By virtue of multiple acts that the tax authority is persistently carrying out with taxpayers, such as, (i) communications for alleged inconsistencies in their tax obligations; (ii) invitation letters to regularize their tax situation; (iii) temporary suspensions of their Digital Seal Certificates; (iv) rejections in relation to the cancellation notices in the Federal Taxpayers Registry for merger of companies.

Comments

Among the most notable aspects are the following:

The Decree grants a fiscal stimulus to (i) legal entities that pay taxes under the general regime of law; (ii) legal entities that pay taxes under the simplified trust regime; and (iii) individuals with business and professional activities, who are primarily dedicated to the production, processing, or industrial manufacturing, as well as the export of certain goods in the following sectors:

• Human and animal food.
• Fertilizers and agrochemicals.
• Pharmaceutical industry.
• Electronic components for computers and telephones.
• Medical use.
• Accessories for electrical installations.
• Engines for cars, vans, trucks, and aircraft.
• Electrical and electronic equipment for cars, vans, trucks, trains, ships, and aircraft.
• Cinematography or audiovisuals.

Taxpayers may choose to apply the fiscal stimulus when they estimate that, during the tax years 2023 and 2024, the amount of their income from exports will represent at least 50% of their total invoicing in each fiscal year.

The fiscal stimulus consists of choosing to make the immediate deduction of the investment in new fixed assets acquired from October 12^th, 2023 until December 31^st, 2024, deducting in the year in which the respective investment is made, the amount resulting from applying to the original amount of the investment, only the percentages established in the second article of the Decree, instead of those stated in articles 34, 35 and 209, sections B and C of the Income Tax Law.

Taxpayers must maintain the use of the investments for a minimum period of 2 years immediately following the tax year in which the immediate deduction is made and a specific record of said investments is kept.

Taxpayers may make the aforementioned immediate deduction, only in the case of investment in new fixed assets, whose acquisition is intended to be used exclusively for the development of the activities of the key sectors listed above.

Additionally, these taxpayers may apply in the annual tax return for the fiscal years of 2023, 2024 and 2025, a fiscal stimulus consisting of an additional deduction equivalent to 25% of the increase in the expense incurred for training received by each of their workers in the corresponding fiscal year. Training being understood as those that provide technical or scientific knowledge linked to the activity of the taxpayer, provided to active workers who are duly registered with the Mexican Social Security Institute.

Taxpayers who choose to apply the fiscal stimulus described above, in addition to the requirements established in tax legislation regarding investment deductions, must comply with the following:

• Be registered in the Federal Taxpayer Registry and have the tax email-box enabled and register valid means of contact.
• Have an opinion on compliance with tax obligations in a positive sense.
• Submit the corresponding notice in a timely manner.

Recommendations

The Decree, although it offers relevant benefits for certain taxpayers, it is essential to carry out a detailed review and analysis of the specific case, due to the lack of clarity of certain particularities, exceptions and/or requirements that it provides. Those taxpayers who choose to apply the aforementioned fiscal stimulus must prepare and keep all the necessary supporting information and documentation by which they demonstrate that the respective investments and training provided, as the case may be, are closely related to their activities.

If you have any questions regarding the foregoing, please do not hesitate to contact us

However, in said final resolution it was determined that the Ministry of Labor and Social Welfare (MLSW) is not entitled to define the concepts of specialized services or works.

Comments

From the analysis of the aforementioned final resolution, we highlight the following premises and conclusions of the MSCJ:

• From article 13 of the Federal Labor Law (FLL), the elements that allow to define what is the type of subcontracting allowed are derived, by expressing in said provision that the services or works should not be part of the corporate purpose or the predominant economic activity of the beneficiary.

• In such a way, the “specialization” is linked to the analysis of the corporate purpose and the predominant economic activity of who would benefit from the services or works, and these must not coincide with the contracted services or works.

• However, the “Ruling by which the general dispositions for the registry of individuals and companies that render specialized services or execute specialized works set forth in article 15 of the Federal Labor Law are specified” (Ruling) exceeds the provisions set forth in the article 13 of the FLL.

• Although article 15 of the FLL empowers the MLSW to issue general rules, this only entails the issuance of the administrative regulation of the registration procedure before the Register of Contractors of Specialized Services or Specialized Works (REPSE). In other words, said authorization in no way implies that the MLSW is empowered to define what should be understood by specialized services or works.
• The fact that the MLSW intends to establish or develop the material content of the specialized services or works is not reduced to a technical aspect of the registration procedure before the REPSE but allows the cases in which subcontracting is possible to be expanded or restricted.

