This is due to the reform of the Federal Income Law in which, as of January 1^st, 2019 the universal offset or compensation is eliminated, allowing only to compensate the amounts in favor against those that mandatory to pay as self-generated, provided that both derive from the same tax, including its accessories.

Self-generated taxes are: the Income Tax (your own ISR) and the Special Tax on Production and Services (IEPS).

That is why amounts in favor can no longer be compensated against withholdings to third parties, whichever they may be.

In the case of the Value Added Tax (VAT), the balance in favor can be credited against the same tax in charge in the coming months until there’s no balance in favor, or request its return.

Transition from the elimination of Universal Compensation

Through the 6th Resolution of Modifications to the 2018 Miscellaneous Fiscal Resolution, in its pre-release version, there is an aid for taxpayers who have amounts in their favor generated as of December 31, 2018, declared in accordance with the provisions, as long as they have not been compensated or their return requested. They can choose to offset said amounts against the ones they are obligated to pay as self-caused (Corporate ISR, IVA and IEPS) regardless of whether they are of the same nature or not.

It is important to consider that this aid does not apply to withheld taxes and will be required to submit the corresponding compensation notice.

From the above we can conclude that:

I. The amounts in favor generated until December 31, 2018, will continue to be subject to Universal Compensation with certain restrictions, and

II. The amounts in favor generated from 2019 can only be compensated against taxes of the same nature (own ISR and IEPS). In the case of VAT balances in favor, generated from 2019, they can only be credited until exhausted or request its return.

Please contact us if you have any questions or comments about this matter.