Fiscal Reform Intiatives 2019


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Dear clients and friends:

Please find hereunder our newsletter regarding the fiscal reform initiatives, prepared by our team of professionals at Zozayacorrea Sahagún Arizaga Abogados y Fiscalistas.

Within the plans of the new government of Andrés Manuel López Obrador, is the approval of several fiscal reforms, which we briefly present hereafter, in order to provide you a better understanding of their impacts in case of its approval. The most relevant initiatives are the following:

I. Reforms to the Federal Fiscal Code.
II. Economic Zone of the Northern Border.
III. Retention of the Value Added Tax and Income Tax on Services.
IV. Special Tax on Fuels Production and related Services.
V. Initiatives related to Wages and Salaries.
VI. Inheritance Tax.
VII. Digital Services Tax.
VIII. Other proposals:
  • Reduction of Income Tax for being a sustainable company.
  • Religious associations as grantees.
  • Tuition Deduction.

As part of the Firm´s objective of keeping our clients updated and informed, we will briefly explain what the new fiscal initiatives are about.

I. Reforms to the Federal Fiscal Code.

Art. 69B-bis (non-existence of operations linked to tax losses).
  • This reform proposal pretends to fight the improper transfer of fiscal losses without a real background or business reason, and that eventually will be used to reduce the payment of Income Tax.
  • It will be presumed that a taxpayer used as a sole purpose an improper transmission of fiscal losses for direct or indirect reduction, when in the cases established by article 69-B Bis of the Federal Fiscal Code, as well as the taxpayer, who, having the right of decrease, was part of a restructure, change of shareholders, spin-off and/or merger of companies, and subsequently, it ceased to be part of such corporate group
Article 83 (infractions).
  • Imposition of fines derived from recording non-existent expenses and/or incorrect identification in the accounting entries, ranging from $290.00 to  $5,390.00 pesos.
  • That the taxpayer does not issue “CFDIs” (Digital Tax Receipt on Internet) that cover sales operations with the consumers or doesn’t make them available to the authority, upon request, ranging from $15,280.00 to $87,350.00 pesos.
  • That the taxpayer does not make available the printed representation of such “CFDIs” (Digital Tax Receipt via Internet) to the tax authority, ranging from $1,330.00 to $2,650.00 pesos.

Articles 110 and 111 (tax offenses).
  • Encourage a person to register in the Federal Taxpayers Registry, in order to use their data inappropriately.
  • Impersonate a person and/or obtain their consent to carry out the impersonation action.
  • Whoever hides alters or destroys all or part of the accounting books.
  • That the taxpayer provides false information, transactions or accounting, tax or social transactions, or that has false documentation related to such information entries.

II. Economic Zone of the Northern Border.
  • It is proposed a reduction in the rate of Income Tax to individuals and corporations to be established at 20%.
  • A reduction in the rate of Value Added Tax is proposed to be established at 8%.
In the fifth initiative presented on September 6, 2018, the reform to article 2 of the Law on Value Added Tax is proposed to establish the rate for the payment of the value-added tax to 8% in the case of the border region; and, increasing the number of municipalities that belong to the border region.

III. Retention of Value Added Tax and Income Tax on Services.

The Prosecutor's Office for the Defense of the Taxpayer (PRODECON) carried out the referred proposal, which mainly includes the following amendments:
  • The legal entities will be obliged to retain two-thirds of the Value  Added   Tax when paying services rendered independently by legal entities.
  • Individuals with business activity will be required to retain two-thirds of the Value   Added   Tax when paying for services rendered independently by individuals and legal entities.
  • The States, Municipalities, Mexico City and the Federation will be obliged to retain two-thirds of the  Value Added Tax when paying services rendered to any taxpayer.
  • The following are exempted from carrying out the retentions mentioned above
  1. The provision of services carried out by the members of the financial system.
  2. The services provided by the Federation, States, Municipalities and their Decentralized Agencies.
  • The   individuals   with   business   activity,   the   legal   entities,   the   Federation,   Mexico City,   the States,   Municipalities   and   their  Decentralized   Agencies, will be obliged to withhold and pay, in the form of provisional payment on account of the Income Tax of services providers, 10% of the consideration  paid   to   them,   regardless   of  whether   they are individuals or legal persons.
  • It aims to increase the criminal penalty for issuing apocryphal bills, from three (3) months to six (6) years of prison,   to be between two(2) and ten (10) years of prison.
  • It is proposed to consider the issuance of apocryphal invoices as organized crime.

