TAX and AMPARO. Amparo Lawsuit against the modifications for the deduction of payments of Technical Assistance, Technology Transfer or Royalties November 22, 2021
On November 12th, 2021, the Decree that amends several provisions, among others, the article 27, section X of the Income Tax Law (ITL) was published in the Official Gazette of the Federation, which establishes modifications in the requirements for the deduction of technical assistance, technology transfer or royalties. Said modifications will enter into force on January 1st, 2022.
The aforementioned provision warns that, in cases of technical assistance, technology transfer or royalties, it must be verified before the tax authorities that whoever provides the knowledge has the technical elements for it and that they are provided directly. They can only be provided through third parties, when they are registered in the Register for Individuals or Legal Entities that provides Specialized Services or Specialized Works (REPSE) before the Ministry of Labor and Social Welfare, meet other requirements established by the ITL and the Value Added Tax Law, and that it does not consist in the simple possibility of obtaining it, but the services are effectively carried out.
In terms of such provision, only those third parties who comply with the provisions set forth in the third paragraph of article 15-D of the Federal Tax Code (FTC), may provide technical assistance or technology transfer services, as well as grant the use or temporary enjoyment of patents, certificates of invention or improvement, trademarks, trade names, etc., that is, that they are registered in the REPSE in accordance with the new legal provisions on labor subcontracting.
The article 15-B, first paragraph of the FTC states that royalties’ payments are those for the temporary use or enjoyment of several intangible goods indicated in such provision. On the other hand, the fourth paragraph of article 15-B of the FTC states that payments for technical assistance derive from the provision of independent personal services through which non-patentable knowledge is provided and its application is intervened, and never involve transmitting confidential information related to industrial, commercial, or scientific experiences.
Therefore, payments for royalties and technical assistance come from acts of a purely civil nature; however, article 27, section X of the ITL incongruously alters the origin of said payments by requiring third parties to comply with provisions of a merely labor nature, that is, it is distorting the legal nature of the provision of services, as well as the granting for the use or temporary enjoyment of goods.
As a consequence, article 27, section X of the ITL would presuppose those own workers are provide or make available for the benefit of the taxpayer, when on many occasions it will not imply that the service provider provides or makes his own workers available for the benefit of the taxpayer, and much less, if the act carried out will involve the payment of royalties.
We consider that article 27, section X of the ITL will result in a negative impact on the deductibility of expenses for the aforementioned concepts, violating various human rights to the detriment of both those who make the payments (i.e. taxpayers) and those who provided technical assistance or technology transfer services or granted the temporary use or enjoyment of intangible assets in accordance with article 15-B of the FTC.
It will be necessary to review and analyze the acts that provoke the payments for technical assistance, technology transfer or royalties and, as the case may be, an amparo lawsuit may be filed against article 27, section X of the ITL as deemed unconstitutional.
If you have any questions regarding the foregoing, please do not hesitate to contact us.
Mexico City, November 22, 2021