TAX and STRATEGIC COMPLIANCE. Opinion about the business reason by the Collegial Body March 14, 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 1st, 2023.
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.
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.
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Mexico City, March 14, 2023