Below you will find a general summary of the matters we consider relevant: 1. INCOME TAX LAW: LEGAL ENTITIES: A. INCOME Foreign exchange gains and losses As of 2022, foreign exchange gains may not be lower than those that would result from applying the exchange rate established by the Bank of Mexico for settling obligations denominated in foreign currency payable in the Mexican Republic. Usufruct When the usufruct and the bare ownership are transferred, the gain will be determined by subtracting from the income obtained from the transfer the original amount of the investment in the proportion of the price corresponding to the attribute transferred, in accordance with the appraisal that must be carried out by a person authorized by the tax authorities. In addition, it is clarified that the consolidation of the bare ownership and the usufruct of an asset is considered taxable income. This measure is intended to prevent certain tax planning schemes in which the bare ownership of real estate was transferred (taking advantage of its full tax cost) and was not considered as income when, at the end of the usufruct, ownership was once again consolidated. This reform went far beyond what was intended since it was not limited to real estate and covers any type of asset. B. DEDUCTIONS Technical assistance, technology transfer, and royalties Payments made for technical assistance, technology transfer, or royalties, provided through third parties, will be deductible only in the case of specialized services. Uncollectible loans In the case of uncollectible loans whose principal on the date of maturity is greater than 30 thousand UDIS, they may only be deducted when the creditor: I. Obtains a final resolution issued by the competent authority, demonstrating that collection efforts have been exhausted, or II. Demonstrates that enforcement of the favorable resolution was impossible. Original amount of investment Included as part of the original amount of investment for the deduction of investments are, among others, payments made for installation, assembly, handling, and delivery, as well as those relating to the services contracted so that the investment functions. Pre-operating expenses Expenditures corresponding to intangible assets that allow for the exploration or exploitation of public-domain assets will not be considered as being incurred during the pre-operating period; such expenditures will be treated as deferred expenses. Tax losses in a spin-off In the case of a spin-off of companies, tax losses pending offset against tax profits must be divided between the spun-off companies and the resulting companies engaged in the same line of business. Tax losses in a merger Currently, when after a merger the partners or shareholders holding control of a company that has tax losses from prior years pending offset change, and the sum of their income over the last three fiscal years was less than the restated amount of those losses, the losses may only be offset against tax profits derived from the exploitation of the same lines of business in which they were generated. As of 2022, the situations in which a change of partners or shareholders holding control of a company is deemed to exist are increased, adding, among others, the following: (i) a change of the holders of more than 50% of the shares or equity interests with voting rights in the company in question; (ii) a change of the holders of the rights that allow decisions to be imposed at shareholders’ meetings, or to appoint or remove the majority of the directors, managers, or their equivalents, or those that allow the management, strategy, or main policies of the company to be directed; and (iii) when, after the merger, the company in question and its partner or shareholder that is a legal entity cease to consolidate their financial statements. C. OBLIGATIONS Transfer Pricing Study The duty to maintain a transfer pricing study is extended to also expressly cover transactions carried out between related parties resident in Mexico. Notice of transfer of shares issued by Mexican companies The obligation is established for Mexican companies to give notice to the tax authorities when the shares issued by such company are transferred among tax residents abroad without a permanent establishment in Mexico. If this notice is not given, the Mexican companies become jointly liable for the calculation and payment of the tax corresponding to the tax resident abroad. D. SIMPLIFIED TRUST REGIME FOR LEGAL ENTITIES Legal entities resident in Mexico whose partners are exclusively individuals, and whose total income in the immediately preceding fiscal year does not exceed 35 million pesos or, as the case may be, that commence operations and estimate that their income will not exceed this amount, may pay taxes under this new regime. Notwithstanding the foregoing, any company that falls within any of the following situations may not pay taxes under this regime: • Legal entities when any of their partners, shareholders, or members participate in other commercial companies where they hold control of such companies or of their management, or when they are related parties thereof. • Legal entities that carry out activities through trusts or joint ventures. • Legal entities that pay taxes under Chapters IV (credit, insurance, and bonding institutions, general deposit warehouses, financial leasing companies, and credit unions), VI (optional regime for corporate groups), VII (coordinated entities), and VIII (agricultural, livestock, forestry, and fishing activities) of Title II, and those under Title III (non-profit legal entities) of the ISR Law. • Legal entities that pay taxes under Chapter VII (production cooperative societies) of Title VII of this Law. • Legal entities that cease to pay taxes under the Simplified Trust Regime. Income will be considered taxable at the time it is effectively received, while authorized deductions must be effectively disbursed in the