MITL, or similar provisions contained in the foreign tax legislation.
- Reportable scheme for avoiding identification of the beneficial owner of income or assets.
It is required to indicate by which operation or operations the identification of the beneficial owner of income or assets is or will be avoided. Indicate in which operations of the reportable scheme the identification of the beneficial owner of income or assets is avoided.
In the case of customized reportable schemes, the data of the person who avoids being identified as the beneficial owner of income or assets must also be disclosed, including its country of residency and incorporation; the data of the person who makes or will make the payments; the type of income to be obtained and its amount; description of the assets involved; the accounting information, as well as the business reason.
- Reportable scheme for carrying tax losses whose term to apply their decrease from taxable income is about to expire and operations are carried out to obtain tax profits to which those tax losses are applied to.
For this scheme, it is required to indicate by means of which operation or operations the tax profits will be obtained to which tax losses will be reduced, whose term to vary out the reduction in taxable income is about to expire according to the MITL.
Also it must be indicated which operations of the reportable scheme are carried out or will be carried out to obtain tax profits to which tax losses will be reduced, in order to generate an authorized deduction to the taxpayer that generated the losses or a related party.
In the case of customized reportable schemes, it is also necessary to disclose the fiscal year in which the period to reduce the tax loss that is intended to reduce the tax profit ends, indicating the business purpose and the reasons why activities or operations are carried out or will be carried out to obtain tax profits to which the tax losses will be reduced, the category to which the profits belong, the origin of the income that will generate the profits, the origin of the tax losses, among others.
- Reportable scheme for avoiding the application of the additional 10% tax rate for dividend distribution.
For this case, it must be indicated through which specific operation or operations the application of the additional 10% rate provided for in Articles 140, second paragraph; 142, section V, second paragraph; and 164 of the MITL is or will be avoided.
In the case of customized reportable schemes, in addition to the business purpose and the reasons why the taxpayer who has benefited or intends to benefit from the scheme avoids or will avoid the application of the additional 10% tax rate provided for in Articles 140, second paragraph; 142, section V, second paragraph; and 164 of the MITL.
- Reportable scheme for granting the temporary use or enjoyment of a good and the lessee in turn granting the temporary use or enjoyment of the same good to the original lessor or a related party.
Indicate precisely through which operation or operations the temporary use or enjoyment of a good is or will be granted and the lessee in turn grants or will grant the same good to the lessor or a related part of the latter, indicate the type of good involved and in the case of leases, indicate according to the Financial Reporting Standards, whether it is a financial lease or a pure lease.
On the other hand, in the case of customized reportable schemes, the data of the lessee, the lessor and/or the related party, the business reason, the amount of income and deductions obtained, the accounting treatment, etc. must also be disclosed.
- Reportable scheme for having differences greater than 20% in accounting and tax records.
In relation to those operations whose accounting and tax records involve differences greater than 20%, the diagram must be provided and disclosed indicating the operation or operations that are or will be carried out that give rise to the differences greater than 20% in the accounting and tax records.
For the case of case of customized reportable schemes, it must be disclosed, among other factors, the exact or approximate date on which the transactions comprising the reportable scheme were or will be carried out, the persons involved, the value recorded or estimated in those transactions, the accounting entries and standards applied, as well as the business purpose and the reasons why the transactions present those differences in the accounting and tax records.
- Mechanisms that avoid the application of a reportable scheme.
The following are considered «mechanisms» that prevent the application of the disclosure of reportable schemes: any plan, project, proposal, advice, instruction or recommendation, expressly or tacitly outsourced with the purpose of preventing the updating of any of the cases provided for in Article 199 of the CFF. Such mechanisms must be reported by means of an informative statement that includes the information specified therein regarding the reportable scheme whose application was avoided.
Finally, some obligations and duties are established for tax advisors and taxpayers related to the filing of returns, which are the following:
- The obligation is established for tax advisors or taxpayers to file the «Information Report to disclose generalized and personalized reportable schemes». This obligation must be complied with as established in the processing forms contained in Appendix 1-A of the RMF.
- Regarding tax advisors or taxpayers who have filed an «Information Report» to disclose a reportable scheme, there is an obligation to report the modifications, corrections or updates of the scheme in question; this must be done through a «Supplementary Information Report».
Regarding the tax advisors who reported on a scheme issued a statement releasing other tax advisors involved and, subsequently, derived from a modification, correction or update to the scheme in question, a «Supplementary Information Statement» is filed, the tax advisor who made the report shall be obliged, again, to deliver the statement releasing the tax advisors released from the obligation to report, together with the copy of the statement and the acknowledgement of filing of the statement containing the reported scheme.
- In the event that the tax advisors released from the obligation to report any scheme do not agree with the content of the «Information Statement» that disclosed any reportable scheme or, if they consider it necessary to supplement the information provided, they may file the «Supplementary Information Statement».
The attorneys of the Firm’s tax practice remain at your service to clear any doubt or comment and to advise you on the application, scopes and fulfillment of these important tax obligations, which must be reported as of January 1st, 2021.
S I N C E R E L Y,
Francisco J. Matus