Civil compensation is not a form of payment of VAT.

A few months ago, in March 2023, in resolving contradiction of criteria 413/2022, the Second Chamber of the Supreme Court of Justice of the Nation (Listado de Comunicados (scjn.gob.mx)) ruled that from the interpretation of articles 1, 1-B, 5, 17 and 18 of the Value Added Tax Law (LIVA), the compensation, applicable in civil matters, is not a form of payment of the value added tax (VAT), nor does it give rise to a request for a refund of the balance in favor or crediting of the tax; since the compensation only determines when the VAT obligation arises, but does not generate its crediting, since in order to do so the VAT must have been effectively paid to the tax authorities. 

Likewise, it was determined that, in accordance with the provisions of the tax laws, offsetting only occurs in the relations between taxpayers and the tax authority, not between the former and the latter, since article 2192, section VIII, of the Federal Civil Code, establishes that the offsetting of tax debts does not proceed. Therefore, the civil compensation is a way to determine the moment in which the consideration for the services rendered and for which the obligation to pay the tax is understood to have been effectively collected, but it does not serve to pay the tax. In this sense, it should not be held or considered that the civil compensation is a form of payment of VAT, since this would be equivalent to confusing the moment in which the obligation to pay the tax arises, with the extinction or conclusion of that same obligation. That is to say, it is equivalent to leaving it to the will of the individuals who render independent services to extinguish the obligation to pay VAT by means of civil compensation, which, as previously mentioned, is prohibited by the Federal Civil Code.

In this sense, it was resolved that the jurisprudence criterion that should prevail is thesis number 2a./J. 19/2023 (11a.), under the heading "VALUE ADDED TAX. THE CIVIL OFFSET IS NOT A MEANS FOR ITS PAYMENT NOR CAN IT GIVE RISE TO A CLAIM FOR BALANCE IN FAVOR OR CREDITING (LEGISLATION IN FORCE FOR THE 2019 AND 2020 FISCAL YEARS)", published on Friday, May 12, 2023 in the Semanario Judicial de la Federación and, consequently, it is considered of mandatory application as of Monday, May 15, 2023. Detail - Tesis - 2026404 (scjn.gob.mx), for all jurisdictional bodies in matters or controversies on this subject.

From the criterion in question, it is understood that the court considers that the primary or main debt is the civil debt and that the tax is a tax debt, which is not covered by the offset, so that the individual must pay the tax to the tax authorities, without taking into account the transfer of the tax and, if applicable, the debtor owes its creditor a global or total debt that includes the tax; However, as mentioned above, the jurisprudence already exists and is mandatory, so it is important to take it into account and, if applicable, avoid offsetting transactions that credit or transfer VAT, since it is understood that the jurisprudence can be invoked and is applicable, the tax authority will be able to reject the refunds granted in which verification powers have not been exercised, in addition to making observations of the creditable VAT determined in the monthly payments, and even if it were to deny the creditable VAT, it would also intend to reject ISR deductions related to such VAT.

No VAT crediting in the capitalization of liabilities

Likewise, on May 12, 2023, the Tenth Collegiate Court in Administrative Matters of the First Circuit published in the Judicial Weekly of the Federation an isolated thesis, in which it was determined that, in order for the crediting and refund of the VAT credit balance, the tax must be paid in cash, bank transfer or check, which is also complied with when the tax is declared and filed with the tax authority, without authorizing the payment of the tax through the capitalization of liabilities or debts, through the issuance of shares, since this is not authorized by article 1-B of the LIVA. In this sense, if the tax is intended to be covered through the issuance of shares, it does not comply with the requirements to consider it as effectively paid and, therefore, the refund of the tax credit balance that may be generated or its crediting is not applicable. Thesis: I.10o.A.21 A (11a.) (scjn.gob.mx)

In this regard, it is necessary to take into account that the cited criterion is an isolated thesis and not jurisprudence, therefore, although it is true that it is not a mandatory criterion, it is also true that it guides the jurisdictional bodies in the matters or controversies on the subject and they may apply them, as long as there are no criteria to the contrary that are mandatory. 

