TAX and AMPARO. Amparo Lawsuit against the limitation for Non-regulated Multiple Purpose Financial Institutions to consider certain debts for the calculation of debts regarding Thin Capitalization January 18, 2022

On November 12th, 2021, the Decree that amends several provisions, among others, the article 28, section XXVII of the Income Tax Law (ITL) was published in the Official Gazette of the Federation (OGF), which establishes the mechanic to calculate the interests that result from the amount of the debts of a taxpayer that exceed the triple of its equity account that proceed from contracted debts with related parties that are foreign residents in terms of article 179 of the ITL. Such modifications entered into force on January 1st, 2022.

Comments

The article 28, section XXVII, fifth paragraph of the ITL establishes a new mechanic to opt to consider as equity account in the corresponding tax year with the purpose to determine the exceeding amount regarding the taxpayer’s debts that exceed the triple of his equity account that proceed from contracted debts with related parties that are foreign residents.

Basically, such option consists of that the amount that results from adding up the initial and final balances of the tax year of the capital contribution account, the net tax profit account and the reinvested net tax profit account, must be reduced with the tax losses that are pending of amortization that were not considered in the tax result of that tax year, and divide the outcome of the operation by two, establishing in which scenario the option may not be carried out.                        

The article 28, section XXVII, seventh paragraph of the ITL states that the debts contracted by members of the financial system that carry out its operations in accordance to their social purpose will not be included among the debts that accrue interests in charge of the taxpayer for the calculation of the exceeding amount that results three times its equity account; nevertheless, the its eight paragraph provides that the foregoing will not be applicable to Non-regulated Multiple Purpose Financial Institutions (SOFOMES ENR) that carry out activities mainly with their national or foreign related parties in pursuit of their social purpose.

This limitation was imposed to the SOFOMES ENR under the questionable statement that diverse business groups seek the benefit of the exclusion of the thin capitalization by incorporating SOFOMES ENR into their structure, which perform operations with their national or foreign related parties, mainly located in preferential tax regimes, without complying the purpose for which they were established.

We consider that the article 28, section XXVII, eight paragraph of the ITL will result in a negative impact for the determination of debts that accrue interests for the calculation of the thin capitalization, violating various human rights in detriment of the SOFOMES ENR that perform operations with their related parties, which will not happen to other institutions of the financial system set forth in article 7 of the ITL.

Recommendations

Once an analysis and valuation of the operations that perform the SOFOMES ENR with their related parties is done, and if applicable, these may file an amparo lawsuit against the article 28, section XXVII, eight paragraph of the ITL as deemed unconstitutional.

If you have any questions regarding the foregoing, please do not hesitate to contact us.          

Mexico City, January 18, 2022