TAX. Financing via provisional Income Tax payments reduction June 16, 2020
Given the virtually lack implementation of concessions, measures and/or temporary tax incentives by the Federal Government in order to protect and stimulate the Mexican economy, as well as to mitigate job-loss, the Companies have had to face the health emergency caused by the coronavirus COVID-19, through several strategies or different mechanisms to be able to finance itself, continue to carry out its activities and fulfill its multiple obligations vis-à-vis third parties and the authorities themselves.
In accordance with the provisions set forth in article 14, last paragraph, subsection b) of the Income Tax Law (ITL), legal entities that are taxed in the general regime, who consider that the income coefficient to be applied to obtain the provisional Income Tax (IT) payments related the 2020 fiscal year are higher than the income coefficient that will be obtained at the close of such fiscal year, from the second semester of the same year may request authorization to reduce the amount of such provisional payments.
Consequently, according to the calculation results made by legal entities, they will have the possibility of applying authorization before the Tax Administration Service (TAS) in order to reduce provisional IT payments for the months between July and December of 2020.
Such application must be submitted one month before the date on which the provisional payment whose reduction is requested must be made and, if there are several provisional payments whose reduction is requested, said application must be submitted one month before the date on which the first provisional payment must be paid, in accordance with the provisions set forth in article 14 of the ITL Regulations.
We consider that during the difficult times we are suffering, legal entities should seek alternative financing ways in order to optimize their economic resources, assets, and cash flows.
We suggest to prepare a projection of the tax result for the 2020 fiscal year, and if the IT that will be paid would be less than the amount that will be reported to the TAS by provisional payments, analyze and decide the possibility of submit an authorization application to reduce the corresponding provisional IT payments.
If you have any questions regarding the foregoing, please do not hesitate to contact us.
Mexico City, June 16, 2020