October, 2019.
On September 8, 2019, the President sent to the Chamber of Deputies the Tax Bill for the 2020 fiscal year (the “2020 Bill”), containing amendments to various tax provisions.
This 2020 Bill will be dealt with and approved by the Chamber of Deputies; thereafter it will be forwarded to the Senate for the same purpose, and then to the President to sign into law.
The most relevant items of the proposed amendments and the risks that in our opinion may arise if the 2020 Bill is approved by the President are described below:
- FEDERAL REVENUE LAW.
The tax withholding rate on interest paid to the financial system is substantially increased from 1.04% to 1.45% per year. This increase would discourage people to save, by having to pay a 30% tax increase on the amount saved.
- FEDERAL TAX CODE (CFF for its Spanish acronym).
Joint and several liability (Art. 26)
The events releasing liquidators and bankruptcy trustees from joint and several liability for taxes payable by the company in liquidation or in bankruptcy or those levied during the performance of their duties, are eliminated.
Moreover, the events described in Article 26 (III) (a) (b) (c) and (d) of CFF are eliminated to avoid that any CEO, general manager or sole administrator of any business entity, as well as any shareholder, member or partner, may be released from joint and several liability for taxes incurred or not withheld by the business entity during the liquidation or bankruptcy process, as well as taxes that should have been paid but cannot be secured with property held by the business entity managed by the liquidator or trustee.
According to the Explanatory Memorandum, such measures are intended to go against companies that issue invoices for simulated or non-existent transactions; currently after the tax authorities detect such company and exercise their review and enforcement powers, the company starts the liquidation process and the liquidator is released from joint and several liability by simply filing the required notices.
Also, the Explanatory Memorandum establishes that according to the actual wording of the provision, it is complicate to attribute joint and several liability to shareholders and managing officers.
This amendment is considered disproportionate to the problem intended to be solved (go against companies invoicing simulated transactions – EFOS for its Spanish acronym). In our opinion, the Federal Executive should have proposed a new more appropriate provision, for example, attributing joint and several liability to companies listed on a definitive basis in terms of Article 69-B of the CFF.
Joint and several liability to be attributed to partners or shareholders continues to be based on the effective control of a company.
The proposed amendment rejects the corporate veil concept, therefore, this could be considered as a disincentive for foreign investment in the country.
Non-Profit Entities (Art. 27).
The exception applicable to legal representatives, shareholders or partners of non-profit entities who fail to request a registration in the Federal Taxpayer Registry is eliminated.
Third Party Tax Collaborator (Art. 69-B Ter)
A new Article 69-B Ter is added to CFF to encourage the cooperation of the society in an effort to do away with the illegal tax practice, by adding the “third party tax collaborator” concept, whose information may be used to justify the filing of the proceeding set forth in Article 69-B of CFF, as well as to issue a final ruling.
Universal Set-Off (Art. 23)
It is intended to eliminate the universal set-off concept that was contemplated by the 2018 Fiscal Year Federal Revenue Law on a temporary basis.
General Rule “Anti-Abuse” (Art. 5-A).
A general rule “anti-abuse” is created in response to the common use of the fraud to the law or abuse of rights concepts. This general rule means that the tax authorities may, in exercising their review and enforcement powers, assume that a transaction undertaken by a taxpayer lacks a business reason, based on the facts and circumstances surrounding the transaction.
The tax authorities may not assess a tax liability from any change of the legal nature (called re-characterization) or absence of tax consequences of a particular transaction, without first granting to the taxpayer its hearing right.
According to the Explanatory Memorandum, no business reason will be deemed to exist whenever the economic benefit pursued is less than the tax benefit obtained, considering any interim reduction, elimination or delay in the payment of taxes. This includes, but is not limited, to the following benefits: deductions, exemptions, not being subject to tax, non-accrual of taxable gain or income, adjustments or lack of adjustments of the taxable base, tax credit claims, re-characterization of any payments or activities, or a change of tax regime.
The authorities will also consider that a series of legal transactions will lack a business reason whenever the intended economic benefit may be achieved through a lesser number of legal transactions, the tax effect of which could have been more tax burdensome.
It is to be noted that until now previous bills have tried, unsuccessfully, to incorporate the general rule “anti-abuse” in the Mexican tax laws.