Chronology

• Subscription: October 14, 2017
• Approval: June 18, 2022 DOF - Diario Oficial de la Federación (Official Gazette of the Federation)
• Entry into force: July 2, 2023
• SHCP Announcement: July 5, 2023
• Implementation: January 1, 2024

What is it?

The Pacific Alliance is made up of Chile, Colombia, Mexico and Peru, which signed the "Convention to Standardize the Tax Treatment provided for in the Double Taxation Avoidance Agreements signed between the States Parties to the Pacific Alliance Framework Agreement", with the purpose of modifying the bilateral double taxation avoidance agreements signed between countries, in order to contribute to the economic reactivation of the region.

What does it establish?

The convention establishes the following:

1. Pension Funds

It recognizes pension funds as residents for purposes of the application of the agreements to avoid double taxation, so that such funds may apply the benefits of such agreements and will be considered effective beneficiaries. For such purposes, the following are considered pension funds:

Interest and capital gains

Equalizes the tax treatment for interest income and capital gains from the sale of shares through a stock exchange that is part of the Latin American Integrated Market (MILA) and received by pension funds.

a) Interest: It is established that interest from any of the member countries whose recipient is a recognized pension fund also from any of the member countries, will be taxed in the country of residence of the recipient and not of the source; however, it may be taxed in the country of source, but the tax may not exceed 10% of the gross amount of the interest. However, the tax treatment of the treaties may be applied when the interest is taxed at less than 10% of the gross amount of the interest or is exempt in the member country from which the interest arises due to the legal nature of the debtor.

b) Capital gains: Capital gains obtained by a recognized pension fund of a member country from the sale of shares representing the capital of a company that is a resident of a country that is a Party to the Convention through a stock exchange that is part of the Latin American Integrated Market (MILA), can only be subject to taxation in the country mentioned first (residence).

It should be noted that, with respect to Peru and Mexico, the convention will apply, although the protocol to the double taxation avoidance treaty between those countries is not applicable when the recipient of the interest income or capital gains, as applicable, being a resident of one of those countries, is not subject to taxation or is exempt with respect to such income under the laws of the country of residence.

Source: Convention-para-homologar-el-tratamiento-impositivo.pdf (alianzapacifico.net)

Pacific Alliance Double Taxation Avoidance Convention entered into force and will start to apply as of January 1st - Pacific Alliance (alianzapacifico.net)

CONVENTION TO AVOID DOUBLE TAXATION OF THE PACIFIC ALLIANCE ENTERED INTO FORCE AND WILL BEGIN TO APPLY FROM NEXT JANUARY 1 | Secretaría de Hacienda y Crédito Público | Government | gob.mx (www.gob.mx)

The integration of sustainability into financial decision making has become an important trend in recent years, driven by the growing awareness of environmental and social challenges. Speaking specifically of the financial sector, it is important to take on this responsibility and initiate this transition in business models, products and services, integrating their management with that of their risk management and compliance frameworks.

Responsible investment: Financial sustainability implies considering environmental, social and governance (ESG) aspects as a financial indicator that investors look for in business models when making investment decisions, in addition to seeking opportunities that are financially profitable in the long term and aligned with sustainable principles.

Reporting and disclosure: Financial institutions should be transparent about their sustainable practices and performance. This includes disclosing information on ESG investments, risks related to climate change and other relevant factors.

Environmental and social risk management: Financial institutions must assess and manage the environmental and social risks associated with their activities. This implies considering the direct and indirect impacts of investments in terms of climate change, human rights, conservation of natural resources, among others.

Sustainable financing: Financial institutions can promote sustainability by offering financial products that encourage responsible practices. This includes financing environmentally friendly projects, renewable energy, energy efficiency, as well as loans to socially responsible companies.

Participation in dialogues and partnerships: The financial sector can play a key role in promoting sustainability by engaging in dialogues with governments, non-governmental organizations and other relevant stakeholders. This helps to generate common standards, share best practices and promote the adoption of sustainable approaches across the sector.

Integration of ESG criteria in decision making: Financial institutions are increasingly incorporating ESG criteria into their risk analysis and decision making. This involves evaluating not only the financial aspects of an investment, but also the associated environmental and social impacts.

