On September 8, the Federal Executive Branch [in Spanish: el Ejecutivo Federal], through the official representative of the Ministry of Finance and Public Credit [in Spanish: la Secretaría de Hacienda y Crédito Público] (SHCP), delivered the 2021 Economic Package to the Congress of the Union [in Spanish: el Congreso de la Unión] for its approval. The said package is comprised of the General Economic Policy Guidelines [in Spanish: Criterios Generales de Política Económica] (CGPE), reform initiatives, the Income Tax Law [in Spanish: la Ley del Impuesto Sobre la Renta], (LISR), the Value-Added Tax Law [in Spanish: la Ley del Impuesto al Valor Agregado], (LIVA), the Special Tax on Production and Services Law [in Spanish: la Ley del Impuesto Especial sobre Producción y Servicios], (LIEPS), the Federal Tax Code [in Spanish: el Código Fiscal de la Federación], (CFF), the Federal Law of Rights [in Spanish: la Ley Federal de Derechos], (LFD), the Federal Income Law [in Spanish: la Ley de Ingresos de la Federación, (LIF), and the Federal Expenditure Budget for the 2021 fiscal year [in Spanish: el Presupuesto de Egresos de la Federación para el ejercicio fiscal 2021].
Below we present our analysis of the most relevant changes proposed for each of the tax provisions for the 2021 fiscal year.
Federal Income Law Initiatives
It is proposed that surcharge rates be amended in the following manner:
Withholding of interest by financial institutions
It proposes that institutions make up the financial system withhold individuals an ISR rate of 0.97%, instead of 1.45% (during the 2020 fiscal year), applicable to capital that gave rise to the payment of interest.
In principle, the 2021 Federal Income Law keeps the tax incentives granted to date. However, it specifies that the same be considered cumulative income for the purposes of Income Tax, in which case they must be acknowledged as such when they are actually credited.
Listed below are the fiscal incentives for each said case:
• Deduction of the Special Tax on Production and Services [in Spanish: el Impuesto Especial sobre Producción y Servicios], (IEPS), incurred by the purchase of diesel or biodiesel that is utilized exclusively in machinery (except vehicles), by individuals who carry out commercial activities.
• A credit for an amount equivalent to the Special Tax on Production and Services incurred by the purchase of diesel or biodiesel and its mixtures for those individuals engaged exclusively in agricultural or forestry sector activities.
• A credit for an amount equivalent to the Special Tax on Production and Services incurred by the purchase of diesel or biodiesel and its mixtures for those individuals engaged exclusively in public and private transport or freight transport, as well as tourism transportation.
Amendments to the Income Tax Law
A) Authorized non-profit legal entities and donees.
1. It is proposed that the revocation of the authorization to receive tax-deductible donations, for any of the following reasons, means exiting Statute III:
• If more than 50% of the income is derived from activities that differ from the purpose for which the recipient institution was authorized.
• Allocation of assets that differs from the corporate purpose for which the authorization was obtained.
• Not issuing tax receipts or issuing them as donations that cover transactions that are distinct from a donation.
• Being on the definitive list of fictitious transactions per Article 69-B of the Federal Tax Code.
2. When leaving Statute III, the donee that lost its authorization must allocate its assets in their entirety to other entities authorized to receive donations.
3. The certification concerning the fulfillment of tax obligations, transparency, and the social impact assessment is revoked.
4. Expenses not supported with a digital tax receipt will be considered part of the distributable surplus.
5. To pay taxes under Statute III, the following must have authorization to receive deductible donations:
• Associations or companies that award scholarships.
• Those engaged in scientific or technological research.
• Those engaged in the research and conservation of flora or wildlife species, terrestrial or aquatic, and environmental protection activities.
• Entities engaged in the breeding of protected or endangered species and habitat conservation.
6. Likewise, the cooperative integration and representation bodies referred to in the General Law of Cooperative Societies are incorporated into the non-taxpaying regime.
B) Contract manufacturing companies (maquiladoras)
An adaptation of the wording of the third paragraph of Article 182 of the Income Tax Act has been suggested to avoid different interpretations and to clarify that maquiladora companies can only comply with their obligations concerning transfer pricing by obtaining an APA (Advance Pricing Agreement) (Article 34-A of the Federal Tax Code) or through a Safe Harbor calculation provided for by the article above.