fiscal year in question. This regime establishes the obligation to make provisional payments, for which legal entities will determine their tax profit by subtracting from their income the authorized deductions, the employees’ profit-sharing, and, where applicable, the tax losses from prior years pending application; the rate contained in Article 9 of the ISR Law (the 30% rate) will be applied to the result obtained, granting the possibility to credit, among others, withholdings, as well as the provisional payments made prior to the month being calculated. There are special rules for the deduction of expenses and investments. INDIVIDUALS: A. SIMPLIFIED TRUST REGIME FOR INDIVIDUALS The following may opt for this regime: • Individual taxpayers who carry out exclusively business or professional activities or grant the temporary use or enjoyment of assets, provided that the total of their own income from the activity or activities indicated that they carry out, obtained in the immediately preceding fiscal year, did not exceed the amount of three million five hundred thousand pesos. • Taxpayers who carry out such activities and additionally obtain income of the type indicated in Chapters I (salaries) and VI (interest) of Title IV of the ISR Law, provided that the total income obtained in the immediately preceding fiscal year from the aforementioned activities, taken together, does not exceed three million five hundred thousand pesos. The right to this regime is lost by: • Taxpayers whose income exceeds three million five hundred thousand pesos, at any time during the year, but who may again pay taxes under this regime when their income from the immediately preceding fiscal year does not exceed such amount and they are current in their tax obligations. • Failing to comply with the obligations of the simplified regime for individuals. In this case, it will not be possible to pay taxes under this regime again. Benefits: • Paying ISR by applying a rate of 1% to 2.5% (on gross income without any deduction). • Simplification in the payment of ISR. • Not having the obligation to keep electronic accounting records. The following may not opt for this regime: • Partners, shareholders, or members of legal entities, or when they are related parties. • Those who are resident abroad and have one or more permanent establishments in the country. • Those who have income subject to preferential tax regimes. • Those who receive the income referred to in sections III (directors, statutory examiners, general managers), IV (those who receive fees predominantly from one person), V (those who receive fees and opt to be treated as salaried employees), and VI (those who carry out business activities and decide to be treated as salaried employees) of Article 94 of the ISR Law. With the incorporation of this regime, the regimes established for individuals who carry out agricultural, livestock, forestry, or fishing activities are repealed, as is the tax incorporation regime. B. INCOME FROM LEASING In accordance with the reform to the ISR Law, taxpayers who obtain income from leasing and opt to deduct 35% of their income (known as the blind deduction) will also be obligated to keep accounting records in accordance with the CFF and its Regulations. C. PERSONAL DEDUCTIONS Deductions for donations are included within the limit on personal deductions, so that all of them (taken together) may not exceed the lesser of five times the annual value of the Unit of Measure and Update, or 15% of the taxpayer’s total income, including income on which no tax is paid. TAX RESIDENTS ABROAD: Determination of income The obligation is confirmed for tax residents abroad to determine the income, gains, profits, and, where applicable, deductions, derived from carrying out transactions with related parties, considering the prices, amounts of consideration, or profit margins that would have been used or obtained with or between independent parties in comparable transactions. Sale of shares When a tax resident abroad transfers, to a related party, shares issued by Mexican companies and opts to pay ISR on the profit, the certified public accountant’s report must be accompanied by supporting documentation demonstrating that the sale price of the shares transferred corresponds to that which independent parties would have used in comparable transactions. Damages and losses in a judgment or arbitral award Pursuant to Article 172, section III of the ISR Law, payments made as compensation for losses (perjuicios) by tax residents in Mexico to tax residents abroad are considered income with a source of wealth in Mexico. In this regard, the ISR Law is amended to specify that when judgments or arbitral awards order a payment without indicating whether it is compensation for damages or for losses, the payer must make the withholding on the total income, placing the burden of proof on the resident abroad receiving such income so that, when requesting the refund of the excess tax withheld, they may demonstrate before the tax authorities the corresponding nature of the payment they received. Representation of a tax resident abroad As of 2022, the representatives of tax residents abroad who are appointed in order to be entitled to exercise the options provided for in the ISR Law must also voluntarily assume joint liability, and have sufficient assets to respond as a jointly liable party. The liability will not exceed the taxes that the resident abroad must pay. 2. VALUE ADDED TAX LAW: Customs declaration (pedimento) In order to be able to credit the IVA paid on importation, it is expressly established as a requirement that the customs declaration be in the name of the taxpayer. Activities not subject to IVA Additionally, it was clarified that the IVA passed on to the taxpayer for expenses incurred to carry out activities that are not subject to the tax will not be creditable. In connection with the foregoing, a definition of acts or activities not subject to IVA was incorporated into the IVA Law. Temporary use or enjoyment of assets in national territory Likewise, an amendment is proposed to indicate that the temporary use or enjoyment of assets in national territory will always be subject to payment of the tax, regardless of the physical delivery thereof. Pre-operating period In addition, the obligation is incorporated to file a notice in the month in which the taxpayer commences its activities for IVA purposes. This is intended to correctly determine the adjustment of the IVA credit in the pre-operating period. 