Innovation and development of sustainable financial products: The financial sector is driving innovation in sustainable financial products, such as green bonds, green loans and climate insurance. These products encourage the financing of sustainable projects and help investors manage climate change-related risks.

On May 8, 2023, the DECREE amending, adding and repealing several provisions of the Mining Law, the National Water Law, the General Law of Ecological Balance and Environmental Protection and the General Law for the Prevention and Integral Management of Waste, regarding mining and water concessions, was published in the evening section of the Official Gazette of the Federation (DOF), which enters into force the day after its publication, that is, on the 9th day of the month and year indicated.

The most relevant aspects of the reform are

• It is established that the Ministry of Economy may coordinate with the tax authorities in order to gather the necessary information to verify compliance with the obligations of the holders of mining concessions. 

• The obligation to verify the execution of works and exploitation works in an accounting and financial manner is added, including in the verification reports the delivery of statistical, technical and accounting information regarding the situation of the mining lot under concession, as well as the obtaining, production and benefit of minerals or substances that are the subject matter of the concession. Likewise, if any, the identification data of the concession holders that benefit minerals or substances (materiality figure and final mining beneficiaries) will be provided.

• Additional grounds for cancellation of mining concessions are added, including, among others, failure to pay taxes for two consecutive fiscal years; failure to submit required reports; failure to have the water concession for industrial use in mining in force; as well as the existence of an imminent risk of ecological imbalance.

• Mining concessions will be granted only for exploitation (not exploration) through public bids or contests carried out by the Ministry of Economy and will be limited to those places determined appropriate by the State, in addition, mining concessions cannot be granted in Natural Protected Areas.

• Free, prior and informed consultation with indigenous and Afro-Mexican peoples and communities is established to obtain the consent of such peoples and communities for the granting of the concession title. In addition, when the concessioned land is located in an indigenous or Afro-Mexican population or community, the concessionaire must pay a consideration of at least 5% of the net profit, and must also deliver a copy of the corresponding declarations to the community in question. The resources of the consideration will be deposited in an account to be administered by the community in accordance with the operating rules issued by the Ministry.

• Concessions may only be per mineral or substance. The concession title must specify each mineral or substance to be exploited. However, more than one mineral may be exploited, but it must be provided for in the concession title. After the concession title has been granted, if there is any other mineral in the lot, the concession may be requested and extended in the respective title with the corresponding payment.

• The duration and extension of mining concessions is reduced from 50 to 30 years, of which the first 5 years will be for pre-operational activities. Concessions will be extended for one single occasion, for a term of 25 years, for a total of 55 years, as long as they do not apply any assumption or cause for cancellation and they request it within 2 years and up to 1 year before the end of its term, and have the necessary authorizations and permits for its operation from all the authorities involved, such as the Ministry of Environment and Natural Resources (SEMARNAT), the National Water Commission (CONAGUA) and even from the state and municipal authorities, as well as the water concession for industrial use in mining. After the 55 years of the concession, or once the extension is concluded, the holder of the concession may participate in the bidding of the same mining lot, in which case it will have preference for the determination of the ruling if it equals the highest proposal; this concession will be granted for a non-extendable term of 25 years.

• The Ministry of Economy is empowered to initiate a judgment of annulment against administrative resolutions and concessions that harm the public interest; therefore, it may revert a resolution previously issued in favor of a private party and that is contrary to the Mining Law.

• The exploration of the territory for the search of minerals will be exclusive of the State through the Mexican Geological Service. However, private parties may inform the Ministry of Economy about the existence of minerals or substances in an unassigned or concessioned lot, so that it may determine the convenience of ordering the exploration and, if applicable, enter into a collaboration agreement with the private parties to carry out the exploration. If in the lot there are minerals to be explored and they can be the object of a concession, a contest may be held in which the private parties that carried out the exploration have the right to obtain it if they offer at least 90% of the highest proposal and comply with all the requirements. That is to say, those concessionaires that participate in a bidding process for lots neighboring the lot they have a concession for will have preference to match the highest bid.