• In addition, the FLL does not indicate as distinctive factors those set forth in the second article, section VII of the Ruling; that is, the training, certifications, permits or licenses that regulate the activity, equipment, technology, assets, machinery, risk level, average wage range and experience.

• Due to the above, the MSCJ resolved that the second article, section VII of the Ruling through which the MLSW defines what should be understood by specialized services or works, is unconstitutional.

In addition with the foregoing, we consider that the “Guide for complying with the obligations regarding the registry upon the Register of Contractors of Specialized Services or Specialized Works for individuals or legal entities that provide specialized services or carry out specialized works within the framework of the amendments in labor subcontracting matters” issued on August 26^th, 2021 by the MLSW is illegal, considering that specialized services or works are configured according to the space or place in which the contractor’s workers provide such services or execute those works.

Recommendations

It is important to continue expediting pertinent preventive actions, as well as the review and analyze the contracting schemes for the provision of services implemented or to be implemented, considering the previous comments, due to the escalation of coordinated inspections carried out by the Tax Administration Service, the Mexican Social Security Institute, the National Institute Housing Fund for Workers and the MLSW according to the Bulletin 39/23 issued by the latter.

If you have any questions regarding the foregoing, please do not hesitate to contact us

Mexico City, August 16^th, 2023

Comments

The referred communication sets forth that the Second Chamber of the MSCJ validated diverse requirements imposed to the companies dedicated to specialized subcontracting; nevertheless, it notes that it was determined that the Ministry of Labor and Social Welfare (MLSW) is not entitled to define the concept of specialized services or works.

The communication points out as background the “Amparo” Review 687/2022[1] through which the complaining party exposed, among other matters, that article 13 of the Federal Labor Law (FLL) violates the legal security principle by conditioning the exercise of subcontracting to specialized services without promptly and precisely defining such concept; that is to say, the elements in order to esteem a specialized service or work are not delimited, leaving it to the discretion of the tax and labor authorities.

Also, the complaining party mentioned that it is not enough that the denoted legal disposition refers to the corporate purpose and economic activity of the beneficiary, since those elements are related to the prohibition itself but do not form part of the concept of specialized services or works, as such.

Finally, the complaining party stated that the “Ruling by which the general dispositions for the registry of individuals and companies that render specialized services or execute specialized works set forth in article 15 of the Federal Labor Law are specified” (Ruling), published in the Official Gazette of the Federation on May 24^th, 2021, precises the definition of “specialized services or works”, which violates the hierarchical subordination principle for going beyond the FLL provisions themselves, since in these articles, the MLSW was limited to regulate the inscription process upon the Register of Contractors of Specialized Services or Specialized Works (i.e. REPSE).

Until the resolution through which the “Amparo” Review 687/2022 was resolved is published, we will know with detail the meaning and scope of the referred resolution.

Nevertheless, we esteem that the precision pointed out in the communication is relevant, because if it is confirmed that the MLSW does not have powers to define what must be understood regarding specialized services or works, intrinsically would demonstrate the illegality of the “Guide for complying with the obligations regarding the registry upon the Register of Contractors of Specialized Services or Specialized Works for individuals or legal entities that provide specialized services or carry out specialized works within the framework of the amendments in labor subcontracting matters” issued on August 26^th, 2021 by the MLSW, with which it has supported the exercise of verification powers, regardless of the impact that the aforementioned Ruling may suffer.

If you have any questions regarding the foregoing, please do not hesitate to contact us

Mexico City, June 29^th, 2023

[1] The origin of the present matter is the “Amparo” Review 121/2022 resolved by the Second Collegiate Court in Labor Matters of the First Circuit, who determined the applicability of the original jurisdiction of the MSCJ (i.e jurisdiction reservation) for the resolution of the constitutionality of the challenged provisions, and the Indirect “Amparo” 1934/2021 resolved by the Eight District Court in Labor Matters of Mexico City.

The term ESG (“Environmental, Social and Governance”) is a globally accepted concept in the administration and management of a legal entity consisting in fundamental and sustainable Criteria to measure its profitability and growth level, to create solutions of value, to positively impact its productivity and, consequently, underpin its image and reputation in its environment.

