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TAX. Reference parameters for IT taxpayers that will be published by the TAS according to the economic sector or industry February 10, 2021

Due to the tax amendments that entered into force as of January 1st, 2021, the subsection j) of the section I of article 33 of the Federal Tax Code was added, which states that for better compliance with the powers of the tax authorities, the Tax Administration Service (TAS) will publish periodically and in general to the taxpayers of the Income Tax Law (IT), the reference parameters with respect to the utility, the deductible concepts or the effective IT rates of other legal entities or legal figures that obtain income, compensation or profit margins due to carry out their activities based on the economic sector or industry to which they belong, in order to measure the tax risks involved.

Comments

Said provision establishes that the dissemination of the reference parameters will be for measuring tax risks purpose, so that the TAS through voluntary compliance programs may inform not only to the taxpayer, but also their legal representative, and in the case of legal entities to their management bodies, of any assumption that it detects as “risk” under the argument that the foregoing does not imply the beginning of a tax audit.

Even though such provision states that the voluntary compliance programs will be not binding, we consider that these new powers to measure tax risks according to the reference parameters based on the corresponding economic sector or industry, as well as to inform to the taxpayers and / or their legal representatives and / or management bodies the cases of “risk”, could be considered as preparatory measures that the tax authorities will use once they initiate a tax audit in order to determine a tax liability to taxpayers regardless the features of the specific matter.

The foregoing could lead to similar situations as cases in which transfer pricing are questioned, because although in the latter the fundamental principle prevails that the prices of transactions between related parties should be set at market value (arm’s length), that is, considering for those operations the prices and amounts of considerations that would have been used with or between independent parties in comparable operations, on several occasions the TAS question that the prices and amounts agreed in such operations are not at market value, considering that it has other comparability ranges or “parameters” that differ from those used by the taxpayer audited.

So far, the TAS has not released the general rules of how voluntary compliance programs will be developed.

Recommendations

Although it is an obligation to maintain and preserve for a certain period the information and documentation that forms the accounting, we consider it relevant to matchmake it appropriately to demonstrate the origin of the accumulated income obtained, the authorized deductions, the workers´ profit sharing paid in the tax year, the tax losses carryforwards from previous tax years and, consequently, sufficient evidence would be obtained on the effective income tax rate.

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

Mexico City, February 10, 2021

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