• The transfer of concession titles is regulated, establishing that they may only be transferred when it is for the mining activity, with prior authorization from the Ministry of Economy, and the requirements covered by the original holder are met.

• The power of the Ministry of Economy to review compliance with the duties and obligations in mining matters is increased from 5 to 10 years, as well as to sanction non-compliance; in addition, fines are also increased.

• On the other hand, the figure of the water concession for specific use in mining is established. The mining concession is conditioned to the availability of water and, if applicable, to the mining water concession previously obtained.

• The term of the concessions for the use or exploitation of national waters in mining is equal to that of mining concessions. Likewise, in the water concession, the supply of water for human and domestic consumption is a priority in the granting of the water concession; if there is a shortage of water for the population, the volume of concessioned water may be reduced, including its cancellation, in order to guarantee the human rights to water and the environment.

• In addition, concessionaires are required to recycle at least 60% of the water granted.

• The figure of allocations in favor of parastatal entities is transformed, which may be in charge of the exploration or exploitation of minerals without competition and for an indefinite term in the case of minerals such as lithium and uranium, which are reserved to the State.

• Mining concessions may be subject to guarantees for compliance with the obligations of their holders, provided that the corresponding mine is in operation, prior authorization is obtained from the Ministry and the person in whose favor the guarantee has been issued demonstrates that he/she meets the requirements to be a concessionaire or, in the absence thereof, must assign the rights of the concession.

• Additional obligations are incorporated for mining concession holders, such as, among others, determining the social and environmental impacts of each mining concession, notifying the start of operations, reporting or submitting various reports on permits, authorizations, opinions on labor matters such as health and safety, and assigning mine managers.

• The assumptions of "afirmativa ficta" are eliminated, changing to "negativa ficta", so that if the Ministry of Economy does not respond to a procedure it will be understood as denied.

• It is added that the concession will be suspended when there are accidents or accidents within the mining lot, while the competent authority determines what is appropriate and requests the lifting of the suspension.

• A chapter on crimes is included in order to punish criminal conduct in mining matters, including, among others, the extraction, sale and trafficking of minerals or substances without having the respective concession, as well as causing harm to workers due to lack of physical safety, by failing to comply with their obligations in the area of mine safety.

• It adds and regulates the process of closure of the mining activity, which must include a work plan that establishes the obligations, procedures and actions to be carried out by the concessionaires and assignees for the repair, restoration, rehabilitation or environmental remediation and mitigation or social compensation, once the mining operations are concluded; such plan must be submitted within two years and up to one year prior to the closure of operations and be approved by the Ministry of Economy, with the opinion of the Ministry of Environment and Natural Resources, in relation to the corresponding Restoration, Closure and Post-closure Program. 

• The grounds for revocation of the water concession are broadened to include events or acts of public interest and failure to comply with the Restoration, Closure and Post-closure Program provided for in the General Law of Ecological Balance and Environmental Protection.

• Underwater mining and mining in protected natural areas is eliminated. 

• The regulation regarding the management of mining and metallurgical waste is integrated, limiting its final disposal in national protected areas, wetlands, watercourses and federal zones of national waters or in places where the path that the waste would follow in case of rupture would affect population centers. It also establishes the obligation to guarantee responsibility for the waste generated by mining activities.

• The free land scheme is eliminated, which will prevent the application for concessions in any part of the national territory indicated by private parties. The figure of first applicant is also eliminated.

• The definition of "Use or exploitation" is added, understood as the right to obtain and dispose of the resources derived from the exploitation and benefit of mining activities.

• The preferential nature of mining activity is eliminated and, therefore, the right of concession holders to obtain the expropriation of land for mining exploitation is eliminated. Expropriation must be reserved for cases of public utility.

Some background information

• 1996: Mexico "Code of Corporate Principles and Best Practices", (Consejo Coordinador Empresarial). 
• 1999: "Principles of Corporate Governance" (Organization for Economic Cooperation and Development (OECD)).

What is corporate governance and what is it for?