3. SPECIAL TAX ON PRODUCTION AND SERVICES LAW: Electronic tax seal (marbete) In line with the technological-update reforms of recent years, a definition of the electronic tax seal was included, establishing its material and operational difference from the physical tax seal. Final-consumption establishment On the other hand, the definition of “final-consumption establishment” is incorporated by means of an indicative list of the places where alcoholic beverages are regularly sold for final consumption on the premises. Destruction of containers Additionally, the obligation is established for taxpayers who sell alcoholic beverages to the general public for consumption at the same place or establishment where they are sold to destroy the containers immediately after their contents have been depleted (except in the cases established by the Tax Administration Service). Denatured alcohol and non-crystallizable molasses Furthermore, the obligation of manufacturers, producers, bottlers, and importers of denatured alcohol and non-crystallizable molasses to be registered in the Registry of Alcoholic Beverage Taxpayers is eliminated. 4. FEDERAL TAX CODE Business purpose The business-purpose theory (razón de negocios) was recently introduced in Article 5-A of the CFF, establishing it as a requirement for: (i) obtaining authorizations for corporate restructurings, (ii) considering that no transfer exists in mergers and spin-offs, and (iii) loan transactions. Corporate restructurings, mergers, and spin-offs In order to be entitled to request authorization for a restructuring (and to transfer shares at tax cost), as well as for it not to be considered that a transfer exists in the case of mergers and spin-offs, it is necessary to have a business purpose when carrying out such transactions. As a requirement for the authorization of the restructuring to be granted, the authority must be notified of all relevant transactions (related thereto) that were carried out in the 5 years prior to the request for authorization. The tax authority will have 5 years to determine whether or not the requirement of having a business purpose was met. If the authority considers that this requirement was not met, then it will invalidate the authorization (for the restructuring) and, in the case of mergers and spin-offs, it will consider that a transfer took place. When, within the five years following the granting of an authorization for a restructuring or the carrying out of a merger or spin-off, a relevant transaction is carried out, an informative return must be filed in this regard. Among the transactions considered relevant for determining whether or not the requirement of having a business purpose was met are the following: • The transfer of ownership, enjoyment, or use of the shares or of the voting or veto rights in the company’s decisions, or of the favorable vote necessary for decision-making in the company. • The granting of the right over the company’s assets or profits in the event of any type of capital reduction or liquidation. • A decrease or increase of more than 30% in the book value of the company’s shares. • A decrease or increase in the company’s capital stock. • A partner or shareholder increasing or decreasing their percentage of direct or indirect participation in the company’s capital stock and, as a result, the percentage of participation of another partner or shareholder of the merging, spinning-off, or resulting company increasing or decreasing. • A change in the tax residence of the partners or shareholders who received shares. • The transfer of one or more business segments of the company related to one or more business segments. In addition to all of the above, for purposes of the restructuring authorization, it is also considered a relevant event that the legal entity ceases to consolidate its financial statements in accordance with the provisions that regulate them in accounting and financial matters, or that they are obligated to apply. Loan transactions If a loan transaction has no business purpose, it will be considered a back-to-back loan with all its consequences (non-deductibility, recharacterization as dividends, etc.). Residence Individuals or legal entities that fail to prove their new tax residence, or that, even having proven it, such change of residence is to a country or territory where their income is subject to a preferential tax regime (REFIPRE), will not lose their status as residents in Mexico. The foregoing applies unless such country or territory has entered into a broad tax-information exchange agreement with Mexico and, additionally, an international treaty enabling mutual administrative assistance in the notification, collection, and enforcement of taxes. Likewise, it is expressly established that persons who fail to file the notice of change of residence will not lose their status as residents in Mexico. Advanced electronic signature (“e.firma”) or Digital Seal Certificate (“CSD”) in the case of legal entities First, it is indicated that the SAT will deny the granting of the e.firma, as well as the CSDs, when it detects that the legal entity requesting them has a partner or shareholder (with effective control over it) in an irregular tax situation who has not corrected their tax situation, or when such partner has effective control over another legal entity in an irregular tax situation that has not corrected