Last September 8, the Executive Branch submitted an economic package to the Federal Congress for 2022. That package includes, among other things, the Draft Bill of the Federal Revenue Act (LIF-as per its initials in Spanish), the proposed fiscal reforms to the distinct federal tax laws, such as the Federal Tax Code (CFF-as per its initials in Spanish), Income Tax Law (LISR-as per its initials in Spanish), and Federal Excise Tax Act (IEPS-as per its initials in Spanish). The definite package should be approved no later than November 15.
The draft bill submitted by the Executive does not contemplate new taxes, and multiple modifications are foreseen with regard to Income Tax, Value Added Tax, Federal Excise Tax Act, Federal Tax Code, among other things.
Toward that end, a summary is presented below of what we consider to be the most significant of that draft bill of proposed Fiscal Reforms that have been put forward up to today:
MAIN ECONOMIC INDICATORS:
- Specific 4.1 % GDP growth rate.
- The price of the Mexican export mix is 55.1 dpb, with an oil production platform of 1,826 thousand daily barrels.
- Annual inflation is estimated to be 3.4 %.
- Average exchange rate of 20.3 pesos per dollar.
FEDERAL REVENUE ACT (LIF-as per its initials in Spanish)
- Neither are new taxes proposed to be created nor are current taxes proposed to be increased, except for adjustments on inflation.
- It contains a series of measures oriented to facilitate compliance with the payment of taxes through administrative simplification, in addition to closing spaces for tax evasion, fraud and avoidance.
- The revenue budget is estimated to be 7.5 % higher in real terms with regard to the revenue budget approved in 2021.
- The debt level with regard to the GDP is stabilized at 51 %, equal to that estimated for 2021 year end.
Monthly surcharge rate, reduction of fines and tax incentives.
The same surcharge rates, reduction of fines, and tax incentives are maintained for fiscal 2022.
Interest withholding rate by Banks.
In compliance with the provisions set forth in Arts. 54 and 135 of the ISR Law, the annual rate that should be used for withholding interest paid by members of the financial system will be 0.08 % for tax year 2022. It is important to note that the rate was 0.97 % for 2021.
INCOME TAX LAW
Exchange Rate for determining exchange gains or losses
A parameter is planned to be established to determine exchange gains or losses, through the exchange rate established by Banco de Mexico.
Order of credits.
The order of priority of Income Tax credits is proposed to be established, that is, what is paid in Mexico will be credited first and what is paid abroad thereafter.
Deductions.
- Technical assistance, technology transfer or royalties.
The exception is proposed to be eliminated that is currently set forth for payments made for technical assistance, technology transfer or royalties when they are made to residents in Mexico. In other words, now the requirement will have to be met that it is proven before the tax authorities that the person who provides such knowledge has its own technical elements to do so, and that it is rendered directly and not through third parties, except in the case of specialized services. In addition, it does not consist of the simple possibility of obtaining it, but rather in services that are actually carried out with which the materiality of such disbursements should be verified.
- Collection procedures for uncollectible credits.
The requirements are reformed for the deduction of uncollectible credits.
Tax losses.
- Tax loss carryforwards in a spin-off of companies.
It is proposed to set forth that tax losses must be divided only between the companies that are engaged in the same line of business, with regard to spin-offs.
- Change of partners or stockholders in companies with losses.
The assumptions are intended to be modified in which it is considered that there is a change of partners or stockholders who own control of the company, with regard to a merger.
Related party obligations.
- It is planned to establish greater clarity and detail, as well as to explain what must be contained in the supporting documentation, which shows that the amount of income and deductions are carried out in accordance with the prices, amounts of considerations or profit margins that would have been used by independent parties in arm's length transactions.
- The compliance period for filing the information return and the local related party information return is proposed to be homologated with the filing of the opinion.
Notice of sale of shares carried out between foreign residents.
The obligation is proposed of filing an information notice under the responsibility of the issuing legal entity when shares are sold between foreign partners and shareholders.
Tax Incorporation Regime.
Repealing Section II of Chapter II of Title II of the ISR Law is proposed insofar as taxpayers who currently pay taxes in conformity with this Section will pay taxes in the Simplified Reliance Regime.
Foreign residents
- Arm's length transactions.
The obligation is proposed to be incorporated for determining income, profits, and operating income arising from related parties, considering the considerations that would have been agreed upon independent parties in arm's length transactions.
- Income from acquisition of assets.