• Known as "corporate governance" or "good corporate practices".
• It consists of the rules, procedures, guidelines, manuals and in general regulations that a company implements internally for its operation as an individual legal entity and as that legal fiction that aims to perform a function within the society of a country and that its interaction is not only with other legal entities, but with governments, customers, suppliers in order to provide a service, products, economic or social activity that is used by them. 
• Through its self-regulation, it allows not only the correct operative functioning for which it was created, but also provides an element of trust, commitment, good practices, but above all responsibility of the moral entity, generating in the stockholders the confidence that the services or goods they offer or receive from the governed society are supported in their processes and that they have mechanisms to demand rights or settle their obligations, even for the governments of the countries they represent the certainty that these governed companies have mechanisms for the fulfillment of fiscal obligations, social security, responsibility before society and the environment.
• It regulates the vulnerable activities carried out by legal entities in the countries, as well as controls the reporting of these activities, holding accountable the legal entities and individuals that own, benefit from or control them.

Guiding principles of corporate governance a:

• Transparency: obligation to reflect with certainty the accounting, tax, legal and administrative information of an organization, on the one hand, for better decision making by internal agents (shareholders, partners, administrators and managers with decision-making powers) and, on the other hand, for the management of such information by obligation imposed by national legal frameworks, by external agents (investors, clients, suppliers and governments), through the implementation of clear, documented internal procedures, administered by specialized bodies for the best operation and practices of any area of the entity. 
• Responsibility: based on the operation of the members that integrate the directive, administrative or decision-making bodies within a company, which details the scope of the functions, self-regulation mechanisms of the interaction between the bodies and the individual responsibility of each person for the function he/she performs, without leaving aside the civil, commercial, ecological and even criminal responsibility of the entity or company. In this regard, it is convenient to have manuals of conduct, ethics, equality among people, as well as procedures that regulate the internal and external conduct of the entity. 
• Independence: vital for the self-regulation of the company's internal management bodies, containing the procedures and scope of activities, responsibility, but above all of the so-called "stockholders" or third parties who are not internal agents of the company, but who, due to their daily interaction and importance in the relationship with them, have or influence the life of the company, such as customers and suppliers. Legal certainty and clarity are sought for decision making in order to avoid pernicious elements such as corruption, bad practices and influences for the legal entity. 
• Administration: essential activity for the daily operation of legal entities; it refers to the implementation of operating rules that allow interaction in processes and procedures between the company's bodies, ranging from the rules for the board of directors, agreement between partners, governing bodies and all departments, from production, treasury, to human resources. The elaboration of codes and manuals is vital, but their implementation and supervision is complementary to effective governance.

Why do I need corporate governance?

To obligate and bind the legal fiction that is the entity with internal and external agents not only to respond in case of liability, but also to exercise rights affecting the negotiation. 

For the self-regulation of a legal entity for the benefit of its decisions and administration; operation and responsibility, as well as from an individual perspective, for the benefit of every human being who works, interacts or is linked for any reason to society, ensuring their human rights, personal information and the environment to improve opportunities with customers and international suppliers in the long term and intangible as a better organization in the short term.

Is it an investment or an expense?

It is an investment because, in spite of the economic and human resources required for its implementation, in the long run it will represent a tangible benefit for society, reflected in better business opportunities such as entry into regulated and strict markets where only certified companies participate and with controls inherent to corporate governance; It may also represent a lower grade or risk rating for the financing requested by the entity, since rating agencies and participants in the financial sector (with corporate governance) base the amounts available for credit on risk control, so that the lower the risk, the greater the opportunity for low-cost financing.

It is unquestionable that corporate governance is not only a tool that helps to maximize the operability of a company, but that guarantees its operation and viability over the people, this means that self-regulation is synonymous with a smooth operation regardless of the person in charge of decision making, because such decisions do not depend on the person who is in charge but on the internal procedures, or the corporate governance itself that will guarantee the jobs and operation of the company as well as its subsistence.

As part of the transfer pricing obligations, the following information returns must be prepared and filed:

• Annex 9 of the Multiple Informative Declaration (DIM)
• Local Declaration
• Master Declaration
• Country-by-Country Statement 

A brief explanation of each will be given below:

• Regarding Annex 9 of the DIM, this must be submitted by those taxpayers that carry out operations with related parties, regardless of their tax residence. This document includes information obtained from the transfer pricing analysis performed by the advisor, such as the number of comparables, market range, financial information, etc. This information must be submitted with respect to transactions carried out in 2022 no later than May 15, 2023.

