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Mexico

Last Verified on Thursday 30th August 2018

    • Mexico

      In Mexico the tax authority is the Administration of Revenue Service (SAT). This authority is a part of the Federal Public Administration and is separate from the Mexican Ministry of Finance, which means that it has its own faculties to audit, determine and collect revenue from the taxpayers. The SAT is a federal authority with competence only to audit, determine and collect federal taxes; nevertheless, it has a presence across the whole of Mexico and is able to act in coordination with the local authorities through fiscal coordination agreements, where the local tax authorities act on behalf of SAT to carry out its duties without any violation of the law.

      In recent years, owing to the financial crisis that Mexico has been facing, the SAT has been very active and aggressive in its tax collection policies and in general with the tax reviews that have been performed. More often Mexico faces actions such as invitation letters to self-correct personal or corporate tax situations, notification of tax audits that mostly result in a decision of omission and procedures for forcing tax collections.

      Also, the SAT has been clamping down on tax returns, especially of VAT, forcing rightholders to desist from their return petitions because of all the requirements that must be complied with to prove the petitions' origin.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      In Mexico, the main issues that give rise to a tax dispute are: (i) the determination by SAT of omissions in the payment of a certain tax after auditing the contributors tax statements; (ii) denial of a tax return solicited by the contributor (iii) actions taken during the administrative execution procedure, including asset garnishment or other illegal charges; (iv) sanctions, including fines regarding compliance of other obligations related to the Federal Contributors Registry, among others.

      Usually tax disputes begin with notification of a resolution that ends a tax procedure such as various audits (domiciliary visit or documental review); tax return procedures; garnishment or asset securement notification.

      After the contributor is notified of the SAT's resolution on a tax procedure, it is possible to challenge such resolution by using any of the following means of defence:

      • (a) Administrative Appeal before the authority. This option has the advantage of exempting the contributor of the obligation from guaranteeing the debt determined by SAT during the audit. Nevertheless, it has the big disadvantage that there is a very good chance that the ruling will go against the promoter, so it usually it is used to gain time or exhibit more evidence in the administrative instance before going to trial.
      • (b) Two kinds of trial before the Federal Court of Administrative Justice:
              1. Regular trial before the Federal Court of Administrative Justice. This option is the most effective and recommended one. It has the advantage that it is resolved by a court composed by three magistrates that are specialised in the area and by principle should be impartial. When using this option, the contributor who is challenging the authorities' resolution has an obligation to guarantee the debt determined to his or her detriment by any of the means listed in the Federal Tax Code, the most recommended and common one being the bond issued by an authorised institution.
              2. Exclusive Substantial Resolution Trial before the Federal Court of Administrative Justice, which is the newest mean of defence as of 3 July 2017. The main characteristic of this new modality is that it will only be about the appealing of any definitive resolution resulting from the tax authority audit faculties referred to in article 42, sections II, III or IX of the Federal Fiscal Code and its value is more than 200 times the Unidad de Medida y Actualización (unit of measure and adjustment) elevated to the actual year at the moment of its issuance (5,507,000 Mexican pesos approximately).

            Regarding exclusive substantial resolution trials, the Federal Law of Administrative Dispute foresees various additional requirements that must be fulfilled in order to initiate this new procedure, such as:

          • Only the definitive resolutions that result from the tax authority audit faculties referred in article 42, sections II, III or IX of the Federal Fiscal Code and its amount is no less than 200 times the unit of measure and adjustment, elevated to the actual year at the moment it is issued.
          • The lawsuit must contain the expressed manifestation that the document is about an exclusive substantial resolution trial.
          • A short brief of the substantive controversy, as well as the explicit litis proposal.
          • Apart from the origin of the controversy, specifying if it comes from:
            • i the way the facts and omissions were reviewed and studied;
            • ii the interpretation or application of the involved laws;
            • iii the effects that were attributed to the total, partial or extemporary non-compliance of the formal and procedural requirements that impact and transcend the substance of the controversy;
            • iv if any of the previous circumstances match;
            • the arguments presented regarding the substance of the trial.