IV. Production and Services in fuels Special Tax.

 In the first initiative presented on September 4th, 2018, the following reforms are proposed:
  • Article 2, section I, subsection D), numeral 1, subdivision a. b. and c., of the Special Tax on Production and Services Law.
  • Article 2, section I, subsection h), numeral 3, of the Special Tax on Production and Services Law.
  • Article 2-A, fraction I, II and III, of the Special Tax on Production and Services Law.

Such reform would result in a 50% reduction of the tax rates of the Special Tax on Production and Services to fuels.

In the fourth initiative presented on September 4th, 2018, it is proposed to repeal article 2, section I, subsection D), and to eliminate numerals 3 and 5 of subsection H), of the Special Tax on Production and Services Law.

Said reform would result in the total elimination of the quota of the Special Tax on Production and Services.

V. Initiatives related to Wages and Salaries.
  • Deduction of Exempt   Benefits: It is proposed to repeal fraction   XXX of article 28 of the Income   Tax Law, with the purpose that the exempt income for the worker can be fully deducted, and not only limited at 47%   or   53% as it is currently.
  • Income Tax exemption on the first 5 levels: It is proposed to reform articles 96 and 152 of the Income Tax Law, with the purpose of exempting the first 5 levels of the table of income tax, monthly and annually, that is, the application of 0% rates to equivalent salaries up to an amount of $10,300.00.
  • Exemption from Income Tax in retirements and others: It is proposed to reform fractions I, IV, XIII and XIV of article 93 of the Income Tax Law, with the purpose of exempting 100% the income obtained the worker for the concepts of extra time, pensions, employees' profit sharing, liquidation, and compensation.
  • Incentives to graduates from public universities: It is proposed to apply an incentive equivalent to 50%, to graduates of public universities in their first job and to occupy newly created positions against Income Tax for the year.
  • Right to nursery schools: It is proposed to reform article 201 and repeal article 205 of the Social Security Law, with the purpose that in the nursery branch, the rights of working women and men who cannot provide care for their children during the workday are covered
  • Pension rights: It is proposed to reform articles 64, 65, 84 and 13 of the Social Security Law, with the purpose that, in case of death, the widower or concubinary could obtain the respective pension under the same requirements applicable to a widow.

VI. Inheritance Tax. 

The referred proposal considers that: (i) the tax must be paid as provisional payment on account of the annual declaration; (ii) said payment must be made within a period that does not exceed 15 days after the date on which the income was obtained; and, (iii) the law contemplates that persons with disabilities will be exempted.


VII. Tax on Digital Services.
  • The creation of a Tax Law on Income from Digital Services is proposed.
  • This law seeks to tax digital advertising at a rate of 3%, an interface to locate and interact with other users and facilitate the delivery of goods and the transmission of collected data.
  • The parties obliged to pay this tax are individuals and legal entities with residence in Mexico and foreigners with residence in Mexico, with a permanent establishment.
  • The services received by the government, those made by persons authorized to receive donations, by persons authorized to supply content, communication or payment services and financial service providers, are exempt from this tax.
VIII. Other proposals.
  • Reduction of Income Tax for being a sustainable company: It is proposed to reform article 9 of the Income Tax Law, with the purpose of reducing the rate to 24% for those companies that are certified as sustainable or ecological, and grant equal salary increases the following year to all its workers.
  • Religious associations as grantees: It is proposed to reform the first paragraph of article 82 of the Income Tax Law, with the purpose of including religious associations and groups as authorized to receive donations in terms of the law.
  • Deduction of tuition: It is proposed to add a fraction IX to the article 151 of the Income Tax Law, with the purpose of extending the deduction to the elementary, middle, high school, and college, for the spouse, concubine, ascendants and descendants in a straight line and adopted.
From any perspective, the legal and economic consequences that the proposed reforms will bring will be complex, hence we suggest to look forward to future communications in relation to this important matter, where we will be addressing the progress of the initiatives during the legislative process to which they will be submitted, and if approved, we will analyze their effects and alternatives of actions to be taken.

For more information, please contact the undersigned on the following email address:
jose.zozayacorrea@zozayacorrea.com

Or one of the members of Zozayacorrea Abogados y Fiscalistas on the email address:
charlene.gomez@zozayacorrea.com

If at the northern states, please contact Ali Kuri at:
ali.kuri@zozayacorrea.com

Thank you and best regards,

José Miguel Zozayacorrea
Socio/Partner
Zozayacorrea Sahagún Arizaga Abogados y Fiscalistas
T: +52 (33) 1493 7279
Switch: +52 (33) 1493 7280
A: Blvd. Puerta de Hierro 5153, Piso 2, Fracc. Puerta de Hierro, 45116, Zapopan, Jalisco, México

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