• Taxpayers required to file the Local Return are those who have carried out operations with related parties and who have obtained in the immediately preceding fiscal year income in excess of $904,215,560. As part of this return, certain documentation related to the intercompany transactions carried out must be included, as well as additional information such as the value chain, description of the administrative structure, strategies and business restructurings, among others. This document must be submitted before May 15, 2023. It is important to mention that, according to the tax reform for 2022, the related parties of the companies that are obliged to file a tax return, will have to file the local return in the same manner, even if they have not exceeded the income limit mentioned above.

• The master statement includes certain information regarding the structure of the Multinational Group, such as the description of intangible assets, financial activities, etc. This information must be submitted no later than December 31, 2023.

• Finally, the country-by-country statement provides summary data for each jurisdiction in which the Group's companies are located, including revenues, profit, taxes, etc. This statement must be filed no later than December 31, 2023. 

New legal provisions for the obligation to file Annex 9 of the SID:

On December 27, 2022, the Miscellaneous Tax Resolution (RMF) for 2023 and its Annexes were published in the Official Gazette of the Federation (DOF), which is effective as of January 1, 2023. Rule 3.9.19 is incorporated, which states that taxpayers that carry out transactions with related parties may choose not to submit the information in Annex 9 of the Multiple Informative Declaration (DIM), as long as the taxpayers that carry out business activities do not exceed 13 million pesos in the immediately preceding fiscal year, or that they have not exceeded 3 million pesos in the rendering of professional services in such fiscal year.

In December 2022, the SAT released the application for the filing of the annual corporate income tax return for the year 2022, which underwent some modifications with respect to the version of previous years: 

In the "Income Tax for Legal Entities" section "Nominal Income" under the "Type of Income" item, the following concepts are included:

• Taxable income on disposal of foreclosed assets
• Gain on derivative transactions related to exchange rates
• Tax gain on sale or transfer of portfolio
• Loan portfolio recoveries
• Accrued income from release of reserves
• Premiums written
• Consolidation of the bare ownership and usufruct

On the other hand, under the heading "Income that only accrues in the annual tax return", several concepts are added, among others, gain from total asset disposal; income accrual option for total or partial collection of the price; income from real estate trusts; as well as several concepts of IEPS tax incentives. 

The following items are added to the "Authorized Deductions" section under the "Expenses" caption:

• Tax loss on disposal of foreclosed assets.
• Tax loss on disposal or transfer of portfolio
• Punishments
• Write-offs, rebates and portfolio discounts
• Loss on derivative transactions related to exchange rates
• Contributions to IPAB
• Commissions to agents
• Additional compensation to agents
• Reinsurance and reinsurance commissions taken.
• Ceded premiums
• Cleaning supplies
• Propaganda and advertising
• Stationery and supplies
• Maintenance expenses 
• Payments to individuals exempt from income tax who are engaged exclusively in agricultural, livestock, forestry or fishing activities. 
• Cost of books, newspapers and magazines
• Expenditures incurred in the payment of services for the use of road infrastructure
• Expenditures made during the year for investment and technological development projects
• Toll payment for public transportation of people
• Toll payment for public freight transportation
• Toll payment for tourist public transportation
• Toll payment for private transportation of persons
• Toll payment for private freight transportation
• Toll payment for private tourist transportation
• Payment of special mining duty

Finally, in the section "Administrative Facilities and deductible incentives" under the heading "Type of incentive", the deduction of the cost of land acquisition by taxpayers engaged in construction and real estate development is added.

