Relevant transactions disclosure
The Mexican Supreme Court, for years prior to 2018, ruled against the tax provision that established that taxpayers are subject to report relevant transactions on a quarterly basis, concluding such reporting obligation did not comply with the legal certainty principle, as the reporting scenarios were not included in the text of the law. As a consequence of the aforementioned ruling, the Mexican tax authorities incorporated the tax provision into the text of the 2018 Federal Revenue Law.
In line with the above, the relevant transactions reporting includes share acquisitions or dispositions, extraordinary transactions with related parties, and corporate reorganisations, among others.
Furthermore, as recently introduced in the 2020 tax reform, as from January 2021, taxpayers in certain scenarios and tax advisors, will be obliged to disclose generalized and customizable reportable transactions to the tax authorities.
The schemes to be disclosed will not only be those designed, organized, implemented or administered as of January 2020, but also those made prior to that date which tax effects continue to materialize in FY 2020 and in forward years.
As mentioned before please see below those cases in which the taxpayer would be obliged to disclose the reportable transaction:
- When the tax advisor does not provide the client with the identification number of the reportable scheme issued by the MTA or a notice confirming that the transaction is not reportable.
- When the reportable scheme has been designed, organized, implemented and managed by the taxpayer. In these cases, when the taxpayer is a legal entity, the individuals who are the tax advisors responsible for the reportable scheme who have shares or participations in said taxpayer, or with whom they maintain a subordination relationship, shall be excluded from the obligation to disclose such transaction.
- When the taxpayer obtains tax benefits in Mexico from a reportable scheme that has been designed, marketed, organized, implemented or managed by a person who is not considered a tax advisor.
- When the tax advisor is a foreign resident without a permanent establishment in Mexico, in accordance with the MITL, or when having one, the activities attributable to such permanent establishment are not those performed by a tax advisor.
- When there is a legal impediment for the tax advisor to disclose the reportable scheme.
- When there is an agreement between the tax advisor and the taxpayer for the latter to be the party filing the reportable scheme.
The taxpayers obliged to comply with the reportable scheme provisions are those residents in Mexico and residents abroad having a Permanent Establishment in Mexico based on MITL provisions, when their tax returns reflect the tax benefits of the reportable scheme. Such persons are also required to disclose when they engage in transactions with foreign related parties and such schemes generate tax benefits in Mexico for the latter by reason of such transactions.
Cash deposits reporting
Financial institutions are required to report, by 15 February of each year, to the Revenue Administration Service (Servicio de Administracion Tributaria or SAT) the information on customers making monthly cash deposits in excess of MXN 15,000.
International Financial Reporting Standards (IFRS) adoption
All companies listed on the Mexican Stock Exchange are required to submit annual consolidated financial statements accompanied by the opinion of a Mexican independent CPA. These financial statements must be prepared in conformity with IFRS and cover three years. Financial institutions and insurance companies must also file audited financial statements with the appropriate regulatory agency.
The elective adoption of IFRS in Mexico for other companies presents great challenges and opportunities. Changing from Mexican Financial Reporting Standards (MFRS) to IFRS requires companies to review their financial reporting procedures and criteria. Major changes in the requirements often have a ripple effect, impacting many aspects of a company's information reporting organisation.
Nevertheless, the benefits to Mexican companies in reporting under IFRS are numerous. Among the greatest of these is the opening up of the Mexican Stock Market to overseas investors. By adopting IFRS, investors are able to compare two companies on different sides of the world with greater ease, and thus it is hoped that the change will encourage investment in Mexican companies.
Adoption of IFRS is not a straightforward process, and it will require time and effort on the part of the adopting entities to be able to ensure a smooth transition from MFRS to IFRS and ensure that the changes and benefits from this transition are duly implemented.
Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement (IGA)
FATCA was enacted in 2010 by the US Congress to target non-compliance by US taxpayers using foreign accounts. FATCA requires foreign financial institutions (FFIs) to report to the US Internal Revenue Service (IRS) information about financial accounts held by US taxpayers or by foreign entities in which US taxpayers hold a substantial ownership interest.
Mexico signed an IGA with the US Treasury on 19 November 2012 under which Mexican financial institutions are required to report US-owned account information directly to the Mexican tax authority, rather than to the US IRS. The Mexican tax authority will then share that information with the US IRS.
The IGA provides that the United States will reciprocate with the sharing of information.
Mexican tax authorities have issued a set of administrative rules for banks and other financial and related entities to comply with the FATCA IGA.
Common Reporting Standard (CRS)
Mexican legal entities and legal figures that are financial institutions resident in Mexico or abroad with Mexican branches are required to report financial information of their clients since 2016 in line with the CRS, which was introduced at the OECD level on 15 July 2014.
The CRS obligation to financial institutions in Mexico was included in the 2016 Tax Reform to the Mexican Federal Tax Code, which broadly implies identifying the residency of their clients and the reportable accounts and filing such information to the Mexican tax authorities. In this regard, the Mexican tax authorities will exchange that information automatically with the respective jurisdictions participating in the multilateral exchange of information agreement signed on October 2014 by more than 50 countries. Depending on the particular jurisdiction, the exchange of information was set to start with 2016 data; however, with some jurisdictions, the exchange of information was agreed to start with 2017 and 2018 data.
In line with the above, Mexico started exchanging information in 2017 with respect to fiscal year 2016 and effectively received in the latter part of 2017 information of Spain, Germany, Malta, and the Netherlands, among others jurisdictions, as expressly mentioned by the Mexican tax authorities press releases.