C) School business programs
There is a proposal to eliminate the school business program, and thereby the possibility of deducting donations submitted by individuals and legal entities.
Amendments to the Value-Added Tax Law
A) Digital economy
i. Foreign residents without PE released from obligations of the Digital Economy
Residents abroad without permanent establishment (PE) in Mexico who dispose of goods or provide digital services to recipients located in the national territory through intermediary platforms will be released from complying with the following obligations:
a) Registering in the Federal Registry of Taxpayers [in Spanish: el Registro Federal de Contribuyentes] (RFC);
b) Calculating, withholding, and paying of VAT attributable to activities in Mexico;
c) Submitting a quarterly information return of their users;
d) Issuing a Digital Tax Receipt [in Spanish: CFDI];
e) Appointing a legal representative in Mexico;
f) Designating a registered office in Mexico.
To this end, digital intermediary platforms will be obligated to carry out the withholding and payment of 100% of the Value-Added Tax on behalf of the providers of digital services.
ii. Grounds for blocking the internet access infrastructure
For those residents abroad without a permanent establishment in Mexico who:
• Sell or provide services through digital platforms to recipients located in national territory; or
• Provide digital intermediation services
The use of the Internet access infrastructure will be temporarily restricted when any the following obligations are breached:
• Registration in the Federal Registry of Taxpayers [RFC];
• Appointment of a legal representative and tax domicile in Mexico;
• Obtaining the Advanced Electronic Signature [in Spanish: Firma Electrónica Avanzada] (FIEL);
• The omission of withholding and reporting of the corresponding withholdings during three consecutive months; and/or
• Filing the monthly informative returns for three consecutive months or quarterly returns during two successive periods (in which case the penalty will also carry a cancellation of your Taxpayer ID Number and the removal from the list of registered digital service providers).
Before the Tax Administration Service, [in Spanish: SAT], proceeds with a blockade, a series of procedures will be carried out so that the authority can obtain the necessary information to evaluate each specific case.
iii. Fines for concessionaires of public telecommunications networks
A fine ranging from $500,000.00 to $1,000,000.00 is being proposed for concessionaires of a public telecommunication network who do not comply, within a 5-day period, with the order to block access to the digital service of providers residing abroad.
iv. Option of including VAT in the price
As a concession to the intermediaries of digital services, they will not be required to disclose the VAT expressly and specifically on their webpage, provided that prices already include VAT with the caption “VAT included.”
v. Used goods sold through digital intermediary platforms
It aims to have used goods sold through digital platforms to be deemed as transactions subject to the payment of VAT; that is, the tax-exempt status would be eliminated.
B) Private charitable institutions or agencies
Professional medical services provided by civil societies or private welfare institutions, authorized by the laws on that matter, are added as VAT-exempt services.
Amendments to the Federal Tax Code
A) General anti-abuse rule
It is specified that the expression business reason will be applicable regardless of the laws that regulate the economic benefit expected by the taxpayer and, in the event that the acts lack such a business reason, the legal effects that the tax authorities grant will only be limited to the fiscal area, without prejudice to the investigations and criminal liability that may arise.
B) Tax Mailbox Hours
It is proposed that the Tax Mailbox hours be regulated according to the Central Time Zone of Mexico.
C) Sales with deferred payments or in installments
It will be understood that there is a sale with deferred payments or in installments when tax receipts are issued, per Section VI of Article 29-A of the Federal Tax Code, even when they are carried out with clients that are the public in general, and as such, more than 35% of the price is deferred after the sixth month, and the agreed-upon term exceeds twelve months. Likewise, they will be deemed transactions carried out with the public in general, when simplified tax receipts are issued as referred to in the Federal Tax Code.
D) Corporate spin-off
The corporate spin-off will have the character of sale, even if the requirements indicated in article 14-B of the CFF are met, provided that the spin-off gives rise to the creation of concepts or items that did not exist before the division of the spun-off companies.
E) Recognized markets.
There is a proposal to broaden the concept of “recognized markets” so as to include not only the Mexican Stock Exchange but also any other company that is granted a concession by the Ministry of Finance and Public Credit [in Spanish: SHCP] to act as a stock exchange.