The following changes are made in the "Financial Statements" section:

• The statement of cash flows and the statement of changes in stockholders' equity are added. 
• The four financial statements include the column for the fiscal year to be presented, i.e., 2022 as 2021, to show comparative figures between the current year to be reported and the immediately preceding year. 
• In each item to be filled in, a field for notes is added in which explanations of the variations from one fiscal year to another can be added. 
• In the "Reconciliation" subsection regarding the tax accounting reconciliation, columns are included to reflect information for fiscal years 2022 and 2021.
  • In the "Non-Accounting Tax Income" section, the following items are added: taxable foreign exchange gain; taxable gain on the sale of foreclosed assets; gain on derivative transactions related to exchange rates; taxable gain on the sale or assignment of loan portfolio and recoveries of loan portfolio and cumulative income from the release of reserves. 
  • On the other hand, "Non-tax accounting deductions" included provisions, accounting loss on disposal of foreclosed assets, allowance for loan losses and result from valuation at fair value.
  • Non-accounting tax deductions" include the following items: tax loss on disposal of foreclosed assets; tax loss on disposal or assignment of portfolio, write-offs; write-offs, allowances and discounts on the portfolio; losses on bad debts and loss on derivative transactions related to exchange rates. 
  • Finally, in the "Non-tax accounting income" section, the following items are added: accounting foreign exchange gain; accounting gain on disposal of land; accounting gain on disposal of foreclosed assets and gain or loss on valuation at fair value.

It is important to mention that other non-accounting tax income; other non-tax accounting deductions; other non-accounting tax deductions and other non-tax accounting income are not contemplated and should therefore be classified in one of the pre-established concepts.  

Important: Legal Entities that are obliged or choose to have their financial statements audited and those that are obliged to submit information on their tax situation or ISSIF (ISSIF) will only complete the "ISR Legal Entities" section, since the application will disable the "Financial Statements" section.

By Cristina Contreras, Fiscal Manager.

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Tax reform 2022 in Mexico: What were the changes?

General Anti-Abuse Rule in Mexico Regarding the Business Reason and Integration of the Reviewing Collegiate Body.

On February 3, 2023, the Ministry of Labor and Social Welfare (STPS) published in the DOF an agreement establishing several amendments and additions to the general provisions for the registration of individuals or legal entities that provide and/or perform specialized services or works (REPSE) that had been published on May 24, 2021 , in order to achieve greater efficiency in the development of the actions of surveillance and promotion of compliance with the labor regulations governing the subcontracting of specialized services or works.

Provisions for REPSE registration

The rules or provisions in question will become effective as of the day following their publication (as of February 7, 2023) and, in summary, are as follows:

• The application for registration in the REPSE must be accompanied by the last payroll voucher and the last voucher of the Single Determination System (SUA) issued by the Mexican Social Security Institute (IMSS).
• The cancellation of the registration may be requested at any time, when convenient and provided that the need to cancel it is justified; likewise, activities may be modified, updated and added, which must coincide with the corporate purpose and/or proof of tax status.
• The STPS will act through the Decent Work Unit and its Administrative Units, and the General Directorate of Federal Labor Inspection, to request information and documentation to verify the data provided by applicants, beneficiaries and government entities, as appropriate; as well as to monitor and promote compliance with labor legislation on subcontracting.
• Surveillance actions include verifying that the information in the registry coincides with the actual conditions of the work center, with the activities provided as services or specialized works, as well as with the respective contracts, in addition to reviewing compliance with the working conditions related to the registration of workers with the IMSS.
• On the other hand, the beneficiary companies of the services or specialized works will be checked to ensure that they have the respective contracts, that the subcontracted workers do not perform activities of the corporate purpose of the beneficiary and that they are duly identified by means of the image, name, badge or identity code that links such workers with the company that provides the specialized service or specialized work during the performance of their work at the facilities of the beneficiary company or the company that contracts the services.
• The surveillance actions and their results must be recorded, and in the event of detecting non-compliance with the applicable subcontracting regulations, the corresponding administrative procedure may be requested and initiated and, if applicable, the procedure for cancellation of the registration, which will proceed when the workers involved are not registered with the IMSS, when there are irregularities related to the salary of the workers and/or the contract for the provision of the specialized service or work and when there are discrepancies in the information in the registration and that verified during an inspection.
• The procedure will begin with the notification of the detected non-compliance, granting 5 business days to revoke it.

