In July 2014 a compilation of the Tax Authorities’ (SAT as per its Spanish acronym) non-binding criteria was published in the Official Gazette.

The addition of criterion num. 24/ISR Deductions for Payments Made to Unions is highlighted, through which the Government establishes that payments for these concepts are NON deductible.

The Income Tax Law (LISR per its Spanish acronym) states that authorized deductions, along with other requirements stated in the Law, will have to be strictly indispensible to carry out activities.

The SAT through the publication of this criterion establishes that payments made to unions to cover administrative expenses will not be considered as deductible as they do NOT correspond to a strictly indispensable expense for the taxpayer.

Furthermore, the Government establishes that these expenses do not influence the taxpayer regarding carrying out its activities and therefore obtaining income, nor does it affect in anyway the reduction or suspension of its activities if these fees are not paid.

In addition to the aforementioned, the Government’s argument is that the Income Tax Law establishes that labor unions are not obliged to issue nor request tax receipts for the services rendered, therefore taxpayers are not able to request the corresponding e-invoice (CFDI per its Spanish acronym), therefore failing to fulfill the requirement which consists in a deduction having to be supported by the corresponding tax receipt.

The SAT establishes that taxpayers that deduct payment made to unions to cover administrative expenses will be considered as carrying our incorrect tax practices, even ifthese contributions are included in the collective work contracts.