F) Cancellation and temporary restriction of Digital Stamp Certificates [in Spanish: Certificados de Sello Digital] (CSD)
Two new assumptions are added for the cancellation of CSDs:
1) As soon as it is detected that the taxpayer that is issuing tax receipts is in a situation in which there is a lack of transactions, or is on the definitive list issued by the Tax Administration Service [SAT], according to Article 69-B of the Federal Tax Code, or
2) The taxpayer is on the definitive list, as referred to in Article 69-B Bis, for having transferred tax losses unlawfully.
Likewise, the period in which the tax authority can make known the resolution on the procedure to correct detected irregularities for which the CSD has been canceled, and the taxpayer can process a new one is extended from three to ten days.
Also, there is a proposal to establish a period no greater than forty business days, so that those taxpayers who have the use of the Digital Stamp Certificate restricted may submit their clarification request or refute the resolution that triggered the measure.
G) Refund of balances in favor.
• It is established as a cause for the authority to consider refund requests as not filed when the taxpayer or the address stated before the RFC [Federal Registry of Taxpayers] cannot be located.
• Likewise, it is proposed to establish that in the cases in which the refund request is considered as unfiled, it will not be considered as a collection process that interrupts the statute of limitations regarding the authority’s obligation to refund the balances in favor; since these promotions do not meet the necessary requirements for the tax authority to determine the origin of the return of a balance in favor.
• In case there are several refund requests from the same taxpayer regarding the same contribution, the tax authority may exercise its powers to countercheck each or all of the requests through the issuance of a ruling.
• The period for the authorities to issue their resolution once their powers to countercheck have concluded has been extended from 10 to 20 days.
H) Joint and several liability
It is proposed that partners or shareholders become joint and several guarantors if there is a companies’ spin-off that gives rise to a transfer of new entries that did not exist before the spin-off.
In addition, there is a proposal to incorporate a new provision of joint and several liability, to establish a mechanism that allows the Mexican resident who maintains operations with related parties residing abroad to be considered jointly and severally liable when the latter constitute a permanent establishment in Mexico.
I) The Federal Registry of Taxpayers [in Spanish: RFC]
• It is a stated obligation that those individuals who are registered in the Federal Registry of Taxpayers provide the related information such as their identity, address, and in general, their tax situation, as well as register and maintain current the contact information of the taxpayer (only one e-mail address and phone number).
• Regarding the notification of a change in partners or shareholders, it clarifies that the notice submitted by legal entities must include the information of its partners, shareholders, or associates. It must also include the information of those individuals that, as a matter of course, are part of the organic organizational structure and are vested with the said capacity, according to the statutes or legislation under which the company is incorporated. This information must be submitted when there is some amendment or incorporation of the same.
• Conversely, the authorities are granted the power to suspend, or where appropriate, decrease taxpayer obligations, when it is confirmed in their systems or with the information provided by other authorities and third parties, that taxpayers have not engaged in any activity for the previous three fiscal years.
• Taxpayers who submit a notice of cancellation in the Federal Registry of Taxpayers for a complete liquidation of assets, regarding a full cessation of operation or merger of companies, must comply with the requirements established by the Tax Administration Service, which are provided through regulations of a general nature, and in which are the following:
- They must not be subject to the exercising of the powers to countercheck, nor have tax debt for which they are responsible for.
- They must not be in the lists that are referred to in Articles 69, 69-B and 69-Bis of the Federal Tax Code;
- That there is consistency between the reported income and tax withheld, along with the issued tax receipts, and that of the information which the authority has.
In addition, the Taxpayer Administration Service, through regulations of a general nature, will allow taxpayers who request the cancellation of the Taxpayer ID number [in Spanish: RFC], not to submit periodic tax returns or to continue complying with their formal obligations.
J) Digital Tax Receipts [in Spanish: CFDI]
- There is a proposal to incorporate into the Federal Tax Code the obligation to issue a Digital Tax Receipt for those cases in which partial or deferred payment is made that settles balances from Digital Tax Receipts that gave rise to the payment obligation when merchandise is exported, which is not intended for sale, or whose sale is under a gratuitous title.
- It is specified that operations carried out with the general public shall be understood as those for which there is no RFC of the recipient of the receipt, and the possibility of granting facilities to them is foreseen.
K) Period for keeping accounting records
- There is a proposal to incorporate an exception to the 5-year period for keeping the necessary information and documentation for implementing agreements that have been reached as a result of dispute resolution procedures, as provided for in double taxation treaties, of which Mexico is a part of. Therefore, such information must be kept for the entire time that the company exists.
