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Mexico: Tax measures included in economic package for 2020

Mexico: Tax measures included in economic package

The president in September 2019 presented to the Congress the economic legislative package for the year 2020.

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The president stated that there would not be more or higher taxes, but that there would be a greater focus on tax collection and strengthened measures to address tax evasion and avoidance. The economic package includes next year’s income tax legislative initiatives. Congress can be expected to turn to consider the economic package presented by the president, and changes or modifications to the measures could be expected during the legislative debate.
 

Tax measures proposed

Among the tax measures proposed in the 2020 tax reform initiative package are the following:

  • Provisions to address tax evasion including electronic signature and digital stamp items
  • Joint and several liability for persons responsible for the general management of legal entities (including partners, shareholders, or associates)
  • A general anti-abuse rule (that is, when a transaction lacks a “business reason” and generates a tax benefit)
  • Disclosure of reportable schemes by tax advisors
  • Provisions concerning taxation of the digital economy and value added tax (VAT) on digital services (described in more detail below)
  • Changes concerning international taxation such as when certain actions trigger a permanent establishment (PE) in Mexico; provisions concerning hybrid mechanisms; new limits on deductible interest involving related parties or subsidiaries; withholding of tax by financial institutions on interest payments


Taxation of digital economy

In order to simplify the payment of income tax by natural persons with respect the taxation of digital platforms (those that process payments made by the purchasers of goods and services), the package proposes that the platforms (whether legal entities that are residents of Mexico or residents abroad with or without a permanent establishment in Mexico) institute tax withholding mechanisms.

In addition, it is proposed that the withholding be made on the total amount of the transaction, but not including value added tax (VAT). The measure would be effective generally in April 2020.


VAT on digital services

The proposals include measures to increase efficiency in VAT collection, and specifically, it is proposed to modify the tax treatment of some digital services provided from abroad to recipients in Mexico. Accordingly, if the digital services are provided to a recipient in Mexico, the services would be subject to VAT.

VAT on digital intermediation services between third parties—for example, advertising services—would be imposed as part of the VAT law. This would require the reporting of transactions conducted as well as payments processed. A withholding regime would be applied.


Read a September 2019 report (Spanish) prepared by the KPMG member firm in Mexico

Read a September 2019 report (English) [PDF 254 KB] prepared by the KPMG member firm in Mexico

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