            The evidence exhibited, must be related to the facts that the petitioning party is attempting to prove, including the expert evidence that could be offered.

            • Even though the Federal Court of Administrative Justice is independent from the authority according to its Regent Law, there is a budgetary dependence of such court with the Federal Ministry of Finance that in some cases may affect the impartiality of its sentences.

              • (c) Amparo before a Collegiate Administrative Judicial Court. This proceeding is only used to challenge the Federal Court of Administrative Justice resolution, when this is against the applicant’s interest. The advantage of this stage is that the Collegiate Court is completely independent from the administrative authority and in theory its resolutions are not influenced by anyone.
              • (d) Finally, it is worth mentioning that part of the tax dispute in Mexico is the possibility to challenge before a district judge and finally in the Supreme Court of Justice, the constitutional validity of any law that imposes obligations related to tax issues, including determination, auditing, payment/coactive collection. The effect of a sentence that grants the amparo against this law will exempt the tax payer from complying with the obligations there established and grant them the right to obtain the return of the taxes paid in accordance with such law during the trial.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      Owing to the fact that the tax and administrative courts were overburdened with cases and as access to legal representation in Mexico is quite expensive, about five years ago the government established an agency commonly known as PRODECON dedicated to advising and defending taxpayers from arbitrary actions of the authorities and to mediate between the two parties to reach an agreement in the disputed topic.

      These kinds of mediation procedures are called “conclusive agreements” and they are mostly used during a tax audit before the authority pronounces a final resolution, with the objective of propitiating conditions between the authority and the taxpayer to reach an agreement through working sessions where the contributor has the chance to take the authority through the evidence and arguments and close the audit with no negative observations.

      In addition, this kind of procedure can be used when the authority has taken too long to resolve a tax return petition or has issued too many requests for information regarding such petition.

      Mediation procedures are not mandatory, the contributor is the only one that can initiate them but they have become a very helpful tool to set a limit to arbitrary actions from the authority. In some cases, resolutions issued by PRODECON have been used as evidence in administrative trials and the courts have given them full value.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      In Mexico, the court of appeal is the Collegiate Judicial Administrative Court. This court’s function is to review the sentences issued by the Federal Court of Administrative Justice when the applicant files a direct amparo trial – when the Administrative Court decision is contrary to the law. In the amparo trial, the applicant has also a chance to challenge legal provisions that could be considered as against the Constitution which were applied during the procedure.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      In Mexico normal tax litigation does not require a discovery process, since the dispute involves an open procedure followed before a tax authority. Therefore discovery in a tax dispute is based on the information contained in an administrative file that may be reviewed by the involved parties and whomever they have authorised in legal terms.

      During the trial, the applicant may subpoena the whole administrative file, according to the formalities established in the law.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      We cannot say there is attorney–client privilege in Mexico. As previously mentioned, tax disputes begin with the determination of a debt as a result of an audit, the refusal of a tax return or some other actions performed by the authorities in a coactive collection process.

      In Mexico attorney–client privilege is not formally regulated; it could be considered an ethical principle more than a legal obligation.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      Rules of evidence and procedure in tax litigation are very similar to general litigation.

      According to the Federal Law of Administrative Dispute, during trial all kinds of evidence should be admitted. Nevertheless, there are special rules regarding expert evidence, witnesses and ocular inspection by the court that shall be observed.

      Regarding the new Exclusive Substantial Resolution Trial, there are some new special rules regarding expert evidence, which will be presented orally on an open audience at the court, giving the situation more effectiveness to prove or not, the authenticity of their judgment based on their own knowledge, experience and arguments. 

      It should be brought to attention that the Federal Law of Administrative Dispute is based on the Amparo Law and the Federal Code of Civil Procedure, which establishes the rules of general litigation.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      In Mexico it is extremely rare that witnesses intervene in a tax dispute. Nevertheless, opposing counsel has the right to propose their questionnaire for the witness to be answered at the proper time during the process.

