On 8 September 2021, the Mexican Executive Branch has submitted Economic Package for the fiscal year 2022 including a proposal of Tax Reform. The proposed 2022 Tax Law clarifies income tax law, value-added tax (VAT) law, excise tax (duty) legislation, and federal tax code. Tax key tax changes to be approved for 2022 are as following:
Transfer pricing issues
- It is foreseen the elimination of the application of APA(Advance Transfer Pricing Agreement) for maquiladoras, leaving the “ safe harbor ” as the only instrument applicable in these cases;
- Transfer pricing documentation would also apply to transactions with domestic related parties;
- Information return reporting regarding transactions with related parties would be due no later than 15 May of the immediately succeeding year, and this would apply to both transactions with foreign and domestic related parties; and
- Taxpayers would require to include in the certain documentation details about comparability adjustments, and the accounting records would need to identify transactions with both foreign and domestic related parties.
Law on Income Tax
- It is proposed to establish that, in the case of spin-offs, tax losses should be divided only among companies that are engaged in the same business.
- It is intended to modify, in the event of a merger, the cases in which it is considered that there is a change of partners or shareholders who have control of the company.
- It is intended to establish a parameter to determine exchange gains or losses, through the exchange rate established by the Mexican Central Bank of Mexico.
- Reduces the withholding income tax rate from 0.97% (applicable in 2021) to 0.08% applicable to interest payments made by financial institutions.
- Thin capitalization rule: When determining stockholders’ equity via tax attributes, tax losses should also be considered. Additionally, SOFOMES (Non-regulated Special Purpose Financial Institutions) will be subject to this when its operations are predominantly with related parties.
- Withholding for interest payments abroad: Assumptions are limited to retain 4.9% and 10% with operations with related parties abroad.
Value Added Tax Law
- Non-object activities: Taxpayers who carry them out will not be able to credit the tax paid when they are linked to activities of this nature.
- Import VAT accreditation: For merchandise, a request must be made in the name of the taxpayer and that reflects the corresponding VAT payment.
Approval and Implication
Congress would approve the Bill no later than 15 November 2021, and then it will be sent for the President’s signature. After the signature, the economic proposal will be generally effective from 1 January 2022.