Comments

The ESG Criteria imply reviewing and analyzing the business model in order to draw up the appropriate strategy to develop the set of practices focused on Environmental, Social and Corporate Governance aspects, which will influence intangible assets and investments, among others.

Some of the indispensable actions to implement the ESG Criteria are:

a) Environmental Criteria

• Reduce the gas emission.
• Use renewable energies.
• Implement circular economies.
• Manage the natural resources.
• Responsibly manage hazardous substances.
• Streamline the life cycle of the products.

b) Social Criteria

• Provide labor well-being to human capital.
• Protect the human rights.
• Promote the diversity, inclusion, and equity.
• Connect with the community (social responsibility).
• Take measures related to clients and suppliers.
• Take care of personal data.

c) Corporate Governance Criteria

• Define the responsibilities of the three levels of the corporate structure.
• Prevent risks or contingencies in tax, corporate, criminal, operations with resources of illicit origin, etc.
• Fight corruption and undue practices.
• Guarantee the transparency of their actions.
• Eliminate conflicts of interest.
• Observe the market trends.

Recommendations

A legal entity with ESG Criteria, or that intends to implement them, must carry out permanent legal audits (due diligence), create, modify and/or improve its guidelines, measures, protocols and/or internal regulations, carry out training, drills, etc., which will add value to their daily activities, operations, and relationships.

If you have any questions regarding the foregoing, please do not hesitate to contact us.

Mexico City, March 8, 2023

Yesterday, March 15^th, 2023, the Second Chamber of the Mexican Supreme Court of Justice (MSCJ) resolved the conflict of thesis 413/2022, determining that the figure of civil offsetting is not a payment method of value tax added (VAT) nor can it give the right to refund applications regarding favorable balance or credit the VAT.

The Second Chamber of the MSCJ concluded that the following Criterion should prevail as Jurisprudence: “ADDED VALUE. THE INTERPRETATION OF ARTICLES 1, 1-B, 5, 17 AND 18, OF THE REFERRED LAW, GENERATES THE NON-APPLICATION OF CIVIL OFFSETTING AS AN EXTINCTIVE FIGURE OF THE TAX OBLIGATION OF THE ALLUDED TAX, THEREFORE IT DOES NOT GIVE THE RIGHT TO REFUND APPLICATIONS REGARDING FAVORABLE BALANCE OR CREDIT SUCH TAX. (CURRENT LEGISLATION IN TAX YEARS 2019 AND 2020)”. In the next few days, the Jurisprudence in question will be published.

Comments                               

In the Criterion that prevails as Jurisprudence, it was determined that, for the purposes of analyzing the origin of a refund application of favorable balances, the offsetting figure applicable in civil law is not a payment method to credit the VAT.

Said Criterion specifies that the offsetting figure applicable in the civil matters, although it is a form of extinguishing obligations that under a tax perspective can result in establishing when the obligation to pay the VAT arises, it does not confer the possibility to credit the tax because it is necessary that it is effectively paid in the proper month, in such way the offsetting is not a form of VAT payment.

Although we consider that the conclusions of the conflict of thesis 413/2022 implied an incorrect analysis and a deficient interpretation of the provisions under study, said Criterion has the character of mandatory Jurisprudence for all the Mexican Courts, and even will be used by the tax authorities in order to deny the credit of VAT and reject the refund of favorable balances whose origin comes from the offsetting figure, regardless of the facts or omissions that will surely be observed when they exercise their powers of verification (i.e. audits) in order to review the VAT and will determine the corresponding tax assessments.

Recommendations

A review and analysis of those cases in which the due considerations were extinguished through the offsetting figure, including the VAT payment, is immediate required in order to identify risks or contingencies that may result from such Criterion and, and, if applicable, take the measures deemed necessary.

If you have any questions regarding the foregoing, please do not hesitate to contact us.          

Mexico City, March 16, 2023

The rule 2.1.52. of the Miscellaneous Tax Resolution for 2023 establishes the integration and operation of the Collegial Body upon whom the tax authorities will submit certain cases that they know because its verification powers (i.e. tax audits) to obtain a favorable opinion about the lack of business reason in the legal transactions of the taxpayers and thus determine the corresponding tax credits. Said provision entered into force since January 1^st, 2023.

Comments

For the tax authorities two concepts have gained importance that invariably must be permeated in the daily operations carried out by the taxpayers; these are: the materiality of the operations and its business reason.

