On September 8, 2021, the Federal Executive submitted to the Mexican Congress, the Tax Reform Bill for fiscal year 2022, which does not include the creation of new taxes or the increase of taxes in effect; however, it defers and limits certain deductions for tax purposes.
The proposed Tax Reform Bill will be subject to discussion prior to its final approval by Congress; thus, it may be subject to adjustments or changes thereof.
Please find our comments regarding relevant changes under the proposed Tax Bill, which will come into effect as of January 1st, 2022.
INCOME TAX LAW
- Back-to-back operations
There is a new assumption in order to determine the existence of back-to-back in financing transactions from which interests derive, when the agreements lack of a business reason or substance.
- Business substance in corporate restructuring
When the tax authorities determine in a tax audit related to a corporate restructuring, in order to transfer shares at tax cost, that such operation lacks of a business reason or substance, the respective authorization granted thereof may cease to have tax effects, and such transfer of shares would have to be made at fair market value.
- Interest withholding tax rate for foreign residents
The withholding tax rate of 4.9% applicable to interest payments made to nonresident parties from loan transactions will be limited under certain conditions.
- Technical assistance provided through specialized services
The deduction of technical assistance and the transfer of technology may be allowed when the provider subcontract a third party who is registered with the Ministry of Labor in order to provide specialized services.
- New tax requirements for the deduction of bad debts
To take the deduction of bad debts that exceed 30,000 UDIS, the filing of the lawsuit or claim will no longer be enough; for fiscal year 2022, the final judicial resolution must be obtained proving that the collection procedures have been exhausted, or in such case, the impossibility of executing the favorable judicial resolution.
- New rules for SOFOMES for complying with thin-cap rules
Non-regulated multi-purpose financial companies (SOFOMES) must comply with thin-cap rules when they carry out transactions predominantly with their domestic or nonresident related parties.
- New elements included in the original amount of the investment
The expenses made for the physical location, installations, facilities, assembly, handling, delivery, and concepts related to the services hired for the investment to function, are included in order to determine the original amount of the investment or fixed asset, for depreciation purposes.
- Tax losses
In the case of spin-offs, tax losses transferred may only be applied when both parties carry out the same business activities, which must be proved when the tax authorities verify such operation.
In cases of transfer of tax losses derived from mergers, new assumptions are included in order to consider that there is a change of partners or shareholders, with the purpose of limiting the application of said tax losses.
- Sale of shares by foreign residents
When nonresidents sell shares or securities of a Mexican resident company to another nonresident, the Mexican company as issuer of the shares must report no later than the month following such sale transaction.
- Regime of trust for companies
Legal entities whose income is up to 35 million Pesos, with only individuals as partners, must pay income tax taxes under a new trust regime with the following characteristics:
- It is a cash flow basis regime;
- Monthly provisional payments and the annual tax will be payable at the rate of 30% on the taxable profit;
- Additional deductions over fixed assets may be applied.
- Information return for transfer pricing purposes
The deadline for submitting the information return related to the local information (Local File), in addition to the transactions return with related parties must be filed no later than May 15 of the immediately following fiscal year.
- Elimination of the “APA” for maquiladoras
The option for maquiladora companies to request an “advance transfer pricing agreement” (APA), as a methodology for complying with the obligations in this subject, is eliminated; for fiscal year 2022, maquiladoras will only comply with safe harbor rules.
VALUE ADDED TAX
- Non-taxed activities
Activities not subject to VAT (non-taxed activities) are defined as those that the taxpayer does not carry out physically in Mexican territory; including some activities where the taxpayer obtains income or compensation that does not generates VAT, for which expenses and investments are made with VAT incurred.
Accordingly, when taxpayers carry out only non-taxed activities, in addition to exempt activities, the input VAT paid by the taxpayers will not be credited.
- Calculation of proportional input VAT
When the taxpayer carries out activities taxed at 16% or 0% rate, in addition to exempt activities and non-taxed activities, the latter must be included in the calculation of the proportional input VAT.
- Customs declaration in the name of the taxpayer
For purposes of crediting input VAT paid on the importation of goods, it is required that the customs declaration must be in the name of the taxpayer or the importer who would be entitled to credit said input VAT.
- Information on monthly operations of digital platforms
Nonresident entities that provide services through digital platforms to recipients resident in Mexico must report information on their monthly operations no later than the 17th of the month immediately following the corresponding month, rather than on a quarterly basis.
- Leasing of tangible goods in the country
For VAT purposes, the leasing of tangible assets is granted in Mexican territory when its use or temporary enjoyment is carried out in Mexico, regardless of the place of its physical delivery or the contract that gives rise to it.
TAX CODE OF THE FEDERATION
- Mandatory tax report on financial statements
Companies that have declared income exceeding $ 876,171,996 and those that have shares placed or maintained in the stock market, in the last fiscal year, will be required to prepare a tax report on their financial statements, by a registered public accountant; such tax report must be submitted to the tax authorities no later than May 15 of the subsequent fiscal year.
- Business reason for merger and spin-offs
When the tax authorities identify that in the case of a spin-offs or a merger, such operations lack of business reason or substance, the rules and tax consequences corresponding to the sale of assets will be applicable to such assets transferred through the merger or spin-off.
- Use of the image as royalties
The tax treatment for royalties will apply to the use or the right to use the image, considering such concept as a copyright on a literary, artistic or scientific work.
- Joint and several liability
Legal entities that do not submit information regarding the transfer or sale of shares carried out between foreign residents without a permanent establishment in Mexico will be considered jointly and severally liable.
- Restrictions of digital stamps
There are new cases in which the tax authorities can restrict the use of digital stamps to the taxpayers, among others; when the value of the taxable activities declared does not match with the income or value of the activities indicated in the tax invoices, their payment complements or bank account statements.
- Imposition of fines related to tax invoices
Taxpayers will be fined when the tax invoices issued by a third party are used to cover non-existent or simulated transactions.
- Maximum term for Conclusive Agreements
The maximum period of a Conclusive Agreement is proposed to last twelve months counted from the date in which the appropriate application is filed.
- New cases of tax fraud
The crime of tax fraud will be aggravated when it derives from the simulation of an employment relationship through the provision of independent professional services.
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