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Changes in Mexico’s tax laws

15 November 2019

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On 18 October 2019 the Chamber of Deputies of Mexico’s Congress of the Union approved the proposed amendments to current tax laws (the Amendments), further approved by the Senate on 24 October.

The Amendments add to or repeal various provisions of the Income Tax Law, Value Added Tax Law and the Federal Tax Code, as well as the special tax on production and services.

Key highlights

Income Tax Law

From 1 January 2020 the Income Tax Law will reflect the concept of permanent residence in line with the recommendations of Action 7 of the OECD’s Base Erosion and Profit Shifting project, to combat hybrid structures making use of exemptions in preferential tax regimes and tax avoidance strategies.

Foreign transparent vehicles
From 1 January 2021 foreign entities will be taxed as legal entities resident in Mexico when they have their main administration in the country.

CFC rules

From 1 January 2020 a new definition of effective control will be adopted, applying both a legal and an economic control test.

General anti-avoidance rule

Also from 1 January 2020 a general anti-avoidance rule will be enacted implementing a business purpose test as a standard that will be applied by Mexican tax authorities for reviewing transactions that generate tax benefits. Transactions that lack a business reason and that generate a tax benefit will be re-characterised according to their real economic benefit, or will be considered non-existent if they don’t have an economic benefit.

Reportable schemes

As of 1 January 2021, taxpayers and their tax advisors will be obliged to disclose certain reportable schemes that are designed to transfer tax losses to people other than those who generated them, intangible assets difficult to value or schemes that seek to avoid the establishment of a permanent establishment. Schemes generating a tax benefit in Mexico will have to be reported to the country’s tax authorities.

Failure to comply with obligations related to reportable schemes may result in fines ranging from 50% to 75% of the tax benefit of the reportable scheme.

Joint liability

The limits and conditions of the joint and several liability of managers and liquidators for tax liabilities of a corporation are amended.

Fiscal crimes

From 1 January 2020, the Federal Law against Organised Crime will be amended to encompass tax fraud and comparable crimes, if the fraud exceeds MX$ 7.8 million (approx. USD 400,000). The issuing, transferring, purchasing or acquiring of tax invoices supporting non-existent or false transactions or simulated legal acts falls within scope, so long as the value of the invoices exceeds the amount stated above.

Lastly, the National Security Law has been amended to consider the above threats to national security and the National Code of Criminal Procedures has been amended to consider such felonies as aggravated crimes punishable with mandatory imprisonment without possibility of parole.

Conclusion

Companies, foundations and trusts with a Mexican connection must review their existing set-up in order to prepare for the potential impact of the Amendments and to ensure continued compliance.

How can we help?

Intertrust, in co-operation with your tax- and legal advisors, can assist you in ensuring that you comply.

Contact us to find out more.