Important precedent regarding the deduction of expenditures for urbanization and infrastructure expenses as expenses of the fiscal year and not as cost of sales
Recently, our tax litigation department obtained a favorable ruling from the Specialized Chamber for Substantive Resolution Matters of the Federal Court of Administrative Justice, which declared the complete and outright nullity of a resolution whereby the tax authorities had denied the admissibility of the deductions made by one of our clients in the Real Estate Sector for income tax purposes, in respect of
Under the local legislation of most of the country’s States, real estate developers are required to transfer title of the urbanization and infrastructure works to the Municipalities of the relevant jurisdiction, so that the authorities grant them the authorizations and licenses necessary to carry out the construction of dwelling houses for their subsequent sale. In this regard, in the resolution that was declared unlawful, the tax authorities had considered that the expenses in question were not strictly indispensable for the company’s activity, as they were not related to its main activity, namely, the sale of the properties it develops, and that, should it seek to deduct them, such deduction should be made as part of the cost of sales of the properties and not as a deduction of the fiscal year. In relation to the foregoing, the Court ruled that the expenditures for urbanization and infrastructure expenses are strictly indispensable, since, had it not incurred those items and transferred the works to the Municipality free of charge, the company would not have been in a position to obtain the permits and licenses necessary to proceed with the construction of the dwelling houses it sells as part of its main activity, in addition to the fact that their gratuitous transfer is an obligation imposed by operation of law. Lastly, contrary to what the tax authorities had maintained, the Court concluded that the expenditures for urbanization and infrastructure expenses must be considered a deduction of the fiscal year and not under the cost-of-sales mechanism, given that these expenditures are neither related to nor included in the sale price of the dwelling houses at the time of their disposal, but rather are borne exclusively by the company. At Von Wobeser y Sierra we are pleased to share the success achieved in this matter, and we hope that this note is of use to you. For more information, below you will find the contact information of our experts: Alejandro Torres, Partner:+52 (55) 5258-1072 | ajtorres@vwys.com.mx Luis Enrique Torres, Counsel:+52 (55) 5258-1023 | ltorres@vwys.com.mx Juan Manuel Morán, Associate:+52 (55) 5258-1072 | jmoran@vwys.com.mx