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Audit plans, strategies, objectives and criteria

General Anti-Abuse Rule in Mexico Regarding the Business Reason and Integration of the Reviewing Collegiate Body.

In accordance with Action 6 of the BEPS (Base Erosion and Profit Shifting) Plan, referring to the prevention of treaty abuse, in Mexico as of 2020, Article 5-A of the Federal Fiscal Code (CFF) was added to implement its general anti-abuse rule, which in conjunction with other procedures is used to disregard and disregard the tax effects of operations in which the use of deception or taking advantage of errors in the legislation or the non-application of a legal norm is attempted, justifying itself in another to reduce or eliminate the payment of contributions, for tax evasion and/or avoidance.

Objective of the General Anti-Abuse Rule in Mexico

In Mexico, the rule of article 5-A of the CFF seeks to prevent taxpayers' operations that do not have a business purpose from generating a tax benefit, so it is necessary to demonstrate that the economic benefit expected or obtained is greater than the tax benefit, as well as the justification and necessity of carrying out the operation in question, considering its economic utility in the generation of income, reduction of costs, increase in the value of the assets owned by the taxpayer, improvement of its position in the market and the development of relationships with customers and suppliers.

On the other hand, as of the 2022 tax reform in Mexico, the business rationale was established as an indispensable requirement in financing transactions deriving from carried interests, mergers or spin-offs of companies and corporate restructurings.

However, the application of the anti-abuse clause is only originated by the tax authorities in the exercise of their powers of verification through home visits, desk reviews and electronic reviews, so it is not applicable in management powers, audit planning, surveillance, assistance and control, such as, for example, letters of invitation or e-mails sent by the tax authority.

Integration of the Collegiate Reviewing Body

Within the procedure for the application of the anti-abuse of business reason clause, once the verification powers are initiated, the tax authority, based on the facts and circumstances of the taxpayer recognized under such powers, as well as the evaluation of the elements, information and documentation obtained during such powers, must send the case for review to a collegiate body, which had not been materially integrated until January 1, 2023, by means of rule 2.1.52. of the Miscellaneous Tax Resolution for the fiscal year 2023 (RMF), which establishes the integration of the collegiate body and its rules of operation, in order for such body, in the cases it is aware of, to issue a favorable opinion for the application of the anti-abuse rule. If the opinion of the collegiate body is not received within a period of 2 months from the presentation of the case by the tax authority, it will be understood to be negative. 

This collegiate body will be composed of a Coordinator, as chairman of the meetings, who in turn must appoint a Technical Secretary and an Assistant Secretary; On the other hand, the heads of the Tax Legislation Unit, the Tax Revenue Policy Unit, the Federal Tax Legislation and Consultation Sub-Administration, the General Administration of Federal Tax Audit, the Decentralized Administration of Tax Audit, the General Administration of Large Taxpayers, the General Administration of Hydrocarbons, the General Administration of Foreign Trade Audit, the General Administration of Foreign Trade Audit, and the General Administration of Tax Administration and Consultation will be part of the body, with voice and vote, General Administration of Hydrocarbons, General Administration of Foreign Trade Auditing and General Legal Administration, having as a minimum quorum to meet shall be integrated with the attendance of at least 5 of the heads of the above mentioned administrative units and the Coordinator or his alternate. The opinion of the collegiate body shall be formed with the vote of more than half of the officials present.

Conclusions

It is evident that for the fiscal year 2023 the tax authorities intend to exercise their verification powers by reviewing whether the taxpayers' operations have or lack business reason, therefore, in order to avoid contingencies, in which the tax effects of an operation are not recognized or it is re-characterized, it should not be lost sight of the fact that at the end of the day, there is already a body in charge of the business reason opinion, as well as the fact that such business reason is a tax requirement of the operations and that even if the operations are or are not subject to the opinion of the collegiate body, the tax authorities must integrate the opinion of the tax authorities, There is already a body in charge of the business reason opinion, as well as the fact that said business reason is a tax requirement of the operations and that even though the operations may or may not be subject to the opinion of the collegiate body, a file of evidence must be integrated to prove the before, during and after of any operation and demonstrate both its business reason and its materiality or effective realization.

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