At the present time, the tax authorities already have various legal tools to combat tax evasion and avoidance, such as presumptions and legal fictions; however, they have always insisted on the need to create the general rule “anti-abuse”.
The proposal ignores that a transaction (or series of legal transactions) does not necessarily produce a quantifiable economic effect to be legal, as it has been recognized in other jurisdictions; the number of legal transactions should not be a test to determine an instance of abuse of rights for tax purposes.
This rule represents a change in the Mexican tax law guiding principle, since a transaction may be re-characterized or have not tax effects, although the statutory wording of the law is being respected. The new principle means that a maximum taxpayer-paying capacity prevails over legal certainty and legality principles in tax matters, a fact which is rather disturbing.
On the other hand, this is somewhat contradictory, as lawmakers are encouraging the application of tax incentives, such as exemptions and preferential treatments (Executive Order on Maquila Border Town Tax Incorporation Regime), among others.
Rejection to authorizing E-Signature (Art. 17 (5th paragraph))
The Tax Administration Service (SAT for its Spanish acronym) may decide not to provide an e-signature to a taxpayer when the taxpayer fails to provide enough information on identity, address, and tax status, or whenever SAT is unable to confirm such information; this is aimed to identify and stop the number of electronic signatures being provided to alleged taxpayers invoicing non-existent transactions.
This could arise arbitrary outrages of the tax authorities, which would negatively affect new investments or the creation of new jobs. It would be necessary to analyze later the documents and procedures for confirmation of the information that will be stated on the general rules issue by the SAT.
Cancellation of the digital-stamp certificates due to invoices who supports on-existent transactions (Art. 17-H (X)(c)).
It is stated that detectable situations justifying the cancellation of the digital-stamp certificates, so as to identify invoices that support non-existent, simulated or illegal transactions, are within the review and enforcement powers of the tax authorities.
It is to be understood that the tax authorities will be acting in the exercise of review and enforcement powers whenever they conduct the first act to notify its beginning.
In our opinion, the proposed amendment is deemed improper where it provides that the tax authorities will act in exercise of their review and enforcement powers whenever they conduct the first act to notify its beginning, if previously the tax authorities have already sent a letter of invitation to the taxpayer advising the taxpayer that the supplier involved has been listed on a definitive basis as an alleged violator under Article 69-B of CFF; thus the digital-stamp certificates may be cancelled, with all the negative consequences for the tax-paying sector of the country.
Cancellation of the digital-stamp certificates for being listed under article 69-B of CFF (Art. 17-H) (X)(d)).
It will be a cause of cancellation of the digital-stamp certificates when the tax authorities find, even without exercising their review and enforcement powers, that the taxpayer is listed on a definitive basis under Article 69-B (fourth paragraph) of CFF.
In our opinion, this may be unconstitutional as a taxpayer being listed on a definitive basis by the tax authorities is still entitled to prove the reality of the transaction and to challenge such finding; however, if a favorable decision is obtained by the taxpayer in due course, the proposed wording would have an unavoidable and irreparable negative result.
Cancellation of digital-stamp certificates to recipient’s failure to prove the reality of the transaction covered by tax receipts (Art. 17-H) (X)(3)).
An additional cause for cancellation of the digital-stamp certificates is introduced where the tax authorities find, even without exercising their review and enforcement powers, that the taxpayer is deemed to fall within the scope of the presumption contemplated by the eighth paragraph of Article 69-B of CFF and that, upon expiration of the term contemplated by said paragraph, the taxpayer had failed to prove the actual acquisition of goods or provision of services, and failed to correct the tax implications of such situation, thereby preventing the taxpayer from any further invoicing.
The proposed provision is considered discordant and thus unconstitutional, since the recipient taxpayer may validly prove the reality of the transactions, event after the expiration of the 30-day term contemplated by Article 69-B of CFF, as this has already been stated by the Mexican Tax Ombudsman.
Cancellation of the digital-stamp certificates for inconsistency of the information contained in tax receipts versus the information contained in tax returns (Art. 17-H) (X) (g)).
