Comments

Said Ruling regulates the Register of Corporate Integrity of those legal entities interested in registering and have Anti-Corruption and Fight of Undue Practices Policies, with the purpose of recognizing them through a Distinction that will be granted by the Ministry of Public Function for having accredited that their Integrity Policies comply with the provisions set forth in the General Law of Administrative Liabilities.

The Ruling states the requirements for legal entities to obtain the registration and such Distinction, as well as what are the obligations that they must observe and comply with, among others.

It should be noted that they are extenuating in order to impose a sanction on a legal entity according with the General Law of Administrative Liabilities if they have Anti-Corruption and Fight of Undue Practices Policies within their regulations.

We consider it relevant that the legal entities obtain the registration in the aforementioned Register and Distinction, since it will provide them with publicity, certainty, and security before third parties, evidencing that they have established self-regulatory mechanisms that include the implementation of internal controls and integrity programs that allow them to ensure the development of an ethical culture within your organization.

In other words, they are legal entities that promote good practices through their integrity programs and anti-corruption and fight of undue practices measures, so their daily activities and operations are always involved in the fight against corruption.

Recommendations

It is imperative for legal entities to have policies, mechanisms and instruments (e.g. control, monitoring and audit procedures; whistleblowing; training procedures, etc.) regarding Anti-Corruption and Fight of Undue Practices, or carry out a due diligence in order to verify their level of compliance and, if applicable, carry out the necessary preventive and/or corrective improvement actions, which will generate value and enhance their reputation.

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

Mexico City, November 10, 2022

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

Comments

Pursuant to the new obligation, the tax authorities will have specific verification powers to require information regarding the BCs and the compelled taxpayers will have to provide it within the next 15 business-day-term once the request is duly notified. The referred term may be extended to 10 more days as long as the corresponding extension request is duly justified. Likewise, the TAS may require the aforementioned information to Notaries Public and financial institutions.

Regarding the information requests, the TAS may rely in the public registers located in Mexico City and in other states, in the Financial Intelligence Unit of the Ministry of the Treasury and Public Credit, in the National Banking and Securities Commission, in the National Commission for the Pension System or in the National Bonding and Insurance Commission, through the conclusion of collaboration agreements, information exchange or in any other form the applicable provisions authorize.

CBs shall be understood as the individual or group of individuals that:

1. Directly or by means of other(s) individual(s) or of any legal act, obtain(s) the benefit that derives of their participation in a legal entity, a trust or any other legal figure or legal act, or those who ultimately exercise the rights for use, enjoyment, or disposal of a good or service or a transaction is performed on its behalf, even when the above is done contingently. 
2. Directly, indirectly, or contingently, exercise the control of the legal entity, trust, or any other legal figure. The exercise of control takes place when an individual or group of individuals, by means of shares’ ownership, an agreement, or any other legal act, may:
   • Directly or indirectly impose decisions in the general shareholders meetings, partners, or equivalent corporate bodies, or appoint or dismiss the majority of the counselors, administrators, or its equivalents. 
   • Maintain the ownership of the rights that allow the voting of more than the 15% of the share capital or good, either directly or indirectly.
   • Directly or indirectly lead the administration, strategy or principal policies of the legal entity, trust, or any other legal figure.

Regarding trusts, the settlor(s), fiduciary, trustee(s), and any other individual involved that ultimately exercise the effective control in the agreement, even when contingently performed, will be considered as CBs.

In case of committing an infringement deriving of the breach of the referred obligation, the penalties will vary from MXN $500,000.00 and MXN $2’000,000.00, as the case may be.

Finally, rules 2.8.1.20., 2.8.1.21. and 2.8.1.22. of the Miscellaneous Tax Resolution for 2022, states the criterion for the determination of the CB condition, as well as the mechanisms and parameters to identify, obtain and conserve the necessary information that must be included in the accounting records.

It is important to note that the incorporation of the CB figure for tax effects is the result from the Financial Action Task Force’s work and definition regarding the prevention of operations involving resources derived from illicit sources and terrorist funding. Consequently, such figure was introduced in the evaluations and agreements performed by the Global Forum on Transparency and Exchange of Information for Tax Purposes.

The several information that must be collected, conserved, and updated by the legal entities, trusts or any other legal figures in terms of this new obligation is too extensive; moreover, there will be complex cases where some type of legal secrecy could be arise. Consequently, this new obligation entails a considerable effort of corporate and legal control, and it will be essential for such legal entities, trusts and other legal figures to knows precisely their real and actual situation regarding the fulfillment of corporate obligations, and therefore its tax obligations.

