Tax Collection Policy in Mexico 2020-2021
After an economic recession as a result of COVID, what is the tax collection policy of the Mexican tax authority (SAT)? Without a doubt, the COVID-19 pandemic greatly affected the ordinary tax collection of taxpayers. This pandemic has caused and will continue to cause the closure of businesses because the global economy has been seriously affected.
The Mexican economy has evidently suffered the effects of the pandemic, especially due to declining consumption and unemployment. Surprisingly, the Tax Administration Service (“SAT”) has achieved a tax collection greater than past years according to the 2020 figures.
The SAT’s tax collection in 2020 is explained by tax reforms, including tax criminal reforms, relating to the cancellation of the certificate to issue digital invoices (known as the CFDI, for its acronym in Spanish) in Mexico. For more information on the certificate to issue digital invoices, please visit DBM’s tax guide.
From an economic perspective, SAT’s tax collection policy can be considered to have been high considering that it was a very bad year.
The Invitation Letters of SAT
The SAT has been auditing “big” taxpayers through the so-called invitation letters to comply with tax obligations. In particular, SAT’s tax collection policy is calling companies that have been listed or have their suppliers named in the “taxpayers with non-existent operations list” per article 69-B of the Federal Tax Code.
On the one hand, SAT considers a listed taxpayer to have non-existent commercial operations and, thus, not valid for tax purposes, and their certificate to issue digital invoices is suspended or canceled. On the other hand, for a company that has a supplier listed, it must correct its tax situation, filing a supplementary tax notice, eliminating all tax deductions or expenditures as well as the credited VAT. Of course, the company will have to pay any tax contingencies as a result of “correcting” its tax situation.
Meeting with Threats and without Lawyers
Furthermore, SAT has the practice of having a dialogue with taxpayers without their lawyers in order to reach a speedy agreement and collect taxes of previous years. Making matters (even) more stressful, the SAT threatens taxpayers with criminal sanctions, particularly against the companies that have been listed as “taxpayers with non-existent operations list.”
I must say that the International Bar Association as well as the American Bar Association have expressed their concerns to the Mexican government.
The Mexican Tax Authorities relied on big taxpayers in 2020. Nevertheless, this is obviously a short-term solution for the economic recession. The Mexican Government is in dire need to collect taxes as quickly as possible and without in-spot audits or verification visits. From SAT’s view, legal advisers and judicial challenges are obstacles that need to be avoided since they only delay tax collection.
In this hostile tax environment and legal reforms, big taxpayers may not only be subject to the suspension and cancellation of their certificates to issue digital invoices. Lawful companies may face much more delicate legal proceedings depending on their supplier’s tax situation, such as organized crime charges and property ownership extinction proceedings known as “extinción de dominio.” As noted above, Mexico is increasingly criminalizing tax non-compliance and has made legal reforms to prosecute taxpayers.
SAT will continue to issue Invitation Letters in 2021.
Looking at the future, we believe that SAT will continue with its invitation letters practice. SAT will summon companies that have suppliers listed as taxpayers with non-existent operations. At the same time, SAT may also start calling individuals with “tax discrepancies”, i.e. those who earn more than they claim, a threat that has rumored for the last several years. If things weren’t enough, State or Provincial tax authorities will also engage in these collection activities.
Although I deem that SAT’s collection tax policy is unlawful, the fact is that the Mexican tax authority will continue having the following approach: if a supplier did not pay taxes, his business partners must pay them. The law reform initiative on labor outsourcing and tax-related matters adopts precisely this approach.
The current federal administration has implemented austerity measure that has weakened the budget of the Taxpayer Defense Attorney’s Office (PRODECON). However, PRODECON has proven to be useful forum not only for taxpayers but also for Tax authorities to collect what is legally appropriate.
Finally, my recommendation is reviewing continuously the monthly lists published by the SAT. By doing so, companies may spot potential suppliers that are listed.
If a supplier is listed, the company will probably be getting an invitation letter or, worst, the SAT could initiate a procedure to suspend or cancel the certificates to issue digital invoices, halting operations of the company.
I always emphasize that the tax department has to be alert of the tax e-mailbox. If an invitation letter is received or an in-depth audit is initiated, the company has to get in touch with a trusted advisor. Companies and their tax departments need well-prepared tax attornies. I am sure that Doing Business Mexico can provide you options and help find the needed trusted advisor.