A further presumption is introduced in order to cancel the digital-stamp certificates, where a taxpayer will invoice income or withholdings, and such income or withholdings fail to match the information contained in tax returns or information in the possession of, or accessible to, the tax authorities, even without exercising their review and enforcement powers; this has the intention of preventing the issuance of invoices by companies for non-existent transactions.
This proposed amendment is considered excessive and unconstitutional, since the information contained in tax receipts does not normally match the information contained in tax returns, due to a number of natural and justifiable reasons arising from the business activity itself.
Cancellation of the digital-stamp certificates for undue transfer of tax losses (Art. 17-H) (X)(j)).
The proposal would cancel the digital-stamp certificates, even without the tax authorities exercising the review and enforcement powers, to a taxpayer who is found to have unlawfully transferred any tax losses and is listed on a definitive basis under Article 69-B Bis (eighth paragraph) of CFF.
This is also considered unconstitutional, since a taxpayer who is listed on a definitive basis by the tax authorities, is still entitled to challenge such finding; however, if a favorable decision is obtained by the taxpayer, the negative effect would remain during the pendency of the case, which is something that would go against an authentic rule of law system.
Extension of term to clarify cancellation of the digital-stamp certificates (Art. 17-H) (X)(6)).
The term for the tax authorities to rule on any clarification submitted by a taxpayer to clarify any irregularities found, and determine whether the authorities may require additional information, is extended from three to ten days.
In this regard, it is important to point out that, in practice, although it is true that the tax authorities do not normally rule on any clarification filed within three days, the term extension may also prolong the negative effect for the taxpayer of the cancellation of the digital-stamp certificates. Thus, the amendment should provide that in case of failure to issue a ruling within the applicable term, the cancellation would become null and void, and the digital-stamp certificates would be reactivated forthwith.
Notices to taxpayers posted in authorities’ bulletin boards (Art. 137).
Whenever a taxpayer fails to validate a tax mailbox or does register erroneous or non-existent contact information, the tax authority is empowered to post notices in its bulletin board.
In our opinion the proposed addition may cause unpredictable conducts by the tax authorities, since there may be instances where due to an involuntary omission by the taxpayer, a relevant ruling is notified via the authorities’ bulletin board.
Contact information secured by financial institutions and cooperative savings and loan associations (Art. 32-B (V)).
The above companies are required to obtain from their account holders the following data: e-mail, telephone number, and any other contact information determined by SAT under general rules.
The list of taxpayers barred from government contract is enlarged (Art. 32-D).
Taxpayers with whom the Federal Government may no longer do business include any individual or business entity that, among other reasons: i) fails to comply with any tax obligation; ii) has been convicted of a tax crime, or iii) having been registered in the Federal Taxpayer Registry, is reported as no longer to be found.
The proposal includes that any taxpayer alleged to be engaged in either non-existent transactions or undue transfer of tax losses may no longer be able to enjoy any subsidies or tax incentives.
Such proposal may cause unpredictable conducts by the tax authorities, it being necessary to detail the procedure to be used to exercise such powers, in order to uphold the fundamental right of legal certainty.
“Tax Lottery” is extended (Art. 33-B)
It is proposed to empower SAT to conduct tax lottery sweepstakes, only for the participants identified by SAT.
The proposal also contemplates that prizes obtained by sweepstakes winners will not be deemed accruable income for income tax purposes, which is something we consider appropriate.
Expired terms and limitation periods will not affect the dispute resolutions processes contemplated by double taxation treaties to which Mexico is a party (Art. 67).
This proposal is to match Mexican tax rules with the double taxation treaties to which Mexico is a party. In fact, at the present time, expiration of a statutory term is suspended by filing an application for a Mutual Agreement Procedure (MAP).
System for disclosing peportable strategies in Mexico (Sixth Title)
To apply this system, it is provided that the tax authorities may, by general rules, determine a threshold to identify which strategy should be disclosed by tax advisors.
A reportable strategy would be any one which may generate, either directly or indirectly, any tax benefit in Mexico and include any of the elements identified by SAT as a risk area.
The information to be reported by a tax advisor will consist of data of the taxpayer receiving the advice, as well as a description of the strategy.
Taxpayers are required to disclose reportable strategies in certain cases, such as when a tax advisor fails to provide the ID number of the strategy to be assigned by SAT, or fails to issue a certificate stating that the strategy is not reportable.
