On September 8th, 2016, the Executive Power delivered to the House of Representatives the financial bill that contains the 2017 tax reform. The main changes that are proposed are as follows:
Value Added Tax (VAT)
VAT Crediting in Preoperative period
The option that the taxpayers currently have to credit the estimated VAT generated during the preoperative period for the expenses or investments incurred will be eliminated from the law, therefore said VAT will be credited when the taxpayers carry out those activities. Art. 5, (VI).
The taxpayers that during the preoperative period carry out activities at the 16% mixed with activities at the 0% or with activities that are not subject to VAT will calculate a proportion to credit the corresponding VAT. In case the result is a higher modification of 10% of said proportion the taxpayer will be able to credit the surplus, on the other hand if the result is minor of 10% of the proportion, the credit in excess will have to be restore updating the corresponding VAT. Art. 5-B.
The taxpayers from the hydrocarbon extractive industry will be exempted from the previous treatment, therefore they will be able to credit the VAT even if they are in the preoperative period and, just in the case that such activities are not finished the VAT will have to be restored.
The modifications proposed would imply an economic a prejudice for some taxpayers because those who have long term preoperative periods, such as the construction industry among others, will not be able to credit the VAT and use it as a way to finance their projects.
Should this proposal be approved it would breach the human rights of proportionality and equity, since such amendment does attend the contributing capacity principle of the taxpayers during the preoperative period because they will pay VAT and will not be able to recover it until they carry out the activities which and on the other hand there are not legal grounds to treat differently taxpayers of the hydrocarbon extractive industry from the rest of the taxpayers
1. VAT on importation of material goods
The use or temporal possession granted in Mexico of tangible goods when the material delivery took place abroad will not be considered importation, thus it will not trigger VAT as long as it has been paid when those goods were imported. Art. 24
To avoid different interpretations of the law, it is clarified that the importation of services rendered above will be effective when the services fees are paid. Art. 26.
2. VAT in exportation of services from information technologies
Clause i) is added to article 29 of the law in order to include the 0% rate to the services described in such paragraph related to information technologies.
Income Tax Law
1. GROSS INCOME ON ECONOMIC TAX BENEFITS
The income that the taxpayers receive from economic or monetary supports of tax benefits will not be deemed as gross income as long as the taxpayer meets several requirements, such as: i) the governmental program needs to have a list of the beneficiaries; ii) the resources are distributed by means of transfer wire; iii) the beneficiaries comply the operation rules of the programs.
The expenses carried out with those resources will not be deductible. Art. 16.
The amendments solve a topic that has been discussed for many years, that the governmental economic benefits should not be taxable income, although it is questionable that the application of such rules depends on the compliance of many requirements.
2. Documentation to support transactions with related parties that are non residents
The taxpayers who in the previous fiscal year declared gross income for entrepreneurial activities lower than $13,000,000, and those who obtain income for provision of professional services lower than $3,000,000 will be exempted to obtain and keep the information of the transactions carried out with related parties that are non residents.
The taxpayers that work as contractors or assignees in the hydrocarbon industry will not be exempted from such obligation. Art. 76, fracción IX.
3. Authorized tax donees
-They will be able to consider the income derived from tickets sold from their events, as part of the 10% of income that they can have from activities different than their main activities. Art. 80.
-They will be able to support economically productive projects of small agricultural producers and craftsmen who are located in zones with poverty. Art. 79 frac. XXXV, clause J).
-When their authorization is revoked or when they change their residence, they will have the obligation to deliver their whole patrimony to other authorized donees. Art. 82-bis.
-In case the authorization was revoked or was not renewed, for not fulfilling the obligation of making available to the public the information of transparency, they will have to demonstrate before the authorities the compliance of such obligation for their authorization to be renewed. Art. 82, frac. VI.
-A new system is established for voluntary certification that will be at the expense of private institutions, who will evaluate the donees and will classified them under the levels A, AA ó AAA. Art. 82-Ter.
-The authorized donees with annual income higher than $100,000,000 MXP or that have a patrimony higher than $50,000,000 MXP, should have a structure of corporate government in accordance with the rules issued to this effect. Art. 82, frac. IX.
-It will be understood that the entity is liquidated when the authorization has concluded and is not renewed in the first 3 months of the following exercise. Art. 82, fracción V.
4. Non accumulation as income of the contractor in contracts of license and shared production
Contractors that receive as fees goods will not consider gross income, as long as they do not include them in the calculation of the sales costs. Art. 16
5. Deduction infrastructure in the hydrocarbons industry
Due to the current legal uncertainty in the treatment of the deduction of goods related to the exploration and extraction of hydrocarbons, it is clarified that the assets used to transport, storage and from the processing of hydrocarbons will be depreciated with a maximum percentage 10% per every fiscal year. Art. 35, frac. VI.
Deduction of contribution to retirement plans for natural persons
The individuals will be able to contract a retirement plan collectively and the contibutions will be deductible. Art. 151, frac. V.
6. Tax Benefits
A) Power supply unit for electric vehicles
A tax benefit from the amount of 30% of the investments made in a fiscal year can be applied in connection with power supply equipment for electrical vehicles that are connected and secure in public places. Art. 204.
In case the tax credit is bigger than the income tax, the pawpayers will be able to apply it in the next 10 fiscal years.
Such benefit does not not apply to mobile equipments or domestic facilities.
B) Taxation benefit of Corporations
Corporations that are constituted only be individuals and whose income in the previous immediate fiscal year had not exceeded $5,000,000 MXP could deemed as gross income at the time when the income is effectively received instead of consider credit income, in addition they will not apply the sales cost system but the acquisitions deductions system.
C) Expenses of Research and Development Technology
A tax credit of 30% of the expenses and investments made in technological development can be applied by the taxpayers.
In order to avoid abuses, it is specified that the credit would only be applied on the incremental base respect of the average of the expenses made in 3 previous exercises, in addition when the tax credit is bigger than the ISR of the exercise, the taxpayer would be able to apply it in the next 10 fiscal years.
Federal Tax Code
1. Electronic Audits
Due to the recent Supreme Court of Justice precedent that declared unconstitutional such proceedings, the following amendments are proposed:
Since the electronics audits were established they have been constantly modified, which reflects the lack of legal technique of the lawmaker to establish an audit proceeding that complies the due process principle of the taxpayers.
This new proceeding is not clear and would cause uncertainty to the taxpayers, given the fact that for example, it is stated that within 40 working days a ruling should be issued and on the other hand it is mentioned that the proceeding would have to last 6 months. We expect that the house of representatives identify this inconsistencies and correct them.
2. Authorized tax donees
- A fine of $80,000 to $100,000 MXP will be imposed in the following cases:
- When the information of the authorization is not kept at the disposal of the public in general to receive donations, the information from the the destination of the donations and on the fulfillment of the fiscal dispositions.
- When it is not provided the information relative to the identification of the goods and the identity of the persons to whom the heritage was given in case of liquidation, or, if such information if provided incomplete or with mistakes.
Also a fine of 140,540 to $200,090 MXP is contemplated when at the moment of the liquidation the patrimony is not given to other authorized entities. Arts. 81 and 82.
3. Number of amendments
The SAT will provide the service to verify the authentication of digital documents. Art. 17-F.
With prior consent of the taxpayers the tax authority would provide in the tax mailbox different information from tax issues. Art. 17-L.
Registration of RFC
Now the legal representatives of the corporations will have to be registered in the Tax payers
Registry (RFC). Art. 27.
Cancellation of electronic invoices
The taxpayers will be able to cancel the electronic invoices as long as they meet several requirements.Art. 29-A.