Mexico is set to implement a new mandatory disclosure regime (MDR) aimed at reducing international tax evasion. The Mexican law is modeled after DAC6, a European directive that requires lawyers, accountants, tax advisers, bankers and other “intermediaries” to report some aggressive cross-border tax arrangements. It is part of a broader OECD initiative to combat tax evasion, known as BEPS Action 12.
Mexico’s mandatory disclosure law will be in force from January 2021, with a requirement to report some historic data.
For Mexico, this means that businesses will need to enforce transactions that go as far back as January 2020. Businesses who start keeping track of transactions now will find it easier to report transactions when the mandatory disclosure law is in force in Mexico.
Which tax arrangements will be reported in Mexico?
A disclosure will be required by the Tax Administration Service (Servicio de Administración Tributaria) when there is a transaction that generates a Mexican tax benefit and meets one of the following 14 hallmarks:
- The transaction avoids the exchange of tax or financial information between foreign and Mexican tax authorities, as defined.
- The transaction avoids the application of Mexican tax rules for investments in transparent tax entities or preferential tax regimes.
- The transaction consists of one or more legal acts that allow for the transfer of tax losses to a party that did not generate the loss.
- The transaction consists of a series of interconnected payments or transactions that return all or a portion of the initial payment to the original payer, its shareholders or related parties.
- The transaction involves a non-resident applying a tax treaty with Mexico with respect to income that is not subject to tax or is subject to tax at a beneficial rate compared to the general corporate rate in the country or jurisdiction of the non-resident’s residence.
- The transaction involves certain intercompany transactions such as the transfer of hard to value intangible assets; business restructuring with no consideration for the transfer of assets, functions or risks and resulting in a reduction of more than 20% of the Mexican operating income; the transfer, or the granting of, the temporary use of assets or rights without consideration; performing services or functions that are not compensated; the use of non-reliable comparables for benchmarking unique and high-value transactions; and the use of a unilateral protection regime pursuant to the laws of a foreign country.
- The transaction avoids generating a permanent establishment in Mexico under income tax laws and tax treaties.
- The transaction involves the transfer of a fully or partially depreciated asset and allows the related party to depreciate the asset.
- The transaction involves a hybrid mechanism.
- The transaction avoids identifying the beneficiary of income or assets.
- The transaction generates income for a taxpayer to avoid carrying forward expired tax losses that create a future deduction for the taxpayer or a related party.
- The transaction avoids the application of dividend withholding tax on individuals or foreign residents.
- The transaction provides for the leasing of assets that are then leased back to the original party or a related party.
- The transaction has accounting and tax values that differ by more than 20%.
What information will be reportable?
The following information needs to be reported under Mexico’s version of DAC6:
- Taxpayer – Name, Address, TIN
- Tax Advisors – Name, Address and TIN
- Other Advisors – Name, Address, TIN
- A detailed description of each of the steps of the transaction
- A technical explanation of the Mexican and foreign tax rules
- A description of the tax benefit obtained or expected
- The tax years for which the transaction was or will be implemented
Additional Filings: The tax authorities may request additional information after the initial filing is made. In this case, the tax advisor or taxpayer will have 30 days to respond to the information request.
ARN: An ARN is provided in the same way as DAC6 and intermediaries (referred to here as “tax advisors”) must inform the taxpayer of the ARN.
Note: the next version of the country by country guide will also include none EU Member States who are implementing MDR.
VinciWorks’ MDR reporting portal – Customisable workflows for all jurisdictions
VinciWorks’ Omnitrack is currently being used by many of our clients as a DAC6 reporting tool. Omnitrack can easily be adapted for use in Mexico.
- Built for international firms with different workflows and reporting for every EU country
- Reminders for reporting deadlines and reviewing ongoing transactions
- Customisable dashboard to make it easier for administrators to stay on top of deadlines
- Customisable workflow to easily collect all pertinent data
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