      As mentioned before, the only special rules of evidence in tax litigation are the ones regarding expert evidence and witnesses. As regards witnesses, both involved parties have the right to put their questionnaire to the court, which will qualify the questions that the witness has to answer.

      After the witnesses present their written answers to the court, the testimony will be considered and evaluated by the court along with all the evidence presented and shall be considered in the final resolution.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      Criminal charges can certainly be levied under Mexican tax law; in fact the Federal Tax Code establishes a catalogue of the conducts that are considered felonies and may be prosecuted if the tax authority decides to do so.

      Tax felonies can only be pursued by complaint of the tax authority before the Public Ministry, which is in charge of prosecuting felonies, and such complaint must be filed after a tax audit when a liquid debt is determined in order to calculate the damages caused to the state.

      Usually criminal sanctions are sought when there is a large sum involved or when someone famous or a big corporation is involved in dubious activities.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      The Public Ministry is the competent authority to prosecute all kinds of felonies from robbery, murder, fraud, tax fraud, etc.

      Felonies related to taxes can only be prosecuted after the tax authority has audited the contributor’s information on its tax obligations and determines that such contributor has incurred in any of the conducts listed in the Federal Tax Code as criminal.

      After the determination of the omission and therefore the criminal conduct, the tax authority files a complaint before the Public Ministry, which will decide if there are sufficient grounds to proceed and will prosecute the taxpayer in question.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      In Mexico there is a specialised court for tax issues. In the beginning, as per its original name, the Federal Tax Court was created to resolve only tax disputes.

      In 2006, the Organic Law of the Court was modified to add faculties and jurisdiction to resolve not only tax disputes but also any other administrative matters involving any other entity of the federal government. With this reform the court’s name was changed to the Federal Court of Tax and Administrative Justice.

      Last year, the court’s name was changed again to shorten it to the Federal Court of Administrative Justice. After that, owing to another reform to the Organic Law of the Court, and the creation of the Exclusive Resolution Trial, on 27 June of 2017, the Federal Court of Administrative Justice created a specialised court to hear only trials.

      As this court is a new one, and includes a new trial before the Federal Court of Administrative Justice, we are in uncharted territory in which we only know the rules of the procedure, but not the criteria that the judges of the new court will adopt to solve the cases they study, or the form the trial is going to take. Nevertheless, we believe that this option will provide big advantages for taxpayers, such as, apart from the admission of the lawsuit, the instructor judge will order the suspension of the execution of the disputed act without any need to guarantee the tax interest, a measurement that will be effective until the resolution ending the trial is issued.

      The orality of the trial before the Federal Court of Justice has been introduced.

      However, demands must establish the substance of the trial and the defendant tax authority must respond to the lawsuit manifesting whether it agrees with the petitioning party; that way, the instructor judge will lead an audience to settle the substance of the trial, which provides an opportunity for the parties to set their positions with the intention to prove the procedence of their request.

      As is evident, the orality element in trials is a new system being introduced in this type of procedure and allows tax litigators to have a closer relationship with judges, a situation that will give more possibilities to put forward arguments and convince the court of our position. 

      When issuing the definitive resolution, the court must decide if, by the arguments made in the complaint and the evidence shown during the trial, the claimant has proved the violations that have been subjected to the court's consideration and it can resolve the matter in any of the following ways: 

      • recognise the claiming party the existence of a subjective right and therefore condemning the tax authority to perform their correlative obligation;
      • grant or restore to the claimant on the exercise of its affected rights;
      • nullify the claimed act or the general administrative resolution, from the first act of application, as if any of them would have ever existed before the claimed violation;
      • recognise the existence of a subjective right and condemn the public entity to a compensation payment for the damages and harms suffered by the public servers; and
      • if the court considers that the fines imposed on the controverted act are excessive and there is no legal cause for it, it could reduce the amount of the fines considering the circumstances that originated them.