In addition, it is further proposed that SAT keeps a roster of tax advisors in order to maintain control and verify compliance with tax obligations. This item is to become effective as of July 11, 2020.
We consider that this proposal is unconstitutional, since it directly violates the advisor’s obligations to the client, even more so when the advisor is a lawyer, who must respect the attorney-client privilege regarding client information. We will await the debates in Congress in order to either eliminate or limit this proposal to situations perfectly defined by law.
III. INCOME TAX LAW.
Permanent Establishment (Art. 2).
It is proposed that whenever a non-resident does business in Mexico through a person other than an independent agent, it will be considered that the non-resident has a permanent establishment in Mexico if the agent plays the main role in entering into agreements by the non-resident.
Moreover, it will be presumed that an individual or business entity is not an independent agent, whenever such individual or entity either exclusively or almost exclusively does business on behalf of the non-resident related parties.
Finally, a provision would be added to avoid that a non-resident or group of related parties breaks up a single business transaction into several transactions, so as to argue that each separate transaction falls within the exceptions of preparatory or auxiliary activities.
Challenge against Hybrid Mismatch Arrangements (Art. 5).
Consistent with the “Final Action Report 2 of the BEPS Project”, and in order to neutralize the effects of hybrid mismatch arrangements, a proposal is made to ban the indirect income tax credit paid abroad on income obtained from a foreign source, against income tax payable in Mexico, and also to ban the direct tax credit of partial income tax paid abroad by a non-resident business entity, whenever such non-resident entity pays dividends to a Mexico resident business entity, in any of the following situations:
- Whenever the tax has been credited in other country or jurisdiction, unless the income for which the tax was paid, was accrued in such other country or jurisdiction.
- Whenever a dividend or profit being distributed or paid represents an equivalent deduction or reduction to the non-resident business entity making such distribution or payment.
Also, certain substantial amendments are proposed to the rules applicable to deduction of payments to related parties or under structured arrangements, whenever payments are made to related parties enjoying preferential tax treatments.
It must be noted that this provision would not apply whenever the payment arises from substantial business activities of the payee, provided that the payee has a valid place of business and is incorporated in a country with which Mexico has entered into an information tax exchange agreement. This exception would not apply when the payment is deemed income subject to a preferential tax treatment due to the use of a hybrid mismatch arrangement.
It is proposed that payments made by a taxpayer would not be deductible whenever such payments are also deductible by any other member of the group or by the same taxpayer in other jurisdiction, except when the member of the same group or the non-resident accrues income generated by the taxpayer on a pro-rata basis taking into account the taxpayer’s equity in the business. In the event the taxpayer is also considered a tax resident in other country or jurisdiction, the above will not apply provided the income taxed in Mexico is also accrued in such other country or jurisdiction.
Based on the above, a partial repeal of Article 28 (XXXI) is proposed, as it denies a deduction of payments to related parties for interest, royalties, or technical assistance, when made to transparent business entities that do not exist for tax purposes abroad, or when such payments are not accruable income in the relevant country.
In our opinion, if the proposed amendments are approved, they may violate the fundamental right of tax proportionality.
Tax treatment of transparent legal entities and other vehicles (Art. 4-A).
The proposed amendment provides that transparent foreign legal entities and other vehicles would be taxed as business entities and will be subject to income tax in Mexico, except for those “domiciled” and/or “located” in a country with which Mexico has entered into a tax treaty and, in such event, the provisions of the treaty will apply.
Interest deduction restraining (Art. 28).
The proposal intends to add an interest deduction restraining – applicable only when exceeding the amount determined under Article 28 (XXVII) (thin capitalization)-, as follows:
- No deduction will be allowed whenever the net interest paid during the relevant fiscal year exceeds 30% of the adjusted net profit, including foreign sourced interest, in the proportion of the tax payable after applying a tax credit set forth in Article 5 of the Income Tax Law. Any amount exceeding the 30% limit may be deducted during the following three fiscal years until depleted, provided proper records are kept of the net interest not yet deducted.
