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Mexico: Crediting VAT on imported goods if no withholding

Mexico: Crediting VAT on imported goods

Taxpayers that have been involved in certain maquila transactions were to withhold value added tax (VAT) when the goods were imported using a "V5" customs declaration. If VAT was not withheld, under then-applicable rules, the taxpayers could offset the amount of the VAT liability by using other tax overpayments. However, given changes to the rules and following the results of tax audits, taxpayers may want to consider revising their tax situations.

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The tax authority in Mexico allowed certain taxpayers (that is, those registered for VAT and excise tax purposes or registered as an authorized economic operator) to transfer the goods to entities residing in Mexico even when the goods had been temporarily imported under the IMMEX program. The transfer of the goods was applied under the general rules of foreign trade using the “V5” customs declaration.

This process allowed entities in the maquila sector to use this type of customs declaration for transferring goods into Mexico, without requiring first the export and then the re-import of the goods back into Mexico. A nonresident entity owned the goods imported by a maquila under the temporary import regime, and it was the nonresident that was deemed to have transferred the goods into Mexico. As a consequence, the entity that purchased the goods from the nonresident (using the V5 customs declaration) was required to withhold value added tax (VAT) on the transaction at the general VAT rate of 15%.

Tax law amendments in 2017 included measures concerning taxpayers that may not have withheld VAT on such transfers. The measures allowed taxpayers to revise their tax situation, provided that payment of the amount due (that is, the amount that should have been withheld) was paid along with applicable interest and penalties. If the taxpayer’s account showed a tax overpayment, the taxpayer could offset the amount of the overpayment of other taxes against the amount of VAT that was to have been withheld, provided that the taxpayer paid the accompanying interest and penalties. In such instances, when a taxpayer remitted the tax or offset the tax, the taxpayer could consider that VAT was transferred and thus could claim a credit for this amount of VAT. In other words, although the amount was a late payment, VAT could be credited.

However, it was not clear whether this treatment applied to balances already reported or to future balances. Some taxpayers determined that this treatment applied to future tax overpayment balances; however, the tax authority sometimes accepted this application for later periods and, in some instances, did not.

A change to the tax law in 2019 revised the provisions allowing offsets of VAT against other taxes. While the tax authority has not ultimately concluded what is the appropriate treatment, entities that have been involved in transactions using V5 customs declarations need to consider evaluating and reviewing their compliance with VAT withholding rules, to determine whether they need to document the reason why there was no withholding.

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

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