      Although this is a new kind of trial that implies the proper observation of certain restrictive rules compared to the traditional nullity trial, and whose resolution criteria for parties are still unknown, we consider that its application provides a lot of benefits.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      Mexico’s Federal Tax Code establishes that the resolutions or actions of the tax authorities are presumed legal unless proven otherwise. Initially this could lead one to think that the contributor has the burden of proof in tax disputes, since most of the time such disputes pertain to actions that determine omitted taxes, deny tax returns or illegally try to collect a tribute; nevertheless, there is a principle of law that establishes that “who affirms has to prove”, which means that if the authority affirms a fact that the taxpayer expressly denies, the burden of proof will revert to the authority.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      According to the Federal Tax Code, interest is available whenever the tax authorities exceed the legal term to return a positive tax balance or an overpayment. Therefore when a taxpayer’s claim is successful, the authority has to update the amount of the positive tax balance or overpayment to the actual monetary value and pay interest on the updated amount at a rate equal to what would have been charged when the taxpayer pays taxes after deadline. Interest begins to accrue immediately after the overpayment was made or after the term to return a positive balance has passed.

      Inflationary rates are published monthly in the Federation Official Journal and the interest rate is published in the Federation Revenue Law. 

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      Tax treaty treatment in Mexico is usually dealt with by SAT’s International Audit Administration.

      Usually permanent establishments or other contributors that are obliged to retain taxes, pay interest, royalties or any other taxable concept to foreign entities, come to the mentioned administration to present their case and propose an interpretation of the treaty in order to obtain an official document confirming that the interpretation of such treaty is correct in the eyes of the authority.

      Whenever there is a dispute between the contributor and the authority that involves the interpretation or application of a tax treaty, the Federal Court of Administrative Justice must submit the file to the superior courtroom of such court competent to acknowledge international, relevant and high-quantity disputes.

      Most of the time, whenever there is a case involving the interpretation of an international treaty (rates, interest, transfer pricing, royalties, retentions, double taxation), contributors prefer to approach the authority to obtain a reasonable judgment on treaty application instead of a risky interpretation that could lead to a tax audit and very likely to a dispute in the court. Usually to negotiate a treaty interpretation with the authority could take up to four months for a litigation procedure of this kind, considering the special rules of this kind of trial may take up to 24 months.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      Under any circumstances tax laws that establish obligations to the taxpayer regarding any of the essential elements of taxes (subject, causation or object, taxable base, rate, payment date) may be applied retroactively.

      Retroactive application of a law in prejudice to any subject is one of the most protected rights under the Mexican Constitution.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      In Mexico there are two legal forms under which the authority can bring a tax claim. The first relates to its ability to initiate a tax audit and the second to the possibility of initiating a coactive tax collection procedure.

      In the first case, the authority’s power to initiate an audit to determine tax omissions and sanctions expires in a general period of five years from the last tax statement filed by the contributor. Even though the authority's limit for exercising auditing faculties is five years the Federal Tax Code includes a list of situations where such period may be extended to 10 years.

      In the second case, the authority is limited to five years to claim or force determined taxes from the contributors. The period of five years starts from the last collection action taken by the authorities.

      Taxpayers may claim the return on a positive tax balance or an overpayment within five years from the date the overpayment was made or the positive balance was obtained and declared in the corresponding tax statement.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

    • Mexico

      Lately all manner of tax litigation has been significant.

      There are two main reasons:

      • the first is that over the past few years the Mexican tax authority has been very busy with tax audits that not only include income taxes but also VAT and other indirect taxes, in order to collect more money for the federal government; and
      • the second and maybe most important is that the SAT has been refusing VAT tax returns, issuing hundreds of requests for information to force contributors to cease their demands, or using all kinds of arguments to force a formal tax dispute before the Federal Administrative Court of Justice, which lasts at least 24 months.

      It should be borne in mind that, owing to the VAT calculation procedure, all companies generate positive balances in every period, giving them the right to obtain a refund on such a balance. In many cases the tax authorities refuse to pay forcing taxpayers to go to court to obtain their tax refunds and the corresponding interest, which is quite an attractive prospect.

      Answer contributed by Christian Kaye from Kaye Trueba Abogados, S.C.

      Last verified on Thursday 30th August 2018

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