- For purposes of computing the limit, it is understood that the adjusted net profit is the sum of accruable income less authorized deductions and employee profit sharing paid during the relevant fiscal year, plus interest earned and the aggregate deduction for fixed assets, deferred expenses, deferred charges, and disbursements incurred in pre-operating periods. On the other hand, the fiscal year net interest will be interest earned during the fiscal year from taxpayers’ debts, less total income generated from accrued interest.
- It is provided that the first twenty million Mexican pesos of deductible interest in the fiscal year will not be subject to the above limit; however, such amount will be compounded and applied to all business entities and permanent establishments that either belong to the same group or are related parties, taking into account the proportion of accruable income that was generated during the immediately preceding fiscal year.
- Such limit will not apply to interest arising from debts assumed to finance infrastructure projects, construction work located in Mexico, debts assumed to finance oil and hydrocarbon exploitation, extraction, transportation, storage or distribution activities and generation, transmission and storage of electricity and water, nor to state-owned productive companies.
Although the proposed addition is consistent with some recommendations contained in the “Final Report of Action 4 of the BEPS Project,” we consider that there are aspects that may violate the fundamental rights of proportionality, equity and legal certainty.
Profit sharing tax credit on estimated tax payments (Art. 14) (II) (a).
The proposal incorporates the possibility of claiming a tax credit on estimated tax payments, on account of profit sharing paid during the same fiscal year.
Royalties (Art. 158 by cross-reference).
Adjustments to the Income Tax Law are made to clearly provide that income obtained by non-residents from the lease and temporary use and enjoyment of industrial, commercial or scientific equipment should be classified as royalties, instead of income derived from property leasing.
Reduction of income tax rate (Art. 74-B).
Business entities governed by agrarian law, obtaining at least 80% of total income from processing and trading products from agricultural, livestock, forestry or fishing activities, which entities are formed, as partners or members by natural person who are ejido or rural community members (including ejidos and rural communities), would be entitled to reduce by 30% the income tax payable for the relevant fiscal year, provided certain requirements are satisfied.
Natural persons; Internet transactions (Art. 111) (VI)).
An obligation is “added” for any individual engaged in business activities to pay income tax on income obtained from the sale of goods or services via Internet using technological platforms.
There is also an obligation to withhold taxes from any individual located in Mexico and from any non-resident having a permanent establishment in the country, as well as from foreign entities and companies providing, either directly or indirectly, the use of technological platforms.
Withholding rates vary: i) from 2% to 8% of the total amount collected from passenger land transportation services and delivery of goods; ii) from 2% to 10% of the total amount collected from lodging services; and iii) from 3% to 17% of the total amount collected from the sale of goods and provision of services.
Independent retail vendors (Art. 76-B).
It is proposed to create a strategy to facilitate income tax payments by individuals who are only engaged in business activities as independent retailers of products from catalog companies.
Said companies would determine, withhold, and pay income tax based on the difference between the purchase price and the suggested sales price, by applying the relevant income tax rate to each individual, which payment would be considered only as an estimated tax payment, except when the income in the immediately preceding fiscal year was less than $300,000 pesos, in which case, such payment would be considered as a final payment.
Maquila operation under a shelter program (Art. 183).
The term for a maquila operation under a shelter program would be eliminated which, in principle, is of four years, provided the taxpayer pays the respective income tax and complies with all the tax obligations.
Tax Incentive (Art. 203).
An administrative simplification is proposed for taxpayers obtaining a tax incentives related to technology research and development, as well a high performance sports. Such simplification consists of eliminating the obligation to file information returns on the use of such incentive.
Outsourcing (Art. 27) (V), (VI)).
It is proposed to amend Article 27 (V) and (VI) of the Income Tax Law to provide that authorized deductions must comply with the tax withholding and payment obligations contained in other tax rules, including the new obligation of taxpayers contracting outsourcing services as provided by the labor laws, of calculating, withholding and paying value added tax (VAT) derived from such transactions.
Considering that the requirements intended to be included in the Income Tax Law are subject to the new obligation contained in the Value Added Tax Law related to outsourcing we will add some comments on that subject in the relevant paragraph herein, pointing out the disparity between this proposal and its intended purpose.
Effective rate applicable to single pension fund payments (Art. 96-Bis).