- Add, to Article 30 from the referred to Federal Tax Code, the reference to the information and supporting documentation to prove the economic substance of the increases and decreases of capital stock, as well as the distribution of dividends or profits, as part of accounting that must be kept for a specified period.
- Concerning increases or decreases in capital, financial statements issued by financial institutions must be kept, or the corresponding appraisals, with which the materiality of the transaction can be verified, in addition to the minutes of the general shareholders’ meetings and the related accounting records.
- For cases in which the minutes record a merger or spin-off of companies, the statements of financial position must also be kept, as well as statements of shareholders’ equity, work papers for the determination of the net fiscal profit account, and the capital contribution account, all of which correspond to the immediately preceding and subsequent fiscal years to that in which the merger or spin-off had occurred.
- It specifies that the control of the origin and movements of the net fiscal profit account, [in Spanish: CUFIN], the capital contributions account, [in Spanish: CUCA], or any other related fiscal account or book account in the fiscal years in which the said balance reduces tax losses, distributed dividends or profits, reduced or reimbursed capital, or remittances on capital, under the Income Tax Act, also form part of the accounting records.
L) Taxpayer assistance
There is a proposal to expand the powers of the tax authorities so that they may carry out the following functions:
- Provide free assistance to not only taxpayers but all citizens in general.
- Undertake actions that foster a culture of contribution, as well as promote formalization and compliance.
- Issue invitations to taxpayers to guide them on the correction of their tax situation, without this implying the exercise of verification powers, by sending:
a) Payment proposals or pre-filled returns;
b) Official releases to encourage taxpayers to comply with their tax obligations; and
c) Official releases reporting inconsistencies or atypical behavior.
M) Precautionary seizure of assets
- It proposes to extend the application of the said measure not only to taxpayers or joint and several guarantors but also to “related third parties” with the same, to prevent the aforementioned third parties from opposing the authorities’ powers, which will allow the authorities to obtain the information needed to know the fiscal situation of the taxpayer under review.
- The total amount of the precautionary seizure applicable to third parties related to the taxpayer will be up to one-third of the total amount of the operations, acts, or activities that the said third parties engaged in with the taxpayer.
- Moreover, it proposes to adjust the order of precedence that indicates, firstly, bank deposits and subsequently, accounts receivable, shares, bonds, coupons that have reached maturity, etc.; cash and precious metals, property, movable goods, and taxpayer’s business activities; as well as copyrights and artistic works, scientific collections, jewelry, etc.
- It establishes that financial entities or savings and loan cooperatives can in no way deny taxpayers information about the authorities that ordered the application of the seizure.
- It clarifies that the assets are considered seized from the moment in which they are designated as such in the proceeding by which the precautionary seizure is carried out, even when afterward they are ordered, noted, or registered with other institutions, agencies, registries, or third parties.
- Lastly, through a transitional provision, it clarifies that precautionary seizure processes pending resolution upon the entry into force of the decree must be substantiated and resolved in terms of the provision in force as of December 31, 2020.
N) House Calls
- Concerning house calls whose objective is that of reviewing that products are in the country legally, and where it may not have been possible to prove such a condition, they will be seized according to the procedures that are set forth in Customs Law.
- Conversely, concerning the closure of records of the visited party, the individual who received the notice, or the witnesses who refuse to sign the record or accept a copy of the same, such events will be registered in the same record without it affecting the validity or probative value of the same.
- There is a proposal to use technology tools such as cameras and video, recorders, cell phones, or other devices that allow images or material to be collected that serve as a record of the facts detected by the tax authorities in the exercise of their actions.
- It seeks to consider offices, warehouses, stores, and places where administrative activities are carried out as places where house calls can be carried out.
- In turn, the wording of article 49 of the CFF is adjusted to clarify that visits can be exhausted in more than one diligence when the authorities need to return to the address where the visit is being carried out to make a second or subsequent proceeding under the protection of the same order.
O) Tax Opinion
As part of the verification powers, it is proposed that, in the case of a sequential review of opinions formulated by public accountants on financial statements and sale of shares, the examiners should be in charge of appearing before the tax authority to be able to make the necessary clarifications.
Likewise, it endeavors not to limit the actions of the authorities for reviewing opinions for cases of reviews to tax districts and foreign trade fines, since the opinions contain no rulings on those matters.