It is proposed to establish that once the regulatory hypothesis has been updated, that is, when the authorities exercise their inspection powers and perform an appraisal and there is a difference exceeding 0 % with regard to the consideration agreed upon, the seller resident in Mexico or permanent establishment in the country is bound to pay the tax and substitute the foreign taxpayer in that obligation.
Some additions are proposed in the sale of shares with a source of wealth in national territory. Among other things, restructurings are subordinated to requirements, in addition to being authorized, which are set forth in the actual resolutions.
- Withholding rate on interest for foreign residents.
The assumption is modified for limiting the application of reduced rates on the payment of interest, through the elimination of the terms “derived from the titles involved”.
- Legal representation of foreign residents.
It is proposed to clarify that the legal representative appointed for income of a foreign resident must voluntarily assume the joint and several liability in the payment of the tax assessed on the foreign resident.
Preferential Tax Regimes (REFIPRE).
- It is proposed to eliminate the distinction of the treatment for related party transactions of residents in Mexico and foreign residents.
- The possibility is proposed of eliminating the annual adjustment on inflation from the income or loss of the entity.
Simplified Reliance Regime for Individuals.
The addition of the VAT Section is proposed in Chapter II of Title IV of the Income Tax Law, which foresees the Simplified Reliance Regime that is planned to become effective January 1, 2022.
Simplified Reliance Regime for Juridical Entities.
A taxation regime is proposed to be created that benefits legal entities residents in Mexico, whose total revenues do not exceed $ 35 million pesos in the tax year.
VALUE ADDED TAX LAW
VAT crediting requirements.
It is proposed to expressly set forth that one of the requirements for crediting VAT paid on importation is that the customs entry form is made out in the name of the taxpayer, not in the name of third parties.
Not crediting VAT when activities are carried out that are not considered to be carried out in national territory.
It is proposed to specify that under no circumstances is VAT shifted to the taxpayers to be credited for expenses incurred for carrying out activities that are not subject matter of the tax.
Use or temporary enjoyment of tangible assets.
It is proposed to clarify that the use or temporary enjoyment of tangible assets in national territory will be subject to pay VAT, irrespective of the material delivery of those assets.
FEDERAL TAX CODE (CFF)
Suspension of periods due to force majeure or an act of God.
The power of the tax authorities is planned to be specified for suspending the periods provided for in tax legislation when there is force majeure or an act of God.
Homologation of image rights with the treatment of royalties.
It is proposed to consider image rights within the concept of use or concession use of a copyright on a literary, artistic or scientific work, whereby the tax treatment for royalties will be given to taxable income for use of the copyright inherent to the image itself.
Advanced electronic signature or Digital Stamp Certificate (CDS - as per its initials in Spanish) of legal entities with shareholders in an irregular tax status.
Assumptions are foreseen of denials of the advanced electronic signature or certified digital stamp certificate to legal entities that apply for the formal procedure when they have partners or shareholders with unsolved irregularities.
Self-correction by applying credit balances.
The option is proposed to be set forth for taxpayers, who are subject to inspection powers exercised, to be able to correct their tax status, by applying the credit amounts that they have for any concept against omitted contributions and their accessories determined by the tax authorities, even when distinct contributions are involved.
Delimitation in the issue of Digital Tax Receipts via Internet (CFDI) of disbursements.
The assumptions are proposed for issuing Disbursement receipts, since issuing such a receipt without having the supporting documentation that evidences returns, discounts or rebates may not be reduced from revenues.
Additional data to the CFDI.
Including the name, partnership name or corporate name and the postal code of the taxpayer to whom the CFDI is issued is proposed as a requirement. Such data used to be included in invoices some years ago.
Delimitation in the cancellation of CFDIs.
A period is proposed for cancelling the receipts that were issued with a defect or a valid justification therefor.
Significant transactions.
Including the information that taxpayers should file based on their accounting is proposed with regard to significant transactions.
Mandatory opinion of Financial Statements.
It is proposed to set forth that it is mandatory to have financial statements audited by a registered public accountant, in the case of legal entities that currently had them audited optionally. The opinion should be filed on May 15.
The possibility will be maintained that taxpayers, who are not bound to have their financial statements audited, are able to do so.
Accordingly, it is proposed to establish that taxpayers, which are related parties of those that are bound to have their financial statements audited, file the information on the tax status (ISSIF - as per its initials in Spanish).
Statute of limitations in inspection powers exercised by the tax authorities.
Modifications are proposed to be made with regard to the statute of limitations on inspection powers exercised by the tax authorities, in order to avoid certain abuses by taxpayers such as, among other things, a delay in petitions for resolutions, above all, bilateral and multilateral, the taxpayer fails to provide complete information, etc.