The materiality of the operations finds its legal basis in the article 33, letter A., section VIII of the Federal Tax Code (FTC) regulations in connection with article 28, section I, letter A. and section II of the FTC, which state that those who are obliged to keep accounts, will be considered as an integral part of it, all the documentation and information of the records of their operations, acts and/or activities carried out; that is, the documentation and information that demonstrates the existence of such operations.

The article 5-A, first paragraph of the FTC sets forth that legal transactions with no business reason which generate a direct or indirect tax benefit, shall have the tax effects corresponding to the transaction that would have been executed to obtain the economic benefit reasonably expected by taxpayers.

The fourth paragraph of the referred article 5-A states that the tax authorities may presume, unless proven otherwise, that there is no business reason: (i) whenever the quantifiable economic benefit reasonably expected is lower than the tax benefit, and (ii) whenever the economic benefit reasonably expected could be reached by executing a lower number of legal transactions and the tax benefit therefrom would have been more burdensome.

In such way, the referred Collegial Body may resolve the opinion requests formulated by the tax authorities when they question the existence of the business reason of those legal transactions of the taxpayers that are subject of tax audits and, if applicable, they determine the respective taxes, accessories and fines notwithstanding the criminal responsibilities that may result of the commission of the offences set forth in the FTC.

Recommendations

It is fundamental and indispensable that the operations, acts and/or activities for the achievement of the corporate purpose of the legal entities are duly documented in order to have all the sufficient elements and the reasonable evidence to prove their materiality (i.e. what, how and when of such operations) in addition to the prudent qualification and quantification of the business reason in connection with the economic benefit achieved and, in this way, prevent and/or mitigate tax contingencies and even criminal contingencies.

If you have any questions regarding the fore-going, please do not hesitate to contact us.

Mexico City, March 14, 2023

Currently in the Mexican Senate is under discussion the Draft Decree amending, among others, articles 76 and 78 of the Federal Labor Law (FLL), under the argument of providing to the workers a decent vacation increasing the minimum of six days of annual vacation to twelve for such period.

Comments

Said Draft Decree proposes in article 76 of the FLL that “workers who have more than one year of service will enjoy an annual paid vacation period, which in no case may be less than twelve working days, and which will increase by two business days, up to eighteen, for each subsequent year of service.”

On the other hand, in the case of article 78 of the FLL it is proposed that “workers must continuously enjoy at least twelve days of vacation”.

If this Draft Decree is approved it will bring several implications, such as an increase in the payment of the vacation premium for workers, which in terms of the Social Security Law will integrate the employee’s contribution base wage, and therefore, will impact the payments for employee-employer dues to the Mexican Social Security Institute, as well as the contributions to the National Workers’ Housing Fund Institute and the Retirement Fund Administrators.

In the same way, this increase in the payment of the vacation premium will be a disbursement destined to remunerate subordinate personal work, which will impact the taxable base of the payroll tax, depending on each State.

Finally, the payment of the vacation premium could be an exempt income for workers and whose deduction for income tax purposes will be limited for the employer (taxpayer), either to 47% or 53%, depending on the case.

There are high possibilities that such Draft Decree will be approved, which would enter into force the day after its publication in the Official Gazette of the Federation according to the sole Transitory article of the Draft Decree.

Recommendations

It will be required to analyze and recalculate, according to each case, the benefits granted to workers to determine the necessary adjustments in terms of employee-employer dues, local payroll taxes and the corresponding deductions for income tax purposes for prevent any contingency due to such implications.

If you have any questions regarding the foregoing, please do not hesitate to contact us.          

Mexico City, September 29, 2022

On August 12^th, 2022, the jurisprudence number PC.XVI.A. J/4 A (11a.) captioned “VALUE ADDED TAX. THE ANALYSIS OF ARTICLES 1o.-B AND 5o., SECTION III, OF THE REFERRED LAW, DOES NOT ALLOW THE INTERPRETATION THAT IN REFUND APPLICATIONS REGARDING FAVORABLE BALANCE, THE OFFSETTING FIGURE APPLICABLE IN CIVIL LAW MAY BE USED AS A PAYMENT METHOD TO CREDIT SUCH TAX (APPLICABLE PROVISIONS IN TAX YEARS 2019 AND 2020)” was published.

