Regulation criterion No. 45/IVA/N
Regulation criterion No. 45/IVA/N

Accrediting Value Added Tax (VAT) by taxpayers obtaining income from activities other than those established on article 1 of the VAT Act (Ley del IVA (LIVA)).

On November 30, 2018, the tax authority published the fourth amendment resolution to the Miscellaneous Tax Resolution (MTR) (Resolución Miscelánea Fiscal (RMF)) for 2018, which contains amendments to its Exhibit 7 called “Compilation of Regulating Criteria”; as part of these amendments, an addition was made to criterion number 45 of the Value Added Tax Act (LIVA), titled: Accrediting VAT by taxpayers obtaining income from activities other than those established by article 1 of the VAT Act.

The purpose of this newsletter is to explain the purpose pursued by the authority by publishing this criterion and advise readers to follow the provisions of this criterion in order to avoid violating the provisions established by the authority and avoid possible penalties and punishment from a poor interpretation of the tax provision.

According to the provisions of article 1 of the Value Added Tax Act, individuals and artificial persons shall pay VAT when they carry out the following activities in domestic territory:

• Sale of goods.
• Rendering independent services.
• Granting the temporary use or enjoyment of goods.
• Importing goods and services.

The law mentions that VAT charged by aforesaid activities will be decreased against accreditable VAT paid to suppliers and creditors of the same activities provided they are strictly indispensable for the execution of each taxpayer’s commercial activities.

In addition, the VAT Act recognizes specific activities to be levied at a 0% rate for VAT payment and when a taxpayer carries out activities levied at a rate of 16% and levied at a rate of 0% for this tax, a proportion of its taxable income (16% and 0%) shall be determined as to the total income received in order to determine the sum the taxpayer may consider accreditable VAT from that paid to its suppliers upon calculating its taxes.1

However, the VAT Act does not establish the procedure to determine accreditable VAT when, in addition to the activities mentioned on the preceding paragraph, taxpayers obtain income from acts or activities other than those established on the VAT Act, that is, “not subject” to the Act, for whose execution and obtaining expenses and investments were carried and were destined indistinctly to these.

In order to clarify this uncertainty, the authority issued criterion 45/IVA/N which makes reference to jurisprudence thesis 2a./J. 170/2015 (10a.), issued by the Second Court of the Supreme Court of the Nation where the case of a taxpayer who did not consider in its total income to determine the proportion of a transaction that was not one of those mentioned on the VAT Act, as it was an act “not subject to the law” and the ruling was that it should have been done as that was the intent of the regime established on the VAT Act.

After mentioning this, we conclude that the authority’s final position is clear upon issuance of the Regulating Criterion 45/IVA/N, establishing that when taxpayers carry out taxed activities (16% and 0% rates) and even those not established on the VAT Act, that is, “not subject” shall be considered within the total income for the taxpayer upon determining the proportion of the accreditable VAT.

Please contact us if you have any question or comment in connection with this.

1 Article 5, item c) VAT Act (LIVA).