To align the procedure set out in Rule 3.11.12 of the 2019 Tax General Rules, it is proposed to include such procedure to determine and apply a withholding rate to individuals who receive in a single draw down all funds kept in their individual pension, early retirement, or old age accounts with pension fund management companies either AFORE or PENSIONISSSTE, and to establish that the tax withheld is deemed as the final payment.
Income tax from income obtained by real estate leasing (Art. 118).
It is proposed that, in any real estate lease court action, the court should require the landlord claiming unpaid rents to produce evidence of having issued tax receipts for rents theretofore paid; failure to do so would obligate the court to advise SAT of such omission.
Elimination of the obligation to provide online digital tax receipts (CFDIs for its Spanish acronym) (Art. 116).
The option is proposed for some business entities to not provide CFDIs on tax withholdings, provided that individuals who provide professional services or grant the temporary use or enjoyment of real estate, issue to such entities a CFDI fulfilling all the requirements set forth in Articles 29 and 29-A of CFF, and the receipt expressly mentions the amount of the tax withheld.
Disabled Persons (Art. 186).
To encourage the hiring of disabled persons, the tax incentive currently contemplated under Article 186 of the Income Tax Law would be replaced by the one set out in the Federal Revenue Law (LIF for its Spanish acronym), as it would be more beneficial and efficient to achieve its intended purpose, by deducting from the taxpayer’s accruable income for income tax purposes of the relevant fiscal year, an amount equivalent to 25% of the salary actually paid.
It is also proposed to grant a tax incentive to whomever hires senior citizens, by deducting from the accruable income for income tax purposes of the relevant fiscal year, an amount equivalent to 25% of the salary actually paid to 65 years or older persons.
Elimination of private real estate investment trusts (REITs) (Second Transitory Provision) (X).
It is proposed to eliminate private REITs (currently consisting of a group of investors made up of least 10 unrelated parties, none owning more than 20% of the equity certificates issued by a trustee), by including a transitory provision, so that settlors may accrue any gains from the real estate held, and if such gains are not accrued by December 31, 2021 (provided the situations set out in said transitory provisions do not occur), such gains would be accrued in the annual income tax return for the 2021 fiscal year, taking into account the tax inflation adjustment since the date the real estate was first held up to the filing date of the tax return.
It is important that any REIT created as a private entity pay attention to this transitory provision in case the bill is passed, so as to avoid being negatively affected when the gains are actually accrued with respect to the contributions.
This proposal lessens the incentive and encouragement to strengthen real estate investment in Mexico.
- VALUE ADDED TAX LAW (VAT LAW).
Digital platforms (Art. 16).
It is proposed to impose a 16% tax rate on the value of certain digital services generally provided to persons for their individual use through digital platforms of non-residents without having an establishment in México. The proposal contemplates that the service will be provided in Mexico when the recipient is also located in Mexico.
The service provider is required to be registered with the Federal Taxpayer Registry and to meet certain formalities for the correct payment of the tax. It is important to clarify that this will not be considered as the creation of a permanent establishment for income tax purposes.
Withholding of 50% of the VAT rate on digital platforms for transportation and lodging services (Art. 18-J).
For third party intermediary services (located either abroad or in Mexico) an additional obligation is imposed, if payments are also made or collected on behalf of the seller and/or service provider through the digital platform, to report to SAT the prices and withhold 50% of the VAT rate for transactions concluded in Mexico. Third party intermediary service providers would also be required to be registered as VAT withholders with the Federal Taxpayer Registry.
8% VAT rate for users of digital platforms for transportation and lodging Services (Art. 18-M).
Individuals using third party intermediary services, whose income in the immediately preceding fiscal year would not have exceeded $300,000 pesos and provided they do not receive any other type of income in addition to salaries and interest, may consider as final the payment of an 8% VAT rate withheld by the third-party intermediary service provider.
In our opinion, the wording of this provision would violate the tax equity principle against users not falling within the factual situation contemplated by the law to be entitled to this benefit.
Outsourcing VAT withholding (Art. 1-A) (IV)).
Parties contracting outsourcing services would have the obligation to withhold and pay VAT on the services received.
This proposal intends to challenge one of the main VAT evasion schemes, as when the contracting party wishes to claim a tax credit, such party must first pay the tax withheld.
Claiming a VAT credit on activities not subject to VAT (Art. 5) (V)).