Comments                                                                         

The Plenum on Administrative Matters of the Sixteenth Circuit determined that in order to analyze the origin of a refund applications regarding a favorable balance, the offsetting figure applicable in civil law is not a payment method to credit the value added tax (VAT). It justified its criteria by pointing out that the offsetting figure applicable in the civil matters, although it is a form of extinguishing obligations that under a tax perspective can result in establishing when the obligation to pay the VAT arises, it does not confer the possibility to credit the tax because it is necessary that it is effectively paid in the proper month.

We consider that the analysis that provoked the referred jurisprudence is incorrect, since the Circuit Plenum assumed that the only form to extinguish reciprocate obligations between taxpayers and the tax authorities is by offsetting favorable balances in accordance with article 23 of the Federal Tax Code (FTC), that is, when both parties have the aptitudes of debtor and creditor. Nevertheless, the subject case set forth in article 1-B of the VAT Law exclusively refers to those taxpayers that reciprocally have the referred aptitudes and it will be consider that the considerations have been effectively paid when the creditor’s interest is satisfied through any of the forms to extinguish obligations that originated said considerations.

On the other hand, we esteem that based on a deficient interpretation of the referred Circuit Plenum, it concluded that the article 2192, section VIII of the Federal Civil Code sets forth that the offsetting figure does not proceed when the debts are related to tax obligations and, in the current case the applicable tax provisions do not authorize it expressly. However, the Circuit Plenum overlooked that the article 1-B of the VAT Law does not refer to those debts that the taxpayers owe to the tax authorities but rather to those debts that a taxpayer has upon another taxpayer, additionally resulting that article 5, section III of the VAT Law does not precise that the transferred tax has to be effectively paid in cash, in goods or services.

It should be noted that the jurisprudence only compels those Courts located in the Sixteenth Circuit (i.e. state of Guanajuato) but may eventually be used in order to deny the credit of VAT credit and reject the refund of favorable balances when considered that the considerations were effectively paid through offsetting.

Recommendations

A review and analysis of those cases in which the due considerations were extinguished through the offsetting figure, including VAT, is required in order to identify risks or contingencies that may result from the jurisprudence’s text.

If you have any questions regarding the foregoing, please do not hesitate to contact us.

Mexico City, September 14, 2022

Comments

Among the additions to the General Regulations regarding Labor Inspections and Application of Sanctions are the implementation of the Inspection Alternative Mechanisms, including: (i) the voluntary compliance programs; (ii) the alternative procedures for the compliance of labor provisions; and, (iii) the collaboration actions that the Ministry of Labor and Social Welfare determines through the conclusion of agreements with the Federal Entities in which the employers inform and/or demonstrate the fulfillment of the labor provisions. 

The voluntary compliance programs exempt the employers to receive visits from the labor authorities (i.e. ordinary inspection visits); nevertheless, advisory, and technical assistance visits may be performed.

Regarding the labor subcontracting, will be subject to personal notification, or by official letter delivered by courier or certified mail with acknowledgment of receipt, or through electronic means, (i) the performance of inspections and application of sanctions resulting from the violation to the labor provisions; (ii) the rulings issued regarding the determination of the registry upon the Register of Contractors of Specialized Services or Specialized Works, and (iii) those regarding the denial or cancelation of the referred registry.

Concerning the surveillance of the labor subcontracting provisions it was included that the Labor Inspectors designated specifically by the Head of Labor Inspections, will carry out the ordinary and extraordinary inspections due to the expertise that they required.

Finally, the Labor Inspectors will implement and notify the administrative requirements in the inspection visits, when an employer does not allow the labor authorities to carry out the inspection and surveillance in his establishment, which may result in the imposition of penalties that will range between MXN $24,055.00 to MXN $481,100.00 MXN in accordance to article 1004-A of the Federal Labor Law.

Recommendations

Since the entry into force of the labor subcontracting provisions, the labor and tax authorities are intensifying their faculties to monitor the due fulfillment of such provisions. In that sense, in addition to reviewing and analyzing the contracting schemes for the provision of services implemented with several contractors for establish preventive and/or corrective measures in order to continue operating said schemes, it is indispensable to be accompanied during the inspections and/or audits performed by the referred authorities due to the contingencies that may result, especially in tax matters, which are the most sensitive.

If you have any questions regarding the foregoing, please do not hesitate to contact us.

Mexico City, September 6, 2022