One of the proposals contained in the Economic Package for 2020, which the Secretariat of Finance and Public Credit presented to the Congress of the Union on September 8, 2019, is a new regime for the disclosure of reportable schemes in Mexico regarding issues that tax authorities have identified as risk areas.
The implementation of this new regime stems from the recommendations by the OECD, the Organization of which Mexico is an active member. It is also based on Action 12 of the project against the Base Erosion and Profit Shifting (BEPS).
The main persons obligated to disclose these schemes will be the tax advisors, and only in some cases will they be the taxpayers.
The obligation to disclose a reportable scheme exists, regardless of the taxpayer's tax residence, provided that they obtain a tax benefit in Mexico.
What is a reportable scheme?
A reportable scheme is any plan, project, proposal, advice, instruction, or external recommendation, be it expressed or tacit, to materialize a series of legal acts that can directly or indirectly generate a tax benefit in Mexico.
Carrying out a process before the authority or the defense of the taxpayer in tax disputes is not considered a reportable scheme.
Some characteristics of a reportable scheme are, among others:
It prevents foreign authorities from exchanging tax or financial information with Mexican tax authorities,
It avoids the application of the Income Tax Law (Preferential Tax Regimes).
It consists of a series of interconnected payments or operations that return all or part of the amount of the first payment, part of the said series, to the person making it or to any of its partners, shareholders, or related parties.
It involves transactions between related parties in which:
a. Intangible assets that are difficult to value are transferred per the Transfer Pricing Guidelines for Multinational Companies and Tax Administrations.
b. Corporate restructures are carried out in which there is no consideration for the transfer of assets, functions, and risks or when, because of the said restructuring, taxpayers reduce their operating income by more than 20%.
It involves the interpretation or application of the tax provisions that produce effects similar or equal to those previously established in the non-binding criteria of the tax provisions published by the Tax Administration Service.
It avoids generating a permanent establishment in Mexico in terms of the Income Tax Law and treaties to avoid double taxation signed by Mexico.
Involve the transfer of a fully or partially depreciated asset that allows to be depreciated by another related party.
It avoids or reduces the tax payment on salaries or social security contributions, including when labor outsourcings or similar figures are used, regardless of the name or classification given by other laws.
It avoids applying the additional 10% rate on dividends.
Modalities of reportable schemes
There are two types of reportable schemes:
• Generalized - seeks mass marketing to all types of taxpayers or a specific group.
• Customized - adapted to the particular circumstances of a specific taxpayer.
Registration and obligations of tax advisors
A Tax Advisor is any natural or legal person who, in the ordinary course of his/her activity, is responsible or is involved in the design, commercialization, organization, implementation or administration of a reportable scheme or makes available a reportable scheme for his implementation by a third party.
Some of the obligations that tax advisors must fulfill are:
• Register as such with the Tax Administration Service (SAT)
• Reveal reportable schemes
• File an informative return in February of each year, with a list with the names, denominations, or social reasons of the taxpayers, as well as their federal taxpayer’s registration code, to which tax advice regarding the reportable schemes was provided.
• When an advisor discloses a scheme in which several advisors are involved, the disclosing advisor must provide proof to them, attaching a copy of the informative return through which the reportable scheme was disclosed, as well as the acknowledgement of receipt and the certificate in which the scheme identification number was assigned.
• Issue proof, to the taxpayer, of schemes that are not considered reportable, among others.
Review of reportable schemes by the tax authorities
The information received will be analyzed by a committee composed equally by members of the Secretariat of Finance and Public Credit and the Tax Administration Service, and will have a term that shall not exceed 8 months from the disclosure of the reportable scheme, to notify their opinion on the legality of the scheme.
If a disclosed scheme is contrary to the Committee's considerations, the notification of their criteria will force the tax advisor or taxpayer to stop any activity related to the said scheme. This opinion may be challenged before the Federal Court of Administrative Justice or it may initiate a dispute resolution process provided for in a treaty to avoid double taxation, when the latter is applicable.
In the case of schemes already implemented by the taxpayer, they may correct their tax situation by means of a return or complementary return within a maximum period of 60 days from the said notification.
The reportable schemes that must be disclosed are those designed, marketed, organized, implemented, or administered as of the year 2020, or prior to the said year when any of their tax effects are reflected in the fiscal years as of 2020.
Sanctions
Fines for incurring violations related to the disclosure of reportable schemes committed by tax advisors range from 25,000.00 pesos to 20,000,000.00 pesos.
Fines for incurring in violations related to the disclosure of reportable schemes committed by taxpayers range from 50,000.00 pesos to 5,000,000.00 pesos.
If you have any questions or need advice regarding this matter, please contact us.