VAT passes on expenses incurred in activities not subject to the payment of VAT could not be claimed as a tax credit.
Set-off (Art. 6).
A set-off limitation of VAT positive balances contemplated by the 2019 LIF is also included in the 2020 Tax Bill. Positive balances may be set-off against negative balances of the same tax or request the refund of such positive balances.
VAT accruable on free services (Art. 17).
It is expressly contemplated that in case of taxable services provided free of charge, the tax is payable when the services are provided.
Non-regular importation of intangible goods and services (Art. 33).
For non-regular importation of intangible goods and services, provided or alienated by non-residents, to be used on a temporary basis, the tax shall be paid within 15 days following the date on which the consideration is paid, without the possibility of claiming a tax credit for such payment.
This provision is aligned with the tax treatment applicable to the importation of tangible goods.
VAT payable on importation of services (Art. 26) (IV).
For services to be used in Mexico, rendered either within the country or abroad by a non-resident, the tax shall be payable when the consideration is actually paid.
This amendment, expressly establish when the tax is payable, is consistent with the cash flow principle applicable to VAT, thus providing legal certainty to the taxpayer, since previously the law failed to establish this aspect.
CFDI on leasing (Art. 33).
Consistent with the amendments to the Income Tax Law, in any real estate lease court action, the court must require the landlord to exhibit tax receipts issued for any rents paid; if the landlord fails to produce such receipts, the court must advise SAT of such failure, and the rents being claimed will not be ordered to be paid.
The purpose of this amendment is to challenge tax evasion in real estate leasing; however, no time frame is provided for the court to request the production of such tax receipts.
CFDI for withholdings (Art. 32) (V).
Certain business entities could not be obligated to issue a tax receipt for amounts withheld from individuals providing professional services or the use or temporary use of goods, provided such individuals issue a tax receipt stating the amount of the tax withheld, which receipt may be considered a withholding certificate.
By this amendment, the option contemplated in different tax rules is now incorporated in the VAT Law.
- EXCISE TAX LAW.
Excise tax positive balances set-off (Art. 5).
For set-off purposes, the proposal considers as separate taxes, each one of the amounts payable to the different categories of goods and services covered by the Excise Tax Law.
In addition, various provisions could be amended so that any positive balance of a tax may only be offset against other amounts of the same tax; the above limits even more the possibility of using an offset, consistent with the amendments to the CFF on the set off concept.
Definition of energy beverages (Art. 3) (XVII).
The definition of energy beverages is amended to eliminate the reference to the caffeine content in milligrams per 100 milliliters in the product, and considers as energy beverages those containing a combination of caffeine and taurine or glucuronolactone or thiamine and/or any other substances that may produce similar stimulating effects, since such beverages, even after their formula is changed, continue to be harmful to a person’s health.
Inflation adjustment on flavored beverage rate (Art. 2) (I) (G)).
The rate applicable to flavored beverages is increased to Mx. Pesos$1.2705 per liter as of January 1st, 2020. This represents an 8% increase.
Inflation adjustment on processed tobacco rate (Art. 2) (I) (C).
The rate applicable to processed tobacco is increased to Mx. Pesos$0.4980.
Elimination of rate applicable to beer (Art. 2-C).
The rate applicable to beer manufactures, producers or bottlers is eliminated to simplify the procedure to assess the tax.
Automotive fuels (Art. 2) (I) (D)).
The octane rating of gasoline is changed to harmonize it according to the provisions of the Mexican Official Standard NOM-016-CRE-2016.
Also, automotive fuel, gasoline, diesel, non-fossil fuel and ethanol definitions are replaced by the definitions set out in the Federal Revenue Law for the 2017, 2018 and 2019 fiscal years.
- HYDROCARBON REVENUE LAW.
Reduction of the profit-sharing fee rate (Second transitory provision).
The Profit-Sharing Fee Rate is reduced from 65% to 58% for the 2020 fiscal year.
Timing for the payment of hydrocarbon exploration fees (Art. 56).
The hydrocarbon exploration fees shall be payable not later than the 17th day of the month immediately following the month for which the fees are due.