The review will be carried out exclusively with the public accountant who formulated the opinion so that the legal representation will no longer proceed.
P) Deadlines to meet requirements
The period to provide information in inspection acts, in the case of difficult-to-obtain documents, is extended from 6 to 10 days.
Q) Electronic Reviews
It proposes that electronic reviews must be concluded in a maximum period of six months from notification of the provisional ruling, except concerning foreign trade, in which case it will not exceed two years for those cases in which an international verification has been requested.
R) Exception to tax secrecy
The Public Prosecutor’s Office, [in Spanish: el Ministerio Público], and the police may request information on taxpayers to the tax authorities to carry out an investigation regarding cases that the law designates as a crime, without this being considered a violation of tax secrecy.
S) Undue transfer of tax losses
- A series of modifications to the second paragraph of Section VI of Article 69-Bis are proposed to stop limiting the assumption of obtaining tax losses to only those cases in which the consideration is protected by subscription of credit instruments also to include “any other legal figure.”
- The wrongful transfer of the right to reduce tax losses for unlawful purposes will be considered a simulated act for criminal purposes.
- It specifies that when taxpayers, upon notification by the authorities, submit a petition to refute the assumption of wrongful tax losses, must indicate what purpose these legal acts had that gave rise to the transfer of the right to reduce losses so that the authorities may verify that the purpose of these actions was to develop entrepreneurial activities, and not to obtain a fiscal benefit.
T) Conclusive agreements
-Taxpayers may request them within 15 business days following the notification of the observation letter or provisional resolution, or the final act has been drawn up and provided that the reviewing authority has already made a qualification of facts or omissions.
- The conclusive agreement will not proceed when:
o It concerns verification powers in the matter of refunds of balances in favor or of undue payments;
o It involves orders to third parties, the execution of sentences or resolutions;
o Verification powers are initiated concerning the issuance of tax receipts or when there is a presumption that a fiscal offense has been committed.
- Contrary to the conclusive agreement, the dispute resolution procedures provided for in an international treaty to avoid double taxation signed by Mexico will not proceed.
U) Fines related to transfer pricing
- It seeks to consider as aggravating circumstances to impose fines, the breach of tax obligations regarding transfer prices.
- In addition, the possibility of reducing up to 50% of the fines caused by infractions in this matter is eliminated.
V) Securing a tax liability
- A seizure through an administrative recourse proceeds only concerning tangible movable or immovable property, except for that which is rustic or negotiations as they are deemed difficult to sell.
- Intangible assets, such as trademarks, will not constitute a means of guarantee for not being regarded as a suitable medium in the recovery of tax credits.
W) Presumption of smuggling
- There is a proposal to include as a presumption of the crime of smuggling the omission to return, transfer or change the customs regime of merchandise temporarily imported under maquila or export programs whose permanence in the national territory is subject to the validity of the program.
Amendments to the Special Tax on Production and Services Law
A) Complementary fees for automotive fuels
The Ministry of Finance and Public Credit, through agreements that will be published weekly in the Official Gazette of the Federation, [in Spanish: DOF], establishes a complementary quota scheme applicable to automotive fuels. The calculation of the complementary fees will be carried out, taking into account the observed evolution of the international references and the exchange rate.
Amendments to the Federal Law of Rights
A) Mining rights
- The acquirers of rights related to mining concessions that obtain income derived from the alienation or sale of the extractive activity will pay the special mining right annually, applying the 7.5% rate. To determine the basis of this right, the intangible assets that allow the exploitation of assets in the public domain or the provision of a concessioned public service, among others, the titles of mining concessions or assignments, as well as the rights acquired for the exploitation and exploration of minerals or substances of the Mining Law, will not be deductible.
- It is proposed that the extraordinary mining right be calculated by applying the rate of 0.5% for the income obtained from the sale of gold, silver, and platinum.
B) The Official Gazette of the Federation
It is established that there will be no payment for publishing in the Official Gazette of the Federation when it is determined as obligatory, or expressly regulated in any federal legal norm, in an international treaty, or by any other provision or body indicated in Article 19 -B of the FLR.
C) Payment of fees for passport processing
A 30% increase is proposed in collecting fees for ordinary passport processing when it is required that these be issued urgently.
J.A. del Río is pleased to provide you with this information. Please do not hesitate to contact any of our experts regarding compliance with all legal or tax provisions. We look forward to hearing from you.