Recommendations

It is of prime importance that all legal entities, trusts or other legal figures have the corporate and legal information that evidences their BCs, and such information is certain, complete, and up-to-date and within reach of the tax authorities through the implementation of the internal controls that result necessary in order to prevent and mitigate whichever contingency in tax matters.

Mexico City, February 24, 2022

Comments

The article 28, section XXVII, fifth paragraph of the ITL establishes a new mechanic to opt to consider as equity account in the corresponding tax year with the purpose to determine the exceeding amount regarding the taxpayer’s debts that exceed the triple of his equity account that proceed from contracted debts with related parties that are foreign residents.

Basically, such option consists of that the amount that results from adding up the initial and final balances of the tax year of the capital contribution account, the net tax profit account and the reinvested net tax profit account, must be reduced with the tax losses that are pending of amortization that were not considered in the tax result of that tax year, and divide the outcome of the operation by two, establishing in which scenario the option may not be carried out.                        

The article 28, section XXVII, seventh paragraph of the ITL states that the debts contracted by members of the financial system that carry out its operations in accordance to their social purpose will not be included among the debts that accrue interests in charge of the taxpayer for the calculation of the exceeding amount that results three times its equity account; nevertheless, the its eight paragraph provides that the foregoing will not be applicable to Non-regulated Multiple Purpose Financial Institutions (SOFOMES ENR) that carry out activities mainly with their national or foreign related parties in pursuit of their social purpose.

This limitation was imposed to the SOFOMES ENR under the questionable statement that diverse business groups seek the benefit of the exclusion of the thin capitalization by incorporating SOFOMES ENR into their structure, which perform operations with their national or foreign related parties, mainly located in preferential tax regimes, without complying the purpose for which they were established.

We consider that the article 28, section XXVII, eight paragraph of the ITL will result in a negative impact for the determination of debts that accrue interests for the calculation of the thin capitalization, violating various human rights in detriment of the SOFOMES ENR that perform operations with their related parties, which will not happen to other institutions of the financial system set forth in article 7 of the ITL.

Recommendations

Once an analysis and valuation of the operations that perform the SOFOMES ENR with their related parties is done, and if applicable, these may file an amparo lawsuit against the article 28, section XXVII, eight paragraph of the ITL as deemed unconstitutional.

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

Mexico City, January 18, 2022

Comments

Until December 31^st, 2021, the article 146-B of the FTC stated that regarding of those taxpayers subject to an insolvency proceeding, the tax authorities may partially cancel or forgive the tax debts related to taxes that should have been paid before the date in which the referred proceeding initiated, provided that the taxpayer (i.e. trader) has entered into an agreement with his creditors under the terms of the Commercial Bankruptcy Law (CBL), and as long as:

• The amount of the tax debts represents less than the 60% of the total of the recognized debts in the insolvency proceeding. In this case, the cancellation cannot exceed of the minimum benefit among those granted by the creditors that are not related parties and represent the 50% of the recognized amount to the non-tax creditors at the very least.
• The amount of the tax debts represents more than the 60% of the total of the recognized debts in the insolvency proceeding. In this case, the cancellation determined in terms of the previous paragraph cannot exceed the amount that corresponds to the updates, interests and fines of the taxes owed.

Nonetheless, with the referred Decree such provision was repealed under the lax and questionable argument that it is consistent with article 28, first paragraph of the Federal Constitution, which was amended by means of the Decree published on March 6^th, 2020, in the OGF, with the purpose of banning tax cancellations or tax forgiveness.                                                                

We consider that the repeal of article 146-B of the FTC is totally unreasonable regarding the elimination of the possibility to partially cancel or forgive tax debts, since the purpose for companies to initiate and undergo an insolvency proceeding is to preserve them and avoid that the general non-compliance of its payment obligations jeopardize its viability, as well as of those companies with whom they have a business relation, violating various human rights and fundamental principles to its detriment, and contravenes the public interest set forth in article 1º of the CBL.

Recommendations

Those companies that are subject to an insolvency proceeding or are about to undergo such proceeding, must refine, analyze, and promptly value their situation and, as the case may be, an amparo lawsuit may be filed against the repeal of the article 146-B of the FTC as deemed unconstitutional.

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

Mexico City, January 10, 2022