Tax levied on hydrocarbon exploration and extraction set off (Art. 56)
The possibility of offsetting positive balances of the tax against future payments by the taxpayer is incorporated; this situation that was already contemplated by Article 25 (II) of the 2019 Federal Revenue Law.
VII. FEDERAL GOVERNMENT FEES AND CHARGES ACT
Immigration services (Art. 11) (II) (a)).
The exemption applicable to a Visitor’s Visa without a permit to work is eliminated.
Tax Administration Services (SAT for its Spanish acronym) (Art. 40).
Three new charges are proposed to be added for the collection service of governmental fees, for: (i) permits to provide storage services of goods in a customhouse and/or to affix tax stamps or seals; (ii) adding each new warehouse, branch or facility to such permits; and (iii) the manufacture or importation of locks currently referred to by the Customs Law.
It is also intended to incorporate fees for any additional customs permit and change of assigned customhouse.
Telecommunication services (Art. 173-C).
A new fee is proposed to be incorporated for a certification of a permit to use of frequency bands of the radioelectric spectrum for secondary use, as well as technical changes but not implying changes to the coverage or geographical location originally assigned.
Also, a new fee is proposed for the renewal of an exclusive concession for public use.
A further fee is proposed for frequency exchange, a set of frequencies, full band or various frequency bands or orbital resources that are included in a concession.
A further fee is proposed to be incorporated for the issuance of a radio station license on board a vessel and/or aircraft.
Another fee is proposed for assigning identity codes for maritime mobile service identity (MMSI for its English acronym).
A new fee is proposed for the admission and renewal for telecommunications and radio broadcasting experts.
Aquaculture services (Art. 191-A).
A new fee is proposed for processing a commercial aquaculture permit.
A proposal is made to unify fees for discharge permits of waste waters conducted or stored in receiving bodies owned by the Federal Government, without specifying the activity generating such waste waters.
A proposal is made to change the fees applicable to the different items of assignment or concession certificates and permits to use domestic waters or discharge of waste waters, in connection with the extraction, derivation, exploitation, use of domestic waters, deepening, user substitution, relocation or replacement of wells, and point or quality of discharge or term.
It is intended to include a fee for the transfer of concession titles for stone material extraction, use of federal zone and federal hydraulic infrastructure.
Environment and natural resources (Art. 194-U).
An increase is proposed to the fee for issuing verification certificates, records or documents by the Federal Environmental Protection Agency.
Transitory provisions.
A proposal is made for an annual transitory provision allowing several financial institutions, subject to the supervision of the National Banking and Securities Commission, the possibility of paying the fee selected to be paid under the rules in effect for the 2019 fiscal year, plus a 4% of such fee, instead of paying fees for inspection and supervision services set out in the Federal Government Fees and Charges Act.
It is further proposed to continue with the system whereby public bonded warehouses, development banks, brokerage firms, foreign exchange firms, real estate firms, federations incorporated under to the Working-Class Savings and Loan Law, mutual fund companies, credit unions, public trusts, regulated multiple-purpose financial institutions and holding companies of financial groups incorporated during the 2019 fiscal year, instead of paying the fee for inspection and supervision services for the 2020 fiscal year, may elect to pay the minimum fee payable for the 2010 fiscal year, pursuant to the provisions of the Federal Revenue Law.
Brokerage firms may calculate the fee payment option, on the basis of a minimum capital to operate as a brokerage firm, an amount equivalent in Mexican Pesos to 3,000,000 investment units.
Multiservice Banking Institutions may elect to pay the fees, on the basis of those in effect for the 2019 fiscal year plus 10%.
Stock exchanges may elect to pay inspection and supervision service fees in an amount equivalent in Mexican Pesos resulting from multiplying 1% by their net worth, instead of paying the fees set out in the Federal Government Fees and Charges Act for the 2020 fiscal year.
Basham, Ringe y Correa will organize a very interesting event in connection with the 2020 Tax Bill on November 27, 2019. We will send all the pertinent information shortly. We expect to see you there!
Very truly yours,
Lic. Gerardo Nieto
nieto@basham.com.mx
Lic. Gil Zenteno
zenteno@basham.com.mx
Lic. Alejandro Barrera
barrera@basham.com.mx
Lic. Victor Barajas
mbarajas@basham.com.mx
