Doing Business

Doing Business in Mexico 2015

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112 Tax and Legal Services - PwC Mexico In addition to these, there are a number of special federal taxes, such as excise taxes on specific products and services, including high-caloric density food, soft drinks, alcoholic beverages, cigarettes and gasoline. Transfers of real estate are subject to a state tax on acquisitions of real property. The states are not authorized to levy general corporate income taxes, although some states levy a tax on salaries and professional fees on the employer or payer. Legislative framework Statute law Congress annually approves the federal revenue law, which mainly includes a list of the federal taxes to be imposed during the year. The Ministry of Finance is empowered to issue regulations for implementation of the tax laws, which interpret the legislation in broad terms. Annual omnibus tax rulings published by the tax authorities may be relied on by the taxpayer, although they do not have the force of law. Retroactive legislation is not permitted by the Constitution and its application is not legal. Case law Although court decisions are valid only for the specific case involved, they do offer some degree of precedent. Supreme Court decisions when issued in the same sense on the same issue five times must be followed by other courts when deciding substantially the same factual situation. Antiavoidance Tax legislation contains specific anti-avoidance rules similar to those of other countries. Examples are given below. • In the case of fraud, the authorities may look through the way a transaction is structured to determine its true economic substance. • General provisions that empower the authorities to reconstruct income on an estimated basis or disallow deductions are quite broad. • With the 2014 reform to the Federal Fiscal Code, tax authorities are entitled to request from foreign residents, written confirmation showing that the application of a tax treaty is necessary to avoid double taxation. • General rules to avoid abuse through intercompany pricing have been substantially broadened. Payments to related parties must be determined on an arm's length basis and properly documented in order for them to be deducted. • Strict rules (documentation, withholding taxes, prior authorization), if not complied with, deny deductibility of costs and expenses. • Transactions classified as subject to preferential tax regimes are subject to specific rules to anticipate the accrual of income, restrict deductions or apply higher income tax withholding rates. Form versus substance Generally, form prevails over substance, except as noted in the general anti-avoidance rules discussed above. Authorities generally base their analyses of transactions on the documentation backing such transactions. Some attorneys are of the opinion that only if the authorities can prove that a fraudulent situation exists in a transaction would substance prevail. However, there is the tendency to consider substance instead of form,

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