its tax situation. Self-correction through the application of favorable balances Now, with respect to favorable balances in audits, a procedure is provided for so that taxpayers who are subject to the exercise of verification powers may correct their tax situation by requesting the application of the balances they have in their favor against the amounts owed as a result of the tax authority’s observations. Such provision will not enter into force until January 1, 2023. Digital Tax Receipts via the Internet (CFDI) Among other changes regarding CFDI, it is established that in the event that expense CFDI are issued without the supporting documentation evidencing the returns, discounts, or rebates, they may not be subtracted from the taxpayer’s income. The foregoing is because it was detected that there are taxpayers who issue income CFDI that, having a defect in their issuance, should be cancelled, but instead, expense receipts are issued to reduce income. On the other hand, it is specified that in those cases in which the information corresponding to the service, goods, merchandise, or use or enjoyment indicated in the CFDI is not consistent with the economic activity registered in the Federal Taxpayers Registry (“RFC”), the authority will proceed to update the taxpayer’s economic activity therein. Now, it is established that CFDI must include the name, corporate or business name, and postal code of the taxpayer in whose favor they are issued. Finally, it is indicated that the cancellation of CFDI must be done in the fiscal year in which they are issued, unless the tax provisions provide for a shorter period. Obligation to have financial statements audited and information on tax situation On the other hand, the obligation is established to have financial statements audited by a registered certified public accountant in the case of certain indicated legal entities that previously did so on an optional basis. In this regard, legal entities under the general regime of the ISR Law that in the last immediately preceding fiscal year reported taxable income equal to or greater than $1,650,490,600 pesos in their normal returns, or that at the close of such fiscal year have shares placed among the general investing public on a stock exchange, will be obligated to have their financial statements audited. It should be noted that the deadline for filing such audit report was changed to May 15 of the year immediately following the end of the fiscal year (instead of July 15). Likewise, it is established that taxpayers who are related parties of those obligated to have their financial statements audited must file the informative return on their tax situation. On the other hand, an obligation is included for the registered certified public accountant to inform the tax authority when, as a result of preparing the audit report, they learn that the taxpayer has failed to comply with tax and/or customs provisions or has engaged in conduct that may constitute the commission of a tax offense. Failing to do the foregoing, the registered certified public accountant may be sanctioned with a fine and even criminally as a party liable for concealment in tax offenses. Powers of the tax authorities and conclusive agreements It is specified that it will be a power of the tax authorities to cancel or suspend registration in the RFC in certain cases of inactivity. On the other hand, it is clarified that the tax authorities may carry out appraisals with respect to all classes of assets or rights referred to in Article 32 of the ISR Law (fixed assets, deferred expenses and charges, and expenditures made in pre-operating periods) and all classes of services. Among the amendments to the CFF, the inclusion of the express power of the tax authorities to determine, in the exercise of their verification powers, the simulation of legal acts, exclusively for tax purposes, also stands out. Additionally, various amendments are made to the procedures for on-site inspections, desk reviews, and audit-report reviews, as well as to the statute of limitations on verification powers. Finally, regarding conclusive agreements, it is established that the maximum duration of the proceeding before the Office of the Taxpayer Defense Attorney will be 12 months from the filing of the request. Non-existence of transactions covered by CFDI issued by a third party It is introduced as a ground for the presumption of non-existence of the transactions covered by tax receipts when it is detected that a taxpayer has been: 1. Issuing CFDI that support transactions carried out by another taxpayer, during the period in which the latter has had its CSDs invalidated or temporarily restricted without having remedied the irregularities detected by the tax authority, or 2. Issuing CFDI that support transactions carried out with the assets, personnel, infrastructure, or material capacity of such person. Tax offenses In relation to labor subcontracting, the use of the Simplified Trust Regime to conceal labor relationships is established as an aggravating factor of the offense of tax fraud or its equivalent, so as to increase the corresponding penalty by one half. Additionally, included within the situations of aggravated tax fraud and aggravated equivalent tax fraud is the deduction, crediting, or application of any tax incentive or benefit with respect to expenditures made in violation of anti-corruption legislation, such as expenditures consisting of giving, directly or through an intermediary, money, goods, or services to public servants or third parties, whether domestic or foreign. For additional information, contact our experts: Fernando Moreno, Partner: +52 (55) 5258-1008 | fmoreno@vwys.com.mx Jorge Díaz Carvajal, Associate: +52 (55) 5258-1008 | jdiaz@vwys.com.mx Diego Benítez, Associate: +52 (55) 5258-1008 | dbenitez@vwys.com.mx Alfonso Leñero, Law Clerk: +52 (55) 5258-1008